By R. Sasankan

Gautam Adani is on a roll. The astute industrialist has been quietly putting together the building blocks for a vast industrial empire that could potentially vie with Mukesh Ambani’s Reliance Industries.

There is nothing flash about Adani: he stays away from the limelight and does not make grandiose announcements. But in the background, he beavers way quietly, crafting a strategy that the media has often failed to fully comprehend.

The Adani group has interests in ports and shipping where it has been a dominant player for a very long time. It then moved into airports, power and city gas distribution. But it is the foray into the oil and gas sector that holds the greatest potential to fire up the engines that will propel him into a higher orbit that houses large corporate constellations like Ambani’s Reliance group.

Adani’s interest became apparent when he signed on Total of France as a partner for a fuel retailing venture – an announcement that came almost a year before the government decide to privatise BPCL in November 2019. Not many realised at that time what his ambitions in the sector really were. The two sides have since broadened their alliance with Total acquiring a 37.4 per cent stake in Adani Gas Ltd and a 50 per cent stake in the Dhamra LNG project.

As the BPCL selloff process started to lurch from crisis to a point of near stasis, the import of that move into petrochemicals started to dawn on a few experts who watch developments in the sector very closely.

A few months ago, on August 10 to be precise, www.indianoilandgas.com, carried a report in its Policy column, titled “Timing Of Adani’s Petrochemical Entry Hugely Significant”, to make readers aware of what was really happening.

We wrote: “Billionaire Gautam Adani, while trying to build an industrial empire that can match Mukesh Ambani's Reliance Group in terms of scale and influence, seems to have realised that a faster route can be petrochemicals and refineries rather than ports, airports or LNG terminals with which he has been deeply involved so far… He has already swung into action. Adani Enterprises in a stock exchange filing said it has incorporated Adani Petrochemicals Ltd (APL) as a wholly-owned subsidiary to “carry on business of setting up refineries, petrochemicals complexes, specialty chemicals units, hydrogen and related chemical plants. These are precisely the areas which enabled the late Dhirubhai Ambani and his son Mukesh Ambani to build the colossal empire which the Reliance Industries Ltd (RIL) is today. Mukesh is Asia’s richest. Adani comes second... The most sensible route to enter petrochemical sector is the ownership of a refinery.”

The sudden leap from a fuel retailing venture to the possible entry into refineries opened up a new vista of opportunity for the Adani group that is fast acquiring the sheen of a rhyming nom de guerre for a new gladiator setting out to challenge the dominance of the Ambanis.

That news report implied that the timing of the move was in some way linked to the ongoing privatisation of BPCL which owns and operates three refineries. It would be foolhardy to set up a new refinery at this stage because of the astronomical costs involved and the time involved in setting one up. Why not simply acquire one or more of the existing BPCL refineries?

Two developments since then have only fanned the winds to spur the Adanis’ ambitions. First, BPCL’s privatisation plans have struggled with Aramco – the Modi government’s preferred investor for the lucrative public sector asset – crying off from the bidding process after the pandemic wreaked havoc with its financials.

With Aramco out of the race, the investors left in the fray were two private equity players and Anil Agarwal’s Vedanta group, which is not being seen as a serious bidder even by the government. In early November, I Squared Capital also dropped out of the race which seemed to leave Apollo Global Management as the only serious bidder just when the government is set to call for financial bids.

The second major development is the shock decision by Reliance Industries to shelve its plans for the spinoff of its oil-to-chemicals business – almost nine months after it kick-started the process. The Ambanis have been in negotiations with Aramco for the purchase of a 20 per cent stake in the O2C business at an enterprise value of $ 75 billion. The implied $ 15 billion investment in RIL’s O2C business would have clearly shut down the possibility of a viable challenger in this space. Reliance insists that it is re-evaluating options for the O2C business and isn’t ruling out a bigger and more substantial deal with Aramco. With no word from Aramco as yet, it remains to be seen whether Mukesh Ambani’s considerable deal-making skills will pay off in the oil and gas sector.

The sensible reading of the situation is that the Adanis are primed to exploit the opportunities that have been thrown up by the two developments. It now appears that the government needs Gautam Adani to bail out the BPCL privatisation itself. BPCL’s largest asset is its retail marketing network. The deal has to be for the total asset and not a piecemeal sale. The question really is whether Adani is really interested in BPCL’s marketing network? The short answer: he is.

It was uncharacteristic for the Modi government to negotiate the sale of a precious asset like BPCL with US private equity companies that do not actually run oil companies. It is possible that these firms were fronting for a couple interested oil companies which did not want all the assets of BPCL and were only interested in the marketing network. Saudi Aramco has been keen to enter the fuel retailing market but dropped out of the race for BPCL, slamming a brake on its larger plans for India. Aramco isn’t too keen on the BPCL refineries as it is already committed to the mega refinery project in Maharashtra.

Reliance Industries and Aramco have a very close relationship – and that is one of the reasons why Aramco’s chairman Yasir Al-Rummayan was inducted recently into RIL’s board. Both sides have long-term interests in persisting with this relationship. Still, Aramco has been keen to enter India and establish a fuel retailing network. The negotiations between Aramco and RIL on the O2C deal hit an impasse over valuations. But there may have been one more sticking point: the fact that the Ambanis already have a retailing network with BP as a 49 per cent partner. This network is also being folded into the O2C business that RIL was looking to spinoff. As far as Aramco was concerned, it might have been difficult for three to play tango.

This is where the situation becomes very interesting and the Adanis – who enjoy a massive clout with the Modi government -- emerge as a potent force in the oil and gas play. There has always been a suggestion that the two private equity players looking to bid for BPCL were fronting for some global oil giants. Some have asserted that Apollo was closely linked to Aramco.

It is not clear whether the Adanis will put in a bid for BPCL on its own. It most probably won’t. But it may be inclined to pursue a deal with Apollo, which would raise delicious speculation about Aramco’s next course of action. If the Adanis can hammer out a deal with Apollo, it could elevate it to a level from where it could mount a serious challenge to the Ambanis. Will Mukesh Ambani give in easily? That seems unlikely.

But we are certainly in for some interesting times ahead.