RIL funnels money and business to Mukesh's private companies

Sure, he’s the boss. But should Reliance Industries Ltd (RIL) be paying Mukesh Ambani Rs 4,300 crore for bankrolling his private companies for fuel, transport, power, water and gas distribution? That’s the amount Reliance paid Mukesh Ambani’s companies in the year ended March 2011 for services rendered. The number has grown steadily over the years as these privately-held companies have become critical to RIL’s operations.

[caption id=“attachment_12141” align=“alignleft” width=“380” caption=“Analysts feel RIL will eventually merge Reliance Gas Transportation and Infrastructure with itself. Wondering why RGTL is considered a goldmine now? Reuters”]  [/caption]

These companies are called “associate” companies in Reliance’s annual report. Here’s a roll call of these companies and the money they make.

Reliance Ports and Terminals received Rs 2,600 crore in 2010-11 from RIL. Reliance Gas Transportation and Infrastructure received Rs 652 crore as hire charges for the use of its pipelines to transport gas. The balance was split between Reliance Utilities and Power and Reliance Utilities, both privately held by the promoter of Reliance Industries.

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Bar graph showing amount of money RIL doled out to its subsidiaries for the year ended March 2010 and March 2011.

Reliance Ports and Terminals (RPTL) and Reliance Gas Transportation and Infrastructure (RGTIL) appear to be increasingly integrated with Reliance Industries operations.

This is reflected in rating agency Crisil’s reports on RPTL (published in February 2011) and RGTIL (published in August 2010).

The point here is that if these companies are so critical to Reliance Industries, they should have been subsidiaries. Now, over a period of time, as their utility for Reliance Industries grows and they emerge from initial losses, they will make more money for Mukesh Ambani instead. Okay, one can say that he took on the risk himself by buying RGTIL from RIL at one stage in 2006 for the princely sum of Rs 5 lakh. But then, the entire project was kicked off with loans from Reliance Industries - Rs 3,500 crore in all.

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The exact ownership structure of these associate companies is not clear. However, according to the Crisil report on RGTIL, it is a company owned by the promoter.

A Business Standard report published a couple of years ago called RGTIL Mukesh Ambani’s ‘goldmine’. Not surprising, since even at that time it was moved out of the RIL stable to Mukesh’s, it had the rights to set up the gas pipeline. RGTIL owns the massive gas pipeline constructed through hills, rivers and land to transport the gas from the Krishna-Godavari offshore fields to Maharashtra, Gujarat, and Karnataka apart from Andhra Pradesh. More pipelines are being constructed to other states.

“RGTIL started operating the East-West Gas Pipeline (EWPL) from April 2009 onwards. It is currently transporting around 60 million metric standard cubic metres per day (mmscmd), against expectations of around 80 mmscmd because of the delay in ramp-up of gas production by RIL,” says the Crisil report. The project is entirely funded through debt. Crisil has assigned an AAA rating for the long-term debt and Reliance Industries has subscribed to its 9% non-cumulative redeemable preference shares worth Rs 2,000 crore. The Rs 14,000-crore project was funded with term loans.

RGTIL reported a net loss of Rs 210 crore on net sales of Rs 2,560 crore for the year ended March 2010. The company had reported a net loss of Rs 1,060 crore on net sales of Rs 8 crore for the year ended March 2009.

Those who have tracked the company are of the view that Reliance Industries will eventually merge Reliance Gas Transportation and Infrastructure with itself. The biggest beneficiary of this exercise will be the promoter group as a private company will be bought over by a listed company. Needless to say, Mukesh Ambani will be able to increase his control over Reliance Industries significantly.

No wonder, RGTIL is considered a goldmine.