Today's energy giant, tomorrow's Walmart for digital services: RIL Chairman, Mukesh Ambani
The Economic Times
The best way to understand Mukesh Ambani's mind is to think of Reliance as a company with two businesses: energy and consumer. In a conversation with Bodhisatva Ganguli & Himangshu Watts, Ambani says RIL will find more hydrocarbons and build a new-age digital and consumer business from scratch.
The tie-up with BP is a paradigm shift for RIL. Historically, you have controlled 100% of your core assets. So, what is the thinking behind this? And is this also the way forward in future?
Well, if you have followed Reliance, you should have noticed that Reliance now has over 50 JVs. The general principle of business is that once you achieve critical mass and size in any market, then to expand the domain or the market you need partnerships. The whole idea behind doing the BP piece is that we are determined to grow faster than before. It's general industry practice. If you look at the E&P industry globally, nobody holds 100% of a basin forever, including a Chevron or an Exxon .
The 50:50 JV that you are planning with BP for city gas distribution is a bit unusual as you don't have a majority control in that?
We, in fact, now have a lot of 50:50 JVs, we have 51:49 and 49:51. Our logic is wherever you are building new competencies - (and) in my view, gas distribution , marketing and sourcing is completely new - (in such cases) it's much better whenever both people bring equal value to the table. (Then) you are better off doing 50:50 so that there is so much more skin in the game. You are putting the reputations of both names on the line. Then there are absolutely critical businesses in which you need to keep a majority stake, like in our E&P business. Here we have given BP only 30%. E&P is our core, it will stay our core, but we needed to bring in a partner with critical technology capabilities.
So you will be looking at building an LNG import terminal?
We will, once the venture fructifies. We will go through a feasibility phase... but the potential in India exists in terms of integrating world gas markets with the Indian gas markets.
What is the state of play in KG-D 6?
The project has 3-4 distinct areas. One, how well you have designed it, and two, how well you have executed it. Both are 100% in your control. In my view, we have beaten industry standards in both these areas. If you take the last three major gas developments in the world, they have taken anywhere between 3 and 5 years to stabilise . We stabilised in 30 days. There we have outperformed. The third factor is geology, which is natural and completely out of your control. Prasad (PMS Prasad, the RIL director in charge of E&P ) will explain to you all the complex models that we go through in evaluating the geological parameters. This requires reasonable time and data. Basically, KG is a thin sand reservoir which is unique in the world. In a normal reservoir, you can put one well and take everything out. In thin sands, the gas is segregated by sands in between. Think about it like an aquifer or an underground water reservoir, which has multiple levels and is spread over a large area. You just can't drill one well and take the water out. Now, there is technology available today, but we need just enough data to figure out whether you need a horizontal well or a vertical well. You need to approach it patiently and carefully to get the right solution at the right cost. It is not like what Saudi Arabia has or Gulf of Mexico has. That's why we brought in BP. Let's be clear - this is the largest deep water gas facility in the world today. We have to be patient. The good news is all of the gas is there and can be tapped.
What is BP's role?
They are double-validating all our data. They are looking at exactly the same things that we are looking at. It's like the diagnosis of a problem - two docs look at the same X-rays for a second opinion. The teams are already integrated.
Do you think the regulator is receptive to your concerns?
I think so. We understand that the government's framework is different. They have to do their due diligence. We respect their framework, and have always cooperated with them. They understand our point of view also. Fundamentally, this was Reliance's risk money that was invested in KGD 6. If we had not found anything, no customer or regulator would have come, and we would have had to write off this investment.
Because of circumstances all of us are aware... a cap has been introduced on gas pricing at $4.2? Should it be scrapped or lifted?
I think that, ultimately, all gas price in future, even in D6, has to be market-determined . That is what the government's own Production-Sharing Contract (PSC) says. That's what the Supreme Court says. If you have read the Supreme Court judgment, it's fairly clear that the PSC has to be honoured by both sides. It says the government is the owner of gas and should get the highest price for the gas. You cannot underprice. Since it is a government-owned resource, people in the government have to justify very strongly why they would subsidise private sector power and fertiliser plants and, thereby, forgo its own significant revenue that can be better used for common people's welfare. Sooner or later, they will have to follow the PSC, which will be marketrelated pricing.
RIL has big investment plans. Are you looking at strategic alliances in other businesses like telecom?
