Russian-American Cultural on the Ice

July 20th, 2011

I feel like a manic-depressive every Moscow summer. First there is MIOGE or Neftegaz in June. It is a frenetic month. And after a long Russian winter, it is a treat to witness the sun setting at midnight and the sun rising at 4 a.m.

Now it is mid-July and I am getting annoyed. First, I don’t want to wake up at 4 a.m. when intense sunlight tells my body it is time to rise, and the fact is, I went to bed at midnight with the setting sun!

Secondly, it’s almost as hot as Texas but unlike in Texas, there is little or no air conditioning – not in my apartment, not in my car, not in my office.  And I’ve noticed that some restaurants and cafes that do have air conditioning, also have staff that believe it is unhealthy; so they keep the door wide open.

It’s the same with ice. Sometimes I have to literally beg for ice in my drink. And often, the waiter spends just as much time telling me about the dangers of drinking ice water. I might get a cold. It’s 95 degrees on the street and 85 degrees in this café, are you insane? Still, here comes the ice in a separate glass so I can add it to my drink cube by cube – just in case.

Soon I’ll be off to the U.S. and while it will be just as hot there, I’ll have all the ice and air conditioning I want. Maybe I’ll even get a cold. But it will be “my” cold.

Now if you think this is a trifle, I’ll have you know that I read in the weekend Moscow Times about a new organization – the Society for Russian-American Rapprochement.  Stay with me, you’ll soon understand the connection.

“At the heat of the American tradition is individualism, initiative and personal responsibility. The basis of (Russian tradition) is paternalism and conformity.” I’m quoting what Yevgeny Savostyanov, senior VP at Sistema Mass-Media and deputy chair of the Rapproachement Society told the MT.

And that’s what my personal “Cold War” is about. It is my God-given right to chew ice, to fill my glass full of ice and to sit directly in front of an air conditioning unit blowing at full blast. And if I get a cold, I will take responsibility for my misery.

Russians want to protect me from myself. And you know what? This tension between paternalism and individualism lies at the root of many of the cultural differences that affect business practices in our too cultures.

Think how profound an act it is now to insist that the waiter fill you water glass with ice (or if you’re a Russian visiting the U.S., insist that the waiter “hold the ice.”)

Localization of Marketing in Russian Oil&Gas

June 29th, 2011

We’ve just wrapped up the Moscow International Oil&Gas Exhibition here in Russia and as publisher of the Russian oil and gas technology magazine, Oil&Gas Eurasia, I’m really jazzed.

Oil&Gas Eurasia had its first big success in running a b2b marketing and communications action for a Houston-based oilfield service and supply client. And it worked! Our clients got more qualified prospects onto their stand than they ever had in past MIOGE shows.

And they might even have a contract or two lurking in the shadows that simply now needs to be closed.

So while I understand why it worked, I’m not sure how to label what we did so we can package it and sell it to other clients in the Russian oil and gas technology business.

My friends in the Russian translation business are using everywhere a new buzzword: Localization. What it means is that if you’re making a website or brochure material in a foreign language, you need to be aware of not just the words. You need to adapt the material to the culture.

That’s a good selling point for translation services but it doesn’t really do the job entirely for the client. Think of it this way: in Russia, there are no secretaries any more. Every 19 year old kid with an entry level job answering telephones is an “office manager”. What they manage, I don’t know – and neither do they – but they can now put “manager” on their resume.

And today in Russian translation circles, every translation agency is calling itself a Russian “localization” service. A translator friend of mine came back from a conference recently all excited about the prospect of turning her agency into a “localization” business. The basis for this transformation was to be a piece of memory software that would enable her translators to save blocks of type that repeat themselves and so make it easier to “localize” a clients website during the translation process.

To me that sounds like a method for creating a “super glossary” so as to ensure consistency in translation. God knows,  translators do have differences of opinion and often times both opinions are correct. So if you have a large volume, you of course job out the work to several translators and then an editor knits it all together. And the poor client – who usually doesn’t read the language in question – is blissfully ignorant of how strange this porridge might read to a native speaker if the editor simply “knits” and doesn’t rewrite for consistency in style.

