Mukesh Ambani has signalled that he is ready to take the battle to the $419-billion Walmart after unveiling plans to open a cash-and-carry retail format soon that will co-opt the support of millions of small traders and grocers across the country.
“This format will offer regional, national and international brands to millions of small traders and kirana shop owners,” Ambani said at the 37th annual general meeting of Reliance Industries here today.
Reliance’s rapier thrust against Walmart and Metro AG — the other big player in the cash-and-carry segment — comes amid indications from the country’s chief economic adviser Kaushik Basu earlier this week that the Manmohan Singh government is seriously considering a proposal to allow foreign direct investment in multi-brand retailing, with a decision likely in the next six months. At present, FDI up to 51 per cent is permitted in single brand retailing.
When the FDI rules are relaxed, Walmart — which runs the cash-and-carry operation through a joint venture with the Bharti group — will be certain to storm the retailing space where Reliance now rules.
Ambani is clearly looking to take the battle to the business-to-business (B2B) space before the Walmart-Bharti combine lays siege to his turf.
Gas output ramp-up
There were other subtle but equally strong messages that Ambani sent out in his speech, titled “Contours of a new wave of growth”, to shareholders of the Rs 258,000-crore ($58 billion) Reliance Industries at Birla Matushri Sabhaghar here.
“India is envisaged to grow from a $1.4-trillion economy to over $9 trillion by 2020 and over $30 trillion by 2030,” Ambani said even as he drew his road map for engagement with one of the fastest growing economies in the world.
First, he sent out a clear message to the government that gas production at KG-D6 field could be ramped up only after the cabinet cleared the alliance that RIL had struck with British Petroleum in February. Under the terms of the deal, BP is poised to acquire a 30 per cent participatory interest in 23 oil and gasfields that RIL operates in India. RIL will get an upfront payment of $7.2 billion as soon as the deal is cleared, swelling its burgeoning $9.5-billion cash chest.
RIL’s anticipated $16-billion cash mountain is going to be bigger than the $12.7 billion that IBM — a $100-billion behemoth — has on its books.
RIL has been involved in a virtual war of words with the directorate general of hydrocarbons (DGH) on the sudden slackening of gas output from KG-D6 this year with production falling to less than 50mmscmd from a peak output of 65mmscmd.
“KG-D6 till today remains India’s first and only deepwater development and among the deepest water gasfields in the world,” Ambani said, indicating that he wasn’t going to be bullied by a passel of bureaucrats who didn’t understand the complexities of working in one of the toughest exploration environments.
The DGH has been insisting that RIL should drill at least three to four wells in the deepwater basin and has accused it of slipping up on a pre-committed work schedule.
“After the government approvals for the BP-Reliance partnership, the KG-D6 reservoirs will be jointly assessed to address the technical issues in ramping up production,” said Ambani, spelling out the sequence of events that RIL envisioned as the way forward to ramp up gas output from KG-D6 which started commercial production just two years ago.
Ambani said the alliance with BP would forge an “unparalleled combination” that would blend BP’s deep-water expertise with RIL’s project execution capabilities.
BP and Reliance also plan to form a joint venture to source and market natural gas in the country. It is being positioned to tap into the demand for natural gas which is expected to triple by 2030.
Shale gas play
Ambani indicated that shale gas play in the US remained a big area of opportunity and that RIL would fast-track acquisition of domain knowledge and people resources in its “pursuit of operatorship”.
The comment is significant: Last year, RIL was badly upstaged when Chevron acquired Atlas Energy, a small shale gas player with which it had partnered last April to exploit shale gas acreage in the Marcellus play in Pennsylvania. This acreage can support over 3,000 wells with a net resource potential of 13 trillion cubic feet of gas.
Under the terms of that agreement, Reliance was to bear more than three quarters of the expensive drilling costs and had committed an investment of $1.36 billion over five-and-a-half years.
Seven months after the deal, Atlas Energy was acquired by Chevron and has since been renamed Arkhan Corp. RIL could not renege on its “drilling carry” obligations in the Marcellus acreage which is now being operated by Arkhan, a wholly-owned subsidiary of Chevron. Ambani is indicating that he doesn’t want to be caught in a similar situation again.
Broadband venture
Ambani promised to create a broadband-enabled digital valuation chain that would service domains such as education, entertainment, healthcare, financial services and government-citizen interfaces. “We are in the process of conceptualising our products and services. This is a once in a generation opportunity to improve productivity and provide a new way of life to consumers,” Ambani said.
He also spoke about creating a 1.5-million-tonne olefin cracker in Jamnagar — which would rank among the biggest in the world — that would feed off the anticipated strong demand for plastics in India.
Following Wipro’s lead, RIL is making a big thrust into education. It intends to build a multi-disciplinary university in Maharashtra and an engineering and polytechnic institute in Gujarat. It also aims to create a world-class tertiary care hospital by upgrading the Hurkisondas Nurrotamdas hospital in Mumbai.
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