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The Government's approval on the Cairn-Vedanta deal remains in a limbo with the issue of royalty payment raised by ONGC remaining unresolved.
ONGC, which is a partner in eight out of the 10 blocks that Cairn owns, wants the issue of royalty payment for prolific Rajasthan fields to be resolved before the transaction gets a go-ahead.
“We are for expediting the process after addressing all the concerns particularly related to ONGC's liability to pay royalty (on behalf of Cairn India),” a senior official said, adding that both the parties are sticking to their positions.
The Petroleum Ministry is of the view that the issue needs to be resolved before any decision on the deal is taken.
Though ONGC's share in the Rajasthan fields is 30 per cent, it pays 100 per cent royalty. Cairn holds the rest and is the operator.
ONGC and Cairn have diverse views on the issue. While ONGC was of the view that royalty was cost recoverable, Cairn felt otherwise.
Citing the production sharing contract (PSC) signed for the fields, Cairn said the royalty cost has to be ‘borne' by the licensee, in this case ONGC. ONGC wants to recover the statutory levy it pays for Cairn.
Against this backdrop, the first round of meetings with the management of Cairn Energy PLc and Vedanta Resources called by the Petroleum Ministry on Sunday remained inconclusive, and the stalemate continued on the second day as well. The expected meeting on Monday did not take place. But another round of meetings is expected in the coming days.
Apart from royalty, the other critical issue that is said to be one of the pre-conditions is that Vedanta should give an undertaking that any future decisions by the Government will be final and binding and cannot be challenged.
On Sunday, after the meeting Cairn Energy — which proposes to sell a maximum of 51 per cent stake in its Indian arm, Cairn India Ltd, to Vedanta Resources for up to $8.48 billion — had said it was a constructive discussion on the transaction.
It also said that “Cairn and Vedanta continue to work with the Indian Government to complete the proposed transaction before April 15, 2011.”
The royalty liability has made projects like Rajasthan fields uneconomical for ONGC. This has been accepted by the Petroleum Ministry in the past and it held the view that ONGC should be reimbursed for the said burden by the Government.
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