Right now, what we are thinking is two major areas . One is energy, and the other is consumer. We include technology in the consumer vertical. Within energy, we will continue to invest. We have the KG basin, we have the Mahanadi basin, where we think we have more than half-a-billion barrels of oil potential, and we have just announced in the Kaveri basin. These three basins will require large amounts of investment. The good news is that these three basins are prospective . Obviously, we will invest there with BP. The other piece where we see big growth potential and are willing to commit big investments is what I call technology. Really, all of shale in the US is technology business. So, fundamentally , the whole directional shift in Reliance is that we are really, really focusing on creating value for our shareholders. That's basically where we think that we now have the capability and the opportunity - not to mention, a responsibility to contribute to India's prosperity and development. Reliance is proud of its irrefutable contribution to India's energy security , which is today an important aspect of national security. We will now get the best technological help. It will be difficult, but we will get there. Nothing is easy. As soon as we understand this geology, I think the engineering solutions, in which we are very good at, will extract all the gas at KG-D 6 in a sustainable way. I think we are among the best in the world in E&P , primarily because in the Indian gene pool, the DNA of problem-solving exists. We are even helping our counterparts in the US in shale gas. Because what is shale gas? It's horizontal drilling and taking the gas out. In technological innovation, we will see a lot of potential in what I call value-added chemicals. The quality of life is improving in India, so we see a lot of growth in polyester and plastics. Therefore, we are reinvesting in these traditional businesses of RIL. We are developing a whole new rubber business. We will make RIL one of the world's largest players in rubber as the whole tyre industry moves to Asia. The big trend is that if you look at the next 10 years, the projections for automobile growth are all China, India and Asia-focused .
When you say very large, what do you mean exactly?
It will be of a significant scale and size to cater to Asia's needs for the next 10 years.
Where will it be located? At Jamnagar?
It will be located at all our three sites depending on where we have the feedstock. So it will be at Hazira, Jamnagar, some at Baroda.
Is there any plan to enter the tyre industry?
No, we will be suppliers to the tyre industry.
What are the big things in chemicals?
We believe that hygiene will be a very big market in a rapidly prospering India where people's aspirations are rising. You look at diapers, female hygiene - most of the super absorbents come from our industry. So we can integrate and really think about low-cost hygiene to improve the quality of life for the masses. Personal care and home care is the other big piece, because the market for these products is booming in India due to our demographics. Most of it is unique to us, with such a large exposure on the refinery side. Most of the chemical industry depends on feedstock. We can become the largest supplier to private-label players. That is an integrated energy play based on innovation and technology. Only two or three people in the world understand how to convert fatty oil into cosmetics cream, which could soon be used by over 300 million women in India. How can you really , really get that market cracked to a quality level that is better than everybody in the world and to a cost level that is one-tenth of the world? That's what attracts us.
What are the investments in the chemical business?
These are $10-12 billion.
Many speculate you will make a big-ticket acquisition and in your last AGM, you had said that you will plant the tricolour in many parts of the world. Any progress on that front?
We look at these things on an ongoing basis. There will be a lot of volatility and uncertainty in this world. But, I'm a wildlife fan. I love the leopard. The leopard sits on top of a tree. It doesn't take any great risks. Whenever it sees that it can make a kill, it's in no hurry whatsoever to make a kill. It makes the kill so rapidly, you don't even know. And I've actually sat with leopards for hours in lots of forests. It just happens in a flash. And, again, the leopard goes back and sits there aaram se. So, as I tell all our guys, let's not get too much carried away. It's important to keep the balance sheet capability to do this stuff but we shouldn't be in a hurry. We should be watching , we shouldn't be ignoring anything. But unless we feel absolutely safe that we are not going to hurt ourselves, and we are going to go down there, kill 100% and bring it back, we won't do anything funny. We are in no hurry. And we'll never do it for ego's sake. Our watchword is: does it generate value for our shareholders on a sustainable and long-term basis?
Would you say that is a change from the mindset RIL had, say 10 years ago?
I will say that we have evolved, just as any dynamic and future-focused business entity must, in response to the changing national and international environment. We are doing what is appropriate at every stage of our evolution.
In telecom, will there be a partial roll-out this fiscal?
We said we are investing in the future. We are still in the conceptualisation phase. In our mind it's integrated with our consumer vision. We know where the telecom and Internet technologies are moving. We know how they are fundamentally changing the world, and they can be the biggest change agent in India, too. We know the aspirations of the Indian customers. This is not an unfamiliar area for us. Right now, I believe that the better and more integrated our plan is, the more guaranteed is its success.
New-age telecom anywhere else in the world, especially in the US, integrates internet, entertainment, etc. So is that the plan for your foray in telecom?