But this computer cut and past thing also makes me think about Microsoft Word and its infuriating way of automatically changing words and phrases as I write them.  I grew up in the tough world of Chicago journalism where lesson No. 1 was to insure accuracy. Since computers got “smart”, I find myself very often writing follow up emails to people telling them: “I didn’t write that. I wrote this and I just noticed that the computer changed the phrase. This is what I wrote and what I meant.” This happens particularly when I use a distinctively American idiom in my writing.

So can you imagine – if the English language itself is now referred to as British English, American English, Australian English, African English, Indian English … what happens when we move into languages other than English?

“Common Sense” and Russian Communists

April 13th, 2011

I never thought I’d find myself agreeing with the Russian Communist Party but I guess times have changed. On 31 March, the Russian Interfax news agency carried a story about how the Russian Communist Party “believes that the targets set by President Dmitriy Medvedev at a meeting of the commission for the modernization of the economy are correct, but the party regrets that words are still not followed up by actions.”
I think the article makes a lot of sense. What do you think? Here’s what Interfax reported, verbatim:
“The fact that President Dmitriy Medvedev insists on raising these issues (modernization) publicly and they are widely discussed is very good. Better that than nothing. However, society can not be content with a consolation prize. But this is what happens when important issues are not provided with the necessary tools,” first deputy chairman of the Communist Party Central Committee and deputy speaker of the State Duma Ivan Melnikov told Interfax.
He stressed that at the moment not only there is no inflow of investment from domestic and foreign businessmen into Russia’s economy, but Russian capital is fleeing the country increasingly faster.
“According to official figures, the amount of money that left Russia in January alone is already almost half of the amount that was taken out of the country last year,” Melnikov said.
He was confident that, in order to curb this trend, it is necessary “not to preach to oligarchic clans - this is useless, because they are not interested in the prosperity of their country, but to take tough economic measures”.
Similar measures should be taken to improve the fight against corruption, the Communist MP said.
“Yesterday at the commission meeting, they discussed paper-based mechanisms, and the fact that soon one can see in the internet how a complaint against a potentially corrupt official is being considered. But today the fight against corruption concerns only those who have no protection. Until it concerns everyone, there will be no point and the scale of corruption will not diminish,” Melnikov said. He also stressed the unresolved problem with the execution of decisions.
“We all see that the government has financed only 33 per cent of the initiatives put forward by the modernization commission in October last year,” Melnikov said. He added that “if you take everything into account, you will see that all good ideas are getting emasculated”.
Speaking of his personal interest in the meeting of the modernization commission, Melnikov said he had been attracted by the discussion of the problems of primary, secondary and vocational education..
“However, the mechanisms that have been offered to restore the level of education are significantly inferior to the programme which the Communist Party published at its recent plenum. After all, we want to promote education on the basis of inter-related measures, and the president’s advisors are telling him again and again that the problems in one area should be resolved at the expense of another area, and this destroys the latter,” the MP said.
Deputy speaker of the State Duma Aleksandr Babakov (A Just Russia) also spoke about the need to support the measures proposed by the president, RIA Novosti reported on 31 March. In Babakov’s view, the investment climate in Russia, if not worsened, then certainly has not much improved, and it must be changed radically.
“We are talking about changes in how the state controls market relations, and this applies not only to representatives of the state in private companies, but also such initiatives as reducing social taxes and thus reducing the burden on business, which at a certain stage can inhibit progress,” Babakov told RIA Novosti.
He noted that “investment resources”, which can go to various countries, including Russia, are huge. “And this is a matter of not only technologically advanced industries or interesting projects, but also such topics as intellectual property, intellectual property on the market and capitalization of intellectual property,” Babakov said.
“All this can create conditions highly favourable for the arrival of investors, but they must understand that this is not just about protecting their rights and property, but also about removing barriers and opening ways for their investment in the economy,” the MP said.
He said corruption is not a purely Russian phenomenon and many other countries are struggling with it.
“The scale of this phenomenon is minimized depending on our efforts, and if society is mobilized, successes are obvious - the more transparent relations between the state, society, business and individuals are, the more progress can be achieved,” the deputy speaker said.
