RIL had got into mobile telephony

RIL strayed into telecom procurement, marketing last year.

Most investors in Reliance Industries may not know it, but the company which focuses on its energy and petrochemicals businesses, had last year strayed into telecom procurement and marketing operations, involving thousands of crores of rupees.

Although the Reliance annual report makes no mention of this, the company last year had entered into an agreement with Reliance Infocomm (in which it has a minority stake as a lead investor) to buy mobile handsets, conduct sales, maintain accounts, do billing work and collect money due to Infocomm.

Reliance is understood to have imported handsets and other equipment totaling an estimated Rs 4,000 crore, though this figure could not be confirmed.

While there is no mention of this in the company's annual report, what has been disclosed in the Reliance annual report is that the company gave financial guarantees, amounting at different points of time to between Rs 1,500 crore and Rs 5,000 crore, to Infocomm so that it could roll out its business.

These exposures are over and above the Rs 12,000 crore that Reliance has invested in Infocomm, through equity and preference shares.

The details of how Reliance would be compensated for this work, and how profitable the activity has been, are not known. When contacted, a senior executive of Reliance Industries said "Reliance certainly gets a return on this activity" but would not divulge details.

It is not known whether this would be a temporary or permanent arrangement. A Reliance Group spokesman, while confirming the arrangement between the two companies, maintained that all disclosures have been made "in line with the guidelines".

Informed sources said that the arrangement between the two companies followed the failure of Infocomm's Dhirubhai Ambani Pioneer scheme, under which subscribers would have been locked in for a three-year period and make an upfront payment of Rs 22,000. Assuming 5 million customers for the scheme, Infocomm would have raised Rs 11,000 crore.

But with the scheme failing to take off, Infocomm launched its Monsoon Hungama scheme whereby handsets were offered to customers for as little as Rs 500.

These handsets, it is now revealed, were bought and paid for by Reliance Industries""which meant that Infocomm was using Reliance Industries' cash flow. When and how Reliance Industries was compensated for this activity is not known, since group officials did not give details.

Sources also noted that the Reliance Industries decision to subscribe to preference shares issued by Infocomm, to the extent of Rs 8,100 crore, followed this arrangement and presumably helped fund the squaring off of the original transaction.

The marketing arrangement between Reliance and Infocomm, worked out through a memorandum dated June 30, 2004, said, "Reliance shall bear all expenses in marketing of sales scheme and it shall not be entitled to set off any dues from Infocomm except to the extent of compensation due to the marketing agreement."

An information memorandum filed reveals that Reliance is solely responsible for promotion of the Infocomm business "" from procurement of handsets and marketing the schemes to collection of bills.

The marketing agreement between Reliance and Infocomm states that Reliance, if required, will enter into agreements with distributors, retailers or other persons for the promotion and marketing of schemes and services.

While marketing the services, Reliance will also be free to bundle the tariff plans of Infocomm with other products and services as it deems fit, and offer composite schemes to customers.

The nature of the deal

• Reliance Industries had entered into an agreement with Infocomm to buy mobile handsets, conduct sales and maintain accounts
• The Reliance annual report only mentions that the company gave financial guarantees, amounting to between Rs 1,500 cr and Rs 5,000 cr, to Infocomm
• These exposures are over and above the Rs 12,000 cr that Reliance has invested in Infocomm through equity and preference shares