It's even beyond that. It's education, health, agriculture , food security, environment protection, sustainable employment creation. In my mind, it's very early days in setting standards for technology . We don't need to make a rash move. We don't see it as a telecom play. It's value-added data services. Data is still nascent. We want to integrate our society's diverse needs and aspirations in an integrated, innovative and affordable delivery platform.
So, where do you see telecom and retail fitting in this consumer space?
We are betting the whole company on technology innovation culture. Within energy, we will be looking at the next new forms of energy. Innovation is also the key to growing in the consumer space. India is bound to become a huge market for consumer products. People's aspirations for a better quality of life must be respected. At the same time, we cannot replicate the western model here. The challenge is: how do we ensure a better quality of life for our one billionplus people within the parameters of sustainable development? Reliance will rise to this challenge. In the same way that we rose to the challenge in the energy space over a decade ago. I believe that India will be a $5-trillion economy well before 2025, and it will have a $2.5-trillion consumption market. What is this consumption? The way I look at it, there is physical consumption which will never go away - the food that we eat, the clothes that we wear. Not many people recognise it, but RIL is today the country's largest food retailer as we speak.
This is all led by Reliance Fresh?
Yes, Reliance Fresh and all our value formats. I see food more and more in retail. We see the same in apparel. As Reliance Trends, we will be the largest soon. We think there will be huge growth in all the appliances you have at home and, not to forget, jewellery. So these are all individual pieces but also combined in our value format. As I see in the next 10 years, the other piece where we can bring that revolution to India is the whole digital revolution. Each one of us will consume services digitally. We want to be the Walmart of digital distribution. There is a fantastic opportunity to provide affordable videoenabled digital services to crores of people in healthcare, agriculture, urban-rural market linkages, government-citizen interfaces, and also to increase productivity and employment potential in the informal sector of the economy which provides livelihood to more than 90% of the labour force, etc. So, you see, RIL's future plans are, as always, closely aligned to India's national goals. All this depends on technology and innovation, which is our new mantra.
For all these new ventures, will you be looking at getting talent from outside?
Yes. Continuously. At RIL, we are doing three things. Most of our money is going into the technology space - innovation, generation of value either in the energy or the consumer space. This, then, is our continuous vision for the next 5 to10 years. We look at the global space from an opportunistic standpoint. We have appetite at all times to do something unique in the technology and innovation space. We think our shale gas initiatives in USA are more in technology and innovation space because we know that we can generate a reasonable economic return through technology innovation. We know we can bring those drilling costs down. Even if gas prices don't improve in the US, we will get our returns. Then there is a separate piece where we are focusing on how to cater to these new evolutions, how to create and sustain and enhance our overall talent.
Are you looking at grooming talent in-house ? Or getting new fresh talent?
We are doing a combination of everything. Fundamentally, we think it requires re-engineering or regenerating the whole human resources architecture. It's very difficult to do. When you think about performance, it's not only people architecture or talent but people performing in a growth-nurturing ecology. You really have to regenerate the environment. It's like colleges. I have been on the advisory board of Stanford and a few other colleges where we change the environment every 10 years. At this stage, we are going through a project where we will have a process whereby we will take everything we have learnt and really mentor and train our 30-34-year-old guys to be better than us. It's a regeneration of the 4-5 pillars we stand on...and not only our existing talent but also welcoming fresh talent. We want our people to be internally happy, because happiness and success should go together. I want everybody at RIL to achieve their true potential . We want to create a new culture in which you will be reasonably transparent to yourself, your peers and your team. That, in my mind, will lead to true innovation . This is the most important and exciting project of my life: How do you really transform and reengineer 40,000-50 ,000 people, most of them professionals, most of them ambitious, most of them very successful, and then tell them to mentor and train 30-34-year-olds and make them better than us. This, according to me, is the sign of a truly New Age business organisation.
This is very interesting. Who else is working with you and what are the broad contours of this business transformation ? What exactly are you putting in place? Where do you see this exercise in the next 5 years?
What we are putting in place is what I call the Next Generation Reliance. Clearly, creating a foundation for the future growth of Reliance to make sure that we not only can retain our existing talent and at all times make sure that we can attract right talent in our businesses. And the right way to think about is what you build is an architecture, a path of evolution . I believe nothing is static in life. What we are doing now is based on our knowledge and putting down a 2012-15 architecture, which will evolve.
So, are you aggressively hiring from B-school campuses and other professional colleges? What has the response been?
The response has been very good. Our own hiring standards are very different. At this stage, we are creating an architecture. Most of what was in our head has been put down in place. We have pretty much finished that exercise. We have virtually all the top-5 consult-ants in the world working with us globally.
