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BADE MIYAN

CHHOTE MIYAN

THE RIL RNRL SAGA

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THE DISPUTE

Gas Contract for supply of 28 mmscmd of gas per day.

By RIL (Mukesh) to RNRL (Anil).

@ $2.34 per mmbtu for the next 17 years.

Others are charged $4.20 per mmbtu.

Estimated loss to RIL 42,000 crore over 15 years.

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GOVERNMENTS TAKE

Is the price of 4.20$ per mmbtu right? : Pricing was arrived at

scientifically. RIL called for price quotes from existing power and

fertilizer companies capable of consuming gas when available.

Term sheets were put up and later agreed to by EGOM.

Is capex rise from Rs 12,000 to Rs 45,000 crore rigged? : No

gold plating on the capital expenditure on gas fields. The actualexpenditure was subject to three audits including the CAG. The

DGH appointed consultants valued it at 45,000 crore.

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MUKESHS TAKE

Will govt lose if gas is sold at $2.34? : if 80

mmscmd is sold at $4.20 /mmbtu, the NPV of

the Govts share over 15 years will be $ 8.8bn

at a discount of 6%. If 40 mmscmd is sold at

2.34$, the govt will earn just $4.7bn. (loss of

20,000 crore in NPV terms).

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ANILS TAKE

Why isnt My Respected Elder Brother

providing GAS to me ? :

Whatever the reason, I have no idea what it is -Corporate Greed, Personal vendetta, Misguided

advice from the 3 Cs :

Chelas, Chamchas, Cronies

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ANILS ALLEGATIONS

Is the price of $4.20 per mmbtu right? : Price of 4.2$ is fixed and noindexation is available vis a- vis global prices. Why pricing is in dollars

while costs, revenue and subsidies are in rupees.

Is capex rise rigged? : Gold plating will benefit RIL. PSC allows it to

recover all costs an govt share gets diluted. The consultants hired werebiased towards Mukesh, one being a faculty of institute run by mukesh,

other, a direct consultant. CAG does not audit private companies.

Will govt lose? No matter what the sales price, govt will gain Rs 70, 483

crore. Govt royalty for the relevant 40 mmscmd will be Rs 12,688 crore,as the royalty is calculated on the valuation price only. Profit from

petroleum is also based on the valuation price, so profit will be Rs

57,795 crore. Hence total of Rs 70, 483 crore whatever the price.

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WHY DID GOVT INTERVENE?

The dispute is a private one no need for govtto poke its nose.

But as a custodian of the natural resources,

the petroleum minister had to intervene as hewas concerned only about protecting whatbelongs to the people of India. He saw it as hisduty to ensure safety of sovereign assets.

Wish all political leaders were so duty bound.Imagine where India would be!

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IMPACTS OF COURT VERDICT

SCENARIOS FOR RIL

1. Ril earns @4.2/mmbtu for its gas. Expected profits Rs 5,600 crores in

FY 2010. E&P in profit over 2010-2015.

2. Earns 2.34$ from NTPC and RNRL and 4.2$ from others. Loss of

500mn to 1bn annually, but as it will produce 80mmscmd, it would

still be profitable.

3. Revenues are same as in 2, but pays taxes based on 4.2$.mmbtu.

EPS will become negative in 2012.

4. Reliance pays a tax of 34% post 2 years for E & P.

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IMPACTS OF COURT VERDICT

SCENARIOS FOR RNRL

1. Beneficial to reliance Power. The 7,000MWDadri plant has requisite clearances, but isexpected to come up in only another 30 months.

The landed cost may be 5.5$/mmbtu.

2. In case it does not get gas at 2.34$, all itsprojects will get delayed. In case the landed cost

of gas increases from 5.5 to 6.7 mmbtu, thevaluation of the business will be affectednegatively.

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KEY TERMS

cost at customer's site + freight + Insurance + customs charges ifany + clearing agent's charges if any = Your landed cost.

Business valuation is a process and a set of procedures used toestimate the economic value of an owners interest in a business.Valuation is used by financial market participants to determine

the price they are willing to pay or receive to consummate a saleof a business. In addition to estimating the selling price of abusiness, the same valuation tools are often used by businessappraisers to resolve disputes related to estate and gift taxation,divorce litigation, allocate business purchase price amongbusiness assets, establish a formula for estimating the value of

partners' ownership interest for buy-sell agreements, and manyother business and legal purposes.

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Whos right : Mota Bhai or Nana Bhai?

Is the Govt. justified in its stand? After all itsTheir Money.

Because ultimately :

Business of Business is Business.In business, Nobodys right, Nobodys

Wrong. What matters is profit.

NOW U DECIDE

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THANK Q?