Fewer state and bureaucratic obstacles for domestic and foreign businesses will mean that the fight against corruption is really under way, Babakov said.
He believes that a turning point in improving the investment climate could come quite soon. At the same time the deputy recalled that Deng Xiaoping started his reforms in China 25 years ago.
“For large-scale reforms, 10-15 years (for a visible effect) is a realistic period of time,” the MP said.
Head of the Federation Council Committee for Financial Markets and Currency Circulation Dmitriy Ananyev also supported Medvedev’s initiatives to improve the investment climate in the country, but believes that ministers and deputy prime ministers should be gradually withdrawn from the boards of directors of state companies.
“The president’s initiative about their withdrawal is 100-per-cent correct, but first professionals with impeccable reputation must be elected to boards of directors and only then officials should gradually be withdrawn,” Ananyev told RIA Novosti.
According to the senator, this scheme will make it possible to avoid the loss of capitalization of companies which is possible after the departure of senior government officials.
Noting that he supported all the initiatives voiced by the president, Ananyev said, however, that legislative changes in the economy in recent years had often been inconsistent. “Sometimes completely opposite decisions are made - first we break things with one hand, and then we begin to mend them,” Ananyev said.
Ananyev said methods to implement the president’s initiatives should be carefully thought through.
Co-chairman of the Right Cause party Georgiy Bovt believes that Medvedev’s speech at the modernization commission’s meeting shows the president’s determination to improve the investment climate in the country and his consistency in this matter, RIA Novosti reported.
“I think the most important thing is that he has shown his commitment to dramatically improve the investment climate in the country. The president shows his consistency in insisting on fulfilling the promises given in 2008 about the presence of state officials on the boards of directors of companies,” told RIA Novosti.
Bovt also thought that the president’s “anticorruption part” was very interesting. According to the co-chairman of the Right Cause, all this “shows the president’s determination to put things in order in these matters”.
“In addition, these measures show that the president knows what he is talking about - he listens to businesses’ complaints and is ready to quickly respond to them,” Bovt said.
Medvedev’s willingness to quickly revise an increase in insurance premium is the most vivid example of this, Bovt said.
“The president has seen that business’s response is generally negative, and he’s ready to take quite extraordinary measures and reduce the premium,” Bovt said.
“Overall, this shows that there is a clear intention. It is obvious that the implementation of these ideas will depend largely on the government’s work,” Bovt said.
Leader of the Yabloko party Sergey Mitrokhin described the president’s proposals as “correct statements” but said that “they must be more precise and be followed up with a clear mechanism for their implementation”.
“There must be deadlines and those responsible for these initiatives. Harmful innovations, which the president himself condemned in his speech, must be assessed, for example, increasing the tax burden on businesses up to 34 per cent. This mistake should be corrected immediately, and measure should be taken against those who made ??it,” he said.
Mitrokhin also put forward his own proposals about boards of directors.
“They are correct, but I would expand them. I would ban not only high-ranking officials representing the government from the boards of directors but all officials. This is fertile ground for corruption and lobbying a company’s interests,” the Yabloko leader said.
Medvedev’s proposals on how to improve the investment climate in the country are very important because they will help increase the potential of Russian business and purge a lot of companies of corruption schemes, member of the Public Chamber and editor-in-chief of the Ekspert magazine Valeriy Fadeyev told RIA Novosti.
“There is some misunderstanding on the issue of investment: usually people talk about attracting foreign investment, as if Russia does not have its own business. Well, Russian business has its hands tied and even feet too. The potential of Russian business is huge, I’m sure, and the challenge is to realize this potential. Therefore, the president’s proposals about state-owned companies, corruption, and reducing the costs of large state-owned companies, especially monopolies, are very important,” Fadeyev told RIA Novosti.
Many large Russian companies are steeped in corruption, he said. “These companies deal mostly with medium-size Russian companies, and they get involved in corrupt schemes and become ineffective and uncompetitive. This is very dangerous,” he added.
Fadeyev also noted that in the context of improving the investment climate in Russia one should not forget about another important issue - house construction. “House construction is still not developing. We need to change things about house construction and house prices. This is something we need to pay attention to. This is an extremely important social issue, because without it it is impossible to talk about the growth of the middle class. If this problem is not resolved within the next 10 years, social tension will increase in the country,” the expert said.