What will the Reliance organisational structure look like?
The easiest way to think about is that we create an operating model. Within that we create the business model architecture, the organisational architecture . And then there is the financial architecture : how do we create shareholder return? Within that there is the regulatory architecture. And then there is the consumer architecture - how do we maximise the value proposition to the consumer ? When you put all this together, they actually have to gel. And then there is the employee piece. How do you take an employee, fresh out of college and help him navigate through Reliance? How do you give him a 15-20 year view? And how do you add value? Like we have a customer value, we now say that we have an employee value proposition.
Are there 5 or 6 people who are future leaders of Reliance, who we do not know about now?
There are between 80-100 people.
Would you look at listing other businesses like chemicals , rubber?
There has to be a rationale. We have done dual listings . We don't see a compelling reason to do it in a hurry.
What do you think can spoil the growth story?
I think the India growth story is unstoppable. I look at it as an opportunity in the acceleration mode. What it needs is a supportive governance environment at all levels.
What are the key reforms you are looking forward to?
More than reforms, we should recognise that we are at the crossroads. We shouldn't celebrate too early. We have a long way to go. Along with reforms , we have to have a collective resolve to solve problems in areas like education. Our education sector needs to be liberated urgently, without a day's further delay. If we want to fulfil our young people's dreams, we must create capacity and quality on a massive scale. We can create a revolution simply by freeing our universities from government control and by allowing new private universities to be set up. If that happens, I can visualise India becoming a hub of higher education globally within the next 10 years.
Aren't you disappointed with the level of corruption with a clean PM in charge?
We have a vibrant society, a vigilant media and an independent judiciary. We are dealing with our problems in a mature way. We shouldn't really deprecate ourselves. I strongly believe that India needs systemic reforms to reduce corruption.
One big societal opportunity in India?
The big societal opportunity - and an equally big need - in India is housing. When I went to the US in 1980, I was surprised - Kya desh hai yeh! Everybody had a decent house. Is that a societal opportunity ? Yes it is.
Would you be interested in a banking licence?
We will see when it happens.
What do you think of the giving pledge?
There are different points of view. My own view is that it's important that one should create sustainability and compassion. My view is that giving must be anonymous. Even if I did whatever I did, I wouldn't brag about it. I would do it for my own satisfaction . It is important you do it straight off your heart you don't talk about it.
Are you writing a book?
Lots of people approached me but I am not.
(Additional reporting by TV Mahalingam & Shuchi Srivastava)
Next-generation security and disaster management business seems to be next on the radar of Mukesh Ambani-led Reliance Industries, which will utilise its 4G telecom services for this new initiative.
Besides, RIL also plans to partner a global major for this new business and is roping in Vivek Lall, formerly a top Indian executive of global defence major Boeing, to head this venture, sources said.
"Reliance sees strong synergies in our rolling out 4G Broadband Wireless services and their use for enabling Homeland Security, Safe, Secure & Smart Cities as well as Disaster Management preparedness," a person in the know of the matter said.
"RIL plans to partner with global leaders in this domain to bring the latest technologies and innovation," he said, adding that Vivek Lall will be joining to drive these efforts.
An RIL spokesperson did not offer any comments. Lall, who was Vice President and India Country Head of Boeing for defence, space and security businesses, recently left the US-based global aircraft and aerospace major.
Earlier, he has also served as managing director of Boeing Commercial Airplanes in India.
The new initiative of RIL would involve significant investments and details are being finalised, sources said.
The group plans to invest USD 4.5-4.7 billion in telecom business over the next five years. It has already spent USD 2.8 billion on acquiring 4G licences and spectrum, which it got last year through acquisition of Infotel.
Infotel was the only entity to get pan-India licence in the auction of Broadband Wireless Access spectrum conducted by the government last year.
Telecom is among the five main businesses and RIL group expects to focus on in the next 5-10 years.
The group is present in energy and retail sectors, while mega plans are underway for telecom and finance sectors. Besides, it has also acquired a strategic stake in a cargo airline founded by aviation entrepreneur Captain Gopinath.
RIL is currently in the process of finalising arrangement with leading global technology players, service providers, infrastructure providers, application developers, device manufacturers and others for its 4G telecom service offerings.
Globally, also the countries are gearing up to utilise 4G (fourth generation) broadband technology in their homeland security and disaster management practices.
In February, the US President Barack Obama announced that his government would spend USD 10.7 billion to build a nationwide 4G broadband network for public safety agencies, including police and fire departments.
The US has felt the need for a national broadband network ever since the terror attacks of September 11, 2001.