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The Cabinet Committee on Economic Affairs is expected to discuss on Wednesday Cairn Energy Plc's proposal to sell a maximum 51 per cent stake in Cairn India to Vedanta Resources for up to $8.48 billion.
If the transaction is allowed by the CCEA, then it will make Vedanta Resources controlling stakeholder of a company (Cairn India) which operates India's biggest on-land oil fields in Rajasthan. This is also termed as a biggest acquisition proposal in the country's petroleum sector.
However, analysts feel that even if the CCEA approvals come through on Wednesday, Cairn still may not be able to meet the April 15 deadline to complete the transaction.
The two companies (Cairn Energy and Vedanta Resources) may approach their shareholders for extension of the deadline on grounds that now mere paper works and open offer need to be completed, analysts added.
The issues
The CCEA will need to take a call on some major issues, including royalty, being borne by ONGC for the pre-NELP (New Exploration Licensing Policy) Rajasthan oil fields and the dispute on cess being paid under protest by Cairn for the fields.
The Petroleum Ministry wants Cairn to withdraw all existing arbitrations – two in Ravva and one in Rajasthan. Cairn has 10 oil and gas blocks in India – three pre-NELP and seven NELP. Of the 10 blocks in 8 blocks ONGC is Cairn's partner.
PSCs at stake
Sources in the know said that the Petroleum and Natural Gas Ministry has placed before CCEA two options after much deliberation and inter-ministerial consultations. The Petroleum Ministry has proposed that in case of Rajasthan block: RJ-ON-90/1 the consent may be granted subject to conditions.
These conditions are cost recovery of royalty to be agreed to by Cairn India, according to the production sharing contract (PSC), Cairn India and its subsidiary to withdraw cess arbitration case, Cairn India to get a no objection certificate from its partner in the block – in this case ONGC.
As an alternative to this the condition the Ministry has proposed that consent may be granted but the Government will pursue all legal recourses for establishing its rights under the PSC in the case of cess, and will take appropriate decision to enforce provisions of the PSC in case of cost recovery of royalty by ONGC.
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