Modernization? Empower Kids to Think Small (Business) and Big Things Will Happen

April 5th, 2011

My editor’s letter in the March issue of Oil&Gas Eurasia looked at an important aspect of the Kremlin’s drive to create a modern Russia: redrafting of safety regulations so as to make the oil and gas processing industry efficient at home and competitive abroad, without compromising safety.

Russian President Dmitry Medvedev ordered the reform a year ago and in April, draft legislation is expected to emerge from a Duma committee and go to both houses of parliament, the government and industry for final discussion.

Oil&Gas Eurasia was asked by Gazpromneft to carry articles detailing this process and, of course, we are very happy to do so.

But with all the talk of modernization, innovation, business creation, you name it, there is a human factor that is simply being ignored: how to change Russian attitudes towards small business.

I’m convinced, Russians simply don’t believe in it. There is a prevailing belief among most people - and I’ve lived in Russian long enough to have heard this hundreds of times - that business in general is crooked. And small business especially because - as far to many people seem to believe - you can’t succeed unless you are ripping someone off.

But how do you keep a country in a constant state of modernization – once the initial modernization takes place. And while it might not be a macro-economic concern of the Russian government right now – at some point in the future this will become an important question.

Innovation is being addressed in large government projects like Skolkovo which are drawing world attention. But in all this “bigness” there is something that is not being addressed. Let me explain by one simple example:

I was a moderator recently at a conference in Moscow to mark the signing of an agreement for Moscow to host the World Petroleum Congress in 2014. The conference was attended by a large number of students from Gubkin Oil&Gas University and several speakers – some from industry, some Gubkin professors - kept asking, “what the Russian government is going to do about innovation!” In other words, “who is going to save us?” Sorry, but it brought to my mind the satirical American comic strip from the 1960s, Pogo. As the central character, Pogo, grappled with life’s concerned, the answer he got was usually: “We have met the enemy and he is us.”

The government and big international industry can cooperate on things like Skolkovo. But, true innovation by its nature depends on the freedom of the individual to think and act creatively. I believe I reminded my Russian readers back in July that Hewlett-Packard, one of the international companies interested in Skolkovo, was started by one man who labored on his invention alone in his garage. The garage, in fact, is a tourist attraction in Silicon Valley these days.

What I’m talking about isn’t about American mentality or Russian mentality or German mentality or Chinese mentality, although we all do have our own national character. What I’m talking about is human nature. True, some governments are more involved in supporting innovation in the private sector but that is another topic for another time.

The government’s job is to give that individual a structure that keeps him safe while he pursues his entrepreneurial dreams.  That’s why, I’m sure, President Medvedev – a lawyer – speaks from the heart when he often talks about how important rule of law is in creating the right environment for innovation to flourish. I’m not talking about the lawlessness of 1990s Russia.

I’m talking about freedom to start a business, grow a business and not have to worry about someone bigger who envies you and is well connected, closing you down or pushing you out in a hostile take-over.

So back to that conference I mentioned earlier; I decided to conduct an experiment. During the question and answer period, I asked the audience a question: “I see a lot of young people in the audience,” I said. “Raise your hand if in 15 or 20 years from now you can visualize yourself owning your own business. Maybe a small engineering company, maybe a small oilfield services company or high tech equipment producer or anything else for that matter; just a small business and you own it.”

Out of more than 100 students, only three raised their hands. Think about that. Or better yet, post a comment. - Pat Davis Szymczak

Eurasia Drilling and Schlumberger Get Hitched

October 5th, 2010

The International Services Company, Schlumberger - already a dominant player in the CIS - just got bigger. On October 5, Schlumberger, together Eurasia Drilling Company Limited (Eurasia) announced that they had signed a Letter of Intent to sell and purchase each other’s drilling and service assets. The companies also agreed to enter into a strategic alliance.

Schlumberger has agreed to sell all drilling, sidetrack and workover rigs currently operating mainly in West Siberia to Eurasia. As part of the sale, the rigs’ crews will transfer to Eurasia. Schlumberger has also agreed to purchase the Eurasia drilling services businesses, which include the directional drilling, measurement while drilling, cementing, and drilling fluids services to support 80 rigs. The field crews to support delivery of these services will move to Schlumberger. In addition, Schlumberger and Eurasia have agreed to enter a strategic alliance upon completion of the transaction whereby Schlumberger becomes the preferred supplier of drilling services to Eurasia Drilling for up to 200 rigs for a 5-year period.

