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By Rina Chandran
MUMBAI (Reuters) - Two of Asia's richest men, India's billionaire Ambani brothers, will slug it out next week in Delhi's sandstone Supreme Court in a row over gas pricing that highlights the political clout of powerful families and risks scaring foreign investors away from the energy sector.
The Court will on Tuesday start hearing arguments in the case between Reliance Industries, headed by Mukesh Ambani, and Reliance Natural Resources (RNRL), led by estranged brother Anil, over a deal to sell gas to RNRL at below-market rates as per a 2005 family settlement.
Mukesh wants the deal rescinded, other firms want gas from Reliance Industries' KG-D6 block at the same bargain price and the government wants the tax revenue that it would forego if the loss-making arrangement stands.
The acrimonious spat between the brothers -- ranked in the top-5 richest Asians by Forbes this year with a combined wealth of $30 billion (18.3 billion pounds) and whose business interests span oil and gas, retail, telecoms, entertainment, financial services and infrastructure -- has spotlighted India's uncertain regulatory environment just as it needs more energy security.
"The whole world is watching, as it is going to affect the whole energy sector in India," said Deepak Tiwari, an oil and gas analyst at K.R. Choksey Shares and Securities, who has a "Reduce" rating on Reliance Industries.
India imports two-thirds of its crude oil requirement and wants to cut its dependence on foreign oil by developing recent large domestic oil and gas discoveries.
But response to its largest-ever auction of oil and gas exploration rights, which closed last week, was tepid.
Reliance Industries, India's top energy firm, did not bid, and the Director General for Hydrocarbons said the Ambani fight had sent the wrong signals to potential investors who had been expected to commit at least $3 billion.
Anil Ambani has blamed the poor response on the Petroleum Ministry's efforts to control the pricing and sale of gas.
Analysts say the row highlights the need for clear policies related to the pricing and marketing of energy products.
"At least a part of the dispute is based on the government's lack of clarity and what appears to be a lack of will in policy implementation," said Partha Mukhopadhyay, senior analyst at the Centre for Policy Research.
"It has brought to light the fact that the regulatory apparatus in the oil and gas sector, the decision-making process, is not as clear and transparent as it should be."
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India's exploration and production sector needs $40 billion in investment by 2012, the Investment Commission estimates, while consultancy KPMG expects the energy sector to require $120-$150 billion until 2011 as the economy expands.
Analysts say a quick resolution to the Ambani row, which has also raised financial uncertainty for Reliance Industries, India's top listed company, would help the investment outlook.
"Investors are more than anything looking for clarity," said Tom Grieder, Asia-Pacific energy analyst at IHS Global Insight in London. "They want clearly specified regulations on the government's utilisation and pricing policy."
The government has petitioned to intervene in the case, arguing gas is its property, and the private pact is not valid.
Some analysts say that could deter investors worried the government can step in to say who can buy gas and at what price. Suspicions that the powerful brothers may sway government policy have also kept outsiders away.
The government will be represented by India's top legal officers at the red-and-white sandstone Supreme Court building in the heart of Delhi, while a battery of the country's highest paid legal brains will argue for each of the Ambanis, who are not expected to attend the hearings.
A ruling may be about three weeks away.
Reliance Industries and RNRL have kept up a near-daily exchange of words, including Anil's front-page advertisements in newspapers accusing the Petroleum Ministry of favouring Reliance Industries.
In a latest twist, Anil made a surprise offer to reconcile with Mukesh and sort out all disagreements. Reliance Industries responded by saying the dispute under litigation is not merely a family matter.
Reliance Industries has the stronger case, Grieder said, and the government also wants to raise gas prices to attract investment in the sector to improve energy supplies.
"Investors want to know the government is committed to cost-plus gas prices, so they can get returns on investments."
Whatever the court's ruling, the government must move to put in place a dispute resolution mechanism, said Mukhopadhyay, given India's poor record in enforcing contracts.
"Disputes are a part of the rough and tumble of doing business. What we need is the resolution to take place quickly."
(Additional reporting by Pratish Narayanan; Editing by Sean Maguire & Ian Geoghegan))

Reuters