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The India NTPC and ONGC advantage | Advantage zyaada

Did RIL really win?

A labourer rests inside a concrete pipe near a residential area in Taiyuan

Here you are, judgment day came and went by, crowd intelligence treating the split verdict as a victory for KG-D6 and later next year, D9 promoter Mukesh Ambani’s Reliance Industries. If you have been sitting in front of business television, you would have the fresh feeling of empowerment from listening to all possible facets as well; feeling let down for the lack of experience from the on-screen commentators and if you were like me, feeling out of depth for the sadly brutal and truly back breaking reaction from the market. Anil’s Reliance Natural Resources is down 18% witn almost 100m shares traded as we speak, when the judgement very clearly leaves pricing capped at $4.2 per mmbtu and also asks both parties to renegotiate within government’s direction on pricing and its overall ownership of RIL’s production and the existing PSC.

The international ramifications of Europe’s imminent demise in the mean time seemed to be priced well, but that contagion too is going to be out of hand soon. Even the reaction to Kasab’s hanging seemed very mild in comparison. India has more or less matured as a market, but some concerns arise on the mis-pricing events like these.

Who’s afraid of $4.2?

Mukesh Ambani and Anil Ambani are pictured in this combination image of file photos

Frankly, anyone and any market that still believed Anil’s team was honestly fighting for $2.34 is a little misguided and does not deserve our respect. Unfortunately, that sounds like a ‘pathetic attempt’ at inducting reason into a market once my investment position is long in ADAG companies and ‘unreasonably nitpicking’ if I am long on Reliance. The facts however are that the whole process of over two years till date and the coming long winded petitions before Company Law Board, underline the fragility of the energy assets and the consequent primacy of NTPC, ONGC and quasi public enterprises, even as FIPB meets again tonight to further India’s investment agenda. RIL in the mean time will have to work with another DoE secy for revisiting gas pricing, before its operational costs itself run over any non existent profits from the mega venture, esp as F&D and E&P costs scream to reach unprecedented levels on India’s Eastern seaboard.

So what’s the way forward?

EU, Turkey sign gas pipeline deal, Leaders push ahead with Nabucco - Ankara

Sooner than later, the markets would realise that Anil hasn’t lost anything but has to get back to the drawing board to get operational revenues for its power and ‘national’ resources ventures. India is unlikely to allow any trading whether from these companies or from ECB funds and IPO funds as well [finally, even those need to be applied to projects] International gas pipelines and new production in the meantime continue to tear away at any Indian presence in energy infrastructure globally.

The markets are however right in venturing sunlight on RIL’s price in that they have come off the bottom of their cycle and the PSC refered amounts of gas are actually in production. However, it may have to continue providing these ‘national’ resources at $4.2, incl. the 28mmscmd gas for ADAG group once Dadri is fully operational, and all the SEBs hold it to ransom fir they hold the price risk and they are as always, unlikely to be put up for financial restructuring or giveaways anytime soon.

The current field of action of course is the interesting inter-regulatory tussles in insurance, power trading, gold etfs and mutual funds between SEBI, IRDA, CERC and the FMC. Also hopefully work on the national gas grid will start soon.

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