So what does this mean? Stay tuned ….

“We see this transaction as a recognition of Eurasia’s leading position in the well construction market as well as the foundation of a long-term relationship between two industry leaders. Since Eurasia was created, our objective has been growth through continuous improvement in product delivery. The additional rigs will strengthen our position in the Russian drilling rig market as well as helping us diversify our client base. In addition, the divestiture of Eurasia’s oilfield services arm will allow us

to focus on our core drilling business. By joining forces, I am convinced that we will have the right formula to meet our customers’ needs,” said Alexander Djaparidze, Chief Executive Officer of Eurasia.

Maurice Dijols, President of Schlumberger Russia added “The combination of Eurasia’s drilling rig footprint with Schlumberger drilling services offers an unmatched solution to customers in Russia. The recent merger of Smith International with Schlumberger will allow us to develop fit-for-purpose drilling assemblies in conjunction with the additional drilling services and drilling fluids services needed to address the active Russian well construction market. In addition, the alliance will also provide opportunities for both companies to deliver a unique offering including the deployment of the latest technologies for the more complex onshore and offshore markets.”

ADAG Feels the Heat as TPC plans to go to Court

May 13th, 2010

The Tata Power Company’s (TPC) decision not to pay heed to the Maharshtra government’s diktat to sell power to RInfra has exposed the state’s lackadaisical approach to the power sector. The state was seen forcing TPC to share its electricity under the garb of ‘consumers’ interest’ even as consumers of the state-owned power entity are facing huge power shortages.

A section of the government officials believe that the state government should not have got involved in a war between two corporate houses. “We (the government) have no reason to meddle especially after the issue was first addressed by Maharashtra Electricity Regulatory Commission (MERC) and then by the Supreme Court. The state’s intervention was uncalled for,” admitted a senior government official. According to this official, the state government ignored dissenting voices on the issue.

As has been reported, the Supreme Court last year upheld the TPC’s contention not to supply electricity to RInfra in the absence of a formal power purchase agreement between the two. The TPC had set April 30 deadline for RInfra to sign a PPA. When the deadline passed with no agreement, RInfra sought the government’s intervention. RInfra claimed that it would be forced to raise tariff if TPC discontinued power supply. The state, fearing the tariff hike may create a “law and order problem”, first directed the TPC to maintain the status quo and later appointed a committee to find a solution.

Experts point out that when the state government decided to step in, it didn’t even try to look fair. “When the government was seen trying to resolve the issue, it should have adopted a balanced approach,” a senior official from the state power utility said. “If the government was keen on playing an adjudicator, it should have asked RInfra to sign a power purchase agreement (PPA) with TPC while insisting the latter to keep the supply on,” this official felt.

Watch it on Youtube: Tata Power, Reliance Infra faceoff

BP Backs India Court Ruling In Reliance Case

May 12th, 2010

BP PLC (BP, BP.LN) said Monday it supported a decision by India’s highest court in a case involving Reliance Industries to give precedence to government production sharing contracts over other agreements.

India’s Supreme Court last week ruled that Reliance Industries Ltd. (500325.BY) doesn’t have to abide by the terms of a family agreement when supplying natural gas to Reliance Natural Resources Ltd. (532709.BY).
It said a government production sharing contract should take precedence, meaning that Reliance Industries can sell gas to Reliance Natural Resources at a government-set price, rather than at the much lower rate set in a 2005 agreement between the two companies.

Reliance Industries is controlled by billionaire Mukesh Ambani, while Reliance Natural Resources is run by his brother, Anil.

“We understand that the Supreme Court verdict has upheld the sanctity of the production sharing contract. BP strongly supports the notion of the sanctity of contracts-long term stability and regulation-in order to encourage companies to make investment decisions,” a BP spokesman told Dow Jones Newswires.

By underlining its support for government production sharing contracts, the ruling has cleared up uncertainties surrounding such contracts and removed a major concern for international investors, analysts said.
The Ambani feud affected India’s last auction of oil and gas exploration blocks in October, as major global companies steered clear because of worries about the clarity of government contracts, as well as weak global demand.

In a previous auction, BP had signed a production sharing contract in a consortium with Reliance Industries for a deep water exploration block.

Source: Wall Street Journal

Reliance & Ambani Brothers – Past, Present & Future…

May 11th, 2010

When two children are fighting on the same piece of chocolate, how would a mother play a mediating role between them?

Either she will buy a new chocolate for the other child or just divide that sole piece of chocolate into two equal parts to be distributed between both the children. What did Kokilaben do in case of feuding Ambani brothers? Read on…

Equal Distribution of Reliance Group’s Worth

When it came to feuding Ambani brothers, Kokilaben had no other option but to move forward with the latter case scenario of dividing equally the fortunes of the humungous empire of the Reliance Group which was built under the leadership of late Dhirubhai Ambani.

In June 2005, Mukesh and Anil Ambani signed a MoU to reorganize Reliance Industries, in order to take over reins of different assets and businesses of the group under their individual domain.

The most significant aspect of the MoU was that RIL promised to supply 28 million cubic meters of gas for 17 years at $2.34 mmBtu to Anil Ambani’s RNRL. However, the MoU came under dispute subsequently in 2007 on government setting up a price of $4.20 mmBtu for gas contracts in the KG Basin fields.

The core business of the group in the form of energy and petrochemical business was pocketed by Mukesh Ambani, while the junior Ambani inherited Energy, Financial services in form NBFC business and a newly developed but fast emerging Telecom business of the Reliance Group.

At this point in time, during the process of de-merger, the fortunes of the group were distributed equally between the two estranged brothers.

Anil Excelled in Finance & Mukesh went for Petrochemicals

Anil who had finance-related acumen was more than content while inheriting business of Reliance Capital, apart from group subsidiaries such as Reliance Infrastructure (Power business), Reliance Communications (Telecom business) and not to mention RNRL – somewhat a shell company with interests in marketing of natural gas.

On the other hand, Senior Ambani was happy with the group’s core business of Petrochemicals where Mukesh excelled in terms of technical know-how and interests.

Ambani Brothers Explore New Fields of Business

However, as time passed, both the brothers made efforts to expand and diversify their businesses post de-merger. Anil Ambani had dreams to construct a mega Rs.28000 crore power project at Dadri powered by a cleaner fuel in form of gas, in contrast to coal fuelled projects under the portfolio of Reliance Power.

On the other hand, Anil also diversified with mega-infrastructure projects including metro rail projects under the portfolio of Reliance Infrastructure. The Junior Ambani also became active in the space of Media and Entertainment by acquiring Ad-labs Films Ltd.

However, Senior Ambani moved along the lines of his traditional strength of Petrochemicals business. He came up with a new company in the form of Reliance Petroleum (RPL) and created the world’s most envied Petroleum Refinery in Jamnagar. Later, this company was merged with the parent company Reliance Industries.

Mukesh also came up with subsidiary involved in new-age concept of Retailing under Reliance Retail, Reliance Trends, Reliance Jems & Jewels and Reliance Digital.

At the time of de-merger, both the brothers departed amicably with equal distribution of the Group’s fortunes between the estranged brothers. From here, it remained on both the brothers as to how they expand their individual empires along with the crucial support of their shareholders and other stake holders.

Even as both the brothers started off as equals, their groups under the leadership of individual Ambani brothers have moved forward in their respective line of businesses but in different directions of claiming fortunes.

Recession – A Jolt for Anil Ambani’s Fortunes?

Mukesh has been growing in strength by every passing year, while Anil Ambani has lagged quite a bit over the last 5 years. Mukesh’s wealth has surged to roughly around $29 billion even as Anil’s fortunes are stuck at $14 billion, a whooping half that of his senior brother’s standing.

In fact, before the global recession was witnessed a couple of years back, the difference in fortunes of the feuding brothers stood around $10 billion.

Since then, the market capitalization of Anil Ambani’s Reliance Capital and Reliance Communications has taken a severe beating, even after the current sharp recovery in the Indian benchmark indices. This has widened the gap in the fortunes of both the brothers from $10 billion during pre-recessionary period to $15 billion post-recovery.

