Cabinet to decide on Cairn-Vedanta deal

The fate of the Cairn Energy-Vedanta Resources deal will be decided by the Cabinet Committee on Economic Affairs (CCEA), with the Petroleum Minister, Mr S. Jaipal Reddy, stating that his Ministry would approach the CCEA for approvals in two-three weeks.

“As it is a huge issue we are trying to go to the CCEA,” the Minister told newspersons in Panipat on Tuesday.

Views of the Ministries of Finance, Law and Corporate Affairs will be sought before approaching the Cabinet, he said.

The CCEA will need to take a call on some major issues including royalty being borne by ONGC for the prolific pre-NELP 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.

Further, the CCEA's consent would also be sought on the financial guarantees by the prospective buyer for the seven NELP blocks which Cairn India and its subsidiaries own. For the other two pre-NELP blocks – Ravva and Cambay – the Ministry would also seek financial guarantee.

As regards concerns raised by ONGC, the Minister said, “We cannot bail-out any buyer. We cannot compromise on ONGC's concerns. Their (ONGC) claim of cost-recovery mechanism is supported by us.”

Cairn Energy is selling a maximum of 51 per cent stake in its Indian arm, Cairn India Ltd, to Vedanta Resources for up to $8.48 billion. The deal is the biggest acquisition proposal in the country's petroleum sector.

Vedanta and Cairn Energy need Government approval by February 20 to complete the transaction by April 15, as it will require to meet other regulatory commitments including an open offer. But, going to the Cabinet could mean that a decision on the deal could come after April 15.

Cairn Energy spokesman said that, “Cairn continues to work with the Government of India to secure the consent and approval needed to complete the proposed transaction with Vedanta by April 15.”

ONGC is a partner in eight out of the 10 blocks that Cairn owns. For Rajasthan fields ONGC pays 100 per cent royalty, though its share in the field is 30 per cent. Cairn holds the remaining 70 per cent and is the operator. ONGC wants royalty paid for the fields to be included in the project cost for purposes of profit calculation, making it cost recoverable. Royalty is paid on the entire volume of crude produced from the block.

However, going by the PSC, Cairn has been interpreting that that royalty does not qualify to be part of contract costs.