The energy gamble

Anil’s presence rests on his energy empire’s future potential

Power corrupts, and absolute power can be a mirage that can faze even the hardened veterans. Reliance Energy is all about power. Not the power that the Ambanis are famed to have exercised over the last few decades. It is about generating and distributing electricity. So far, Anil Ambani has displayed the ‘Ambani’ brand of grand proportions while announcing power projects.

Power generation would be the ticket that could propel Anil into the stratosphere of corporate stardom that is now monopolized by Mukesh. If the plans do pan out eventually, Reliance Energy can become the behemoth that Reliance Industries is today. After all, the Tenth Five Year Plan has projected that India needs to add 1,00,000 MW of capacity by 2012 if power cuts are to become a memory. Even if Anil manages to grab 20% of that, the business would be worth Rs.500 billion every year. Add transmission and distribution, where Reliance Energy already plays a role in Mumbai, Delhi and Orissa, and you get a glimpse of the power house that Anil can create.

Like all fairy tale stories in real life, this one too has a few blemishes. For one, the power projects are dependent on gas that will be supplied by the parent Reliance. Till the brothers were together, Mukesh and Anil could indulge in creative internal transfer pricing to kill any birds with one stone. Now, Anil will need to buy gas from Mukesh at market prices.

More importantly, Anil might find his power ambitions thwarted by politics. Th e eternal hunt for votes has forced major political parties to stall the Electricity Act of 2003. With the reform process in the dog house, bankrupt state electricity boards and massive transmission and distribution losses will mean no serious player will dare to enter the power sector.

The Ambanis are known to pull off miracles. If one particular Rajya Sabha member from U.P. concurs, Anil Ambani can persuade fellow politicians to allow power sector reforms; and then he might just snatch the ‘powerful’ tag from elder brother Mukesh.

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Source : IIPM Editorial, 2007

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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