Let us have a look at how the individual companies of Junior Ambani’s ADAG group have performed over the last few years:

Reliance Communications

The business under Reliance Communications which was seen as fast emerging telecom business before the de-merger – fared poorly over the last couple of years speaking in line with relative performance in terms of market capitalization of the company on the Indian bourses.

The telecom industry remains completely bogged down by the intense price wars and over-crowded capacity of the sector. The company was also alleged by DoT for misallocation of revenues in its accounting practices.

The stock price of the company is way below the peaks levels of around Rs.800 witnessed during the peak of the previous Bull Run, currently at depressed Rs.150 levels.

Reliance Capital

The business under Reliance Capital has somewhat been the star performer for the Anil Ambani’s group. The company’s insurance business has been one of the fastest growing companies under private insurance space. The premium from the insurance business has surged more than five times over the last 3 years.

On the other hand, Reliance MF is still a leader with nearly Rs.1 lakh crore in assets under management. Reliance Growth scheme of the group still remains one of the most admired mid-cap funds among the retail investors.

More recently, RBI has allowed entry of new players for granting of banking licenses to private sector entities and NBFCs to enter into the commercial banking space. Reliance Capital could be one of the key beneficiaries of this new announcement as it intends to tap pan-India banking business.

However, the stock price of Reliance Capital has remained depressingly low around Rs.700, as against the peak level of around Rs.2500 witnessed during the previous bull phase. This depressing market capitalization levels has exerted pressure on the valuation of the company from pre-crisis levels.

Reliance Infrastructure

At the peak of the previous bull run, Reliance Infrastructure (REL) had come out with the IPO of its power related subsidiary Reliance Power, which saw a huge rush of retail investors to grab on the future power story of the Reliance group.

However, what followed later is no secret to anybody reading this article. The crash in the stock price of Reliance Power has halved the valuation and market capitalization levels of both Reliance Power and REL, in the process disappointing investors with unprecedented losses in IPO of Reliance Power.

After transferring the power related business into its subsidiary Reliance Power, REL shifted its attention and involvement into major infrastructure projects including mega metro rail projects.

The market capitalization of REL is way off from its peak levels of around Rs. 2200 witnessed during the frenzy of Reliance Power IPO.

Reliance Natural Resources & Reliance Power

I’ve taken the analysis of both these companies together as their fortunes are somewhat linked with each other.

Reliance Power has plans to built 35000 mega watt of green-field power generation projects. Anil Ambani has planned the biggest power project of all at Dadri, with expectation of supply of gas through RNRL, originally sourced from RIL, at $2.34 mmBtu as per the MoU signed in 2005.

However, in its recent verdict the apex court has directed that the private MoU signed between the feuding Ambani brothers cannot be upheld against the PSC agreement signed with the government, the owner of the gas.

This verdict has come as a big jolt to the junior Ambani camp whose costs for their ambitious power project could escalate dramatically to $4.20 mmBtu as per the price fixed by the EGoM.

Specifically speaking about RNRL, if the case would have been gone their way, it could have translated into a profit of Rs.3000 crore a year for this gas company. However, the negative verdict renders this company into a near shell company with some coal based methane blocks under its portfolio.

To conclude, post de-merger and to some extent even recently witnessed global crisis, the valuations of all the ADAG group companies have been a laggard in terms of market valuations and even performance wise.

On the other hand, the performance of Mukesh’s RIL has remained stable and sound all this while except that the company’s Gross Refining Margins (GRM) took a small hit on account of recessionary impact of fall in demand of crude oil. However, the demand and GRM are likely to scale higher gradually, as optimism returns in the global markets.

Will Anil Ambani’s ADAG Group of companies recover any time soon?

Source: http://trak.in/tags/business/2010/05/11/reliance-ambani-brothers-past-present-future/

Highlights of the RIL-RNRL verdict

May 7th, 2010

Highlights

• The Indian Supreme Court just released its long awaited verdict on the gas price dispute between Reliance Industries (RIL) and RNRL, ruling by 2 to 1 in favor of RIL. It was ruled that the government PSC takes precedent over all other agreements as RIL does not have absolute rights over the gas.

• As such, the original MOU signed between the Ambani brothers in 2005, in which RIL agreed to sell gas from the D6 field to RNRL at price of $2.34/mmbtu was agreed, was deemed non-legally binding as the MOU was not made public and no government approval was obtained on the agreed gas price of $2.34.

