Cairn Energy's proposal to sell majority stake in its Indian arm to Vedanta Resources suffered a set back on Wednesday after the Cabinet Committee on Economic Affairs (CCEA) referred the deal to a Group of Ministers.

Cairn Energy Plc proposes to sell a maximum 51 per cent stake in Cairn India Ltd to Vedanta Resources for up to $8.48 billion. The decision to refer the deal to a ministerial panel follows differences among some ministries on certain legal issues relating to the transaction.

This would mean that Cairn-Vedanta will not be able to meet the April 15 deadline to complete the deal and will have to seek shareholders' nod for extending the deadline.

Speaking to media persons after the CCEA meeting, the Petroleum Minister, Mr S. Jaipal Reddy said, “There are some complex issues. The CCEA felt such a decision should not be taken in a hurry… There were some nuanced differences among the