• The verdict did not however conclude what price RIL should sell the Dhirubhai gas to RNRL. Instead the court has given a period of 6-8 weeks for RIL and RNRL to renegotiate new contract terms. The agreed gas price will then have to be approved by the Indian government as the resource owner.

• Expectation- the final gas price will be as per the Indian government’s Gas Utilization Policy established in 2008, in which the gas price was fixed at $4.20/mmbtu for 5 years. While the ruling is positive for RIL in the short term, it is clear that gas prices will remain regulated by the Indian government in the long term.

Conclusion

India’s Supreme Court ruled today by a margin of 2:1 in favor of Reliance Industries in the long running gas pricing dispute with RNRL. The key points from the ruling are that the PSC takes precedent over the MOU and that the government has the right to decide the price of gas under PSC contracts. While the parties have 6 to 8 weeks to agree contract terms (including the price) of gas supply, we do not expect RNRL or RIL will have much scope for negotiation. Fundamentally, RNRL must effectively abide the terms under the gas pricing utilization policy which stipulates a price at the beach of $4.20/mmbtu fixed for 5 years. If the parties fail to agree, the government will mandate the official price or RNRL will lose supply rights. In the short term this is clearly a positive for RIL and its partner Niko in the D6 block. In the longer term the key point is that the government will become the de facto regulator of both onshore and offshore gas prices.

RIL makes Fourth Oil Discovery in block CB–ONN–2003/1

April 28th, 2010

Reliance Industries Limited (RIL) announced it’s fourth oil discovery in exploratory block CB-ONN-2003/1 (CB 10 A&B) located onland in the Cambay Basin and awarded under NELP-V round of exploration bidding.

The well, CB10A-F1, was drilled to a total depth of 1605 m in Part A of the block with the objective of exploring the play fairway in the Miocene Basal Sand (MBS) of Babaguru formation. Two hydrocarbon bearing zones were identified from 1397-1407 m and 1378- 1382 m. Conventional production testing was carried out in one of the zones in the interval 1397-1400 m. The well flowed at a rate of 300 barrels of oil per day (bopd) through 6 mm bean with a flowing tubing head pressure of 250 psi. The Discovery is significant as this play fairway is expected to open more oil pool areas leading to better hydrocarbon potential within the block.

The block CB-ONN-2003/1 is located at a distance of about 130 kms from Ahmedabad in Gujarat in the Cambay basin. The block covers an area of 635 sq km in two parts viz., Part A & Part B. RIL, as Operator, holds 100% Participating Interest (PI) in the block.

While the entire block was covered with 2D seismic, about 80% of the block area has 3D seismic coverage. Of the fourteen (14) exploratory wells drilled in the block by RIL so far, 10 of them are located in Part-A and the remaining 4 nos. in the Part B of the block. RIL is continuing further exploratory drilling efforts in the block.

This Discovery, named ‘Dhirubhai–47’, the fourth oil discovery in the block so far, has been notified to Government of India and Director General, Directorate General of
Hydrocarbons. The potential commercial interest of the Discovery is being ascertained
through more data gathering and analysis.

This Discovery supplements RIL’s understanding of the petroleum system in the Cambay basin in general and this block in particular. Based on interpretation of the acquired 3D seismic campaign in the Contract Area, several more prospects with upside potential have been identified at different stratigraphic levels.

About Reliance Industries Limited

Reliance Industries Limited (RIL) is India’s largest private sector company on all major financial parameters with a turnover of Rs. 2,00,400 crore (US$ 44.6 billion), cash profit of Rs. 27,933 crore (US$ 6.2 billion), net profit of Rs. 16,236 crore (US$ 3.6 billion) and net worth of Rs. 1,37,171 crore (US$ 30.6 billion) as of March 31, 2010.

RIL is the first private sector company from India to feature in the Fortune Global 500 list of
‘World’s Largest Corporations’ and ranks 117th amongst the world’s Top 200 companies in terms of profits. RIL ranks 75th in the Financial Times FT Global 500 list of the world’s largest companies. RIL is rated as the 15th ‘Most Innovative Company’ in the World in a survey conducted by the US financial publication-Business Week in collaboration with the Boston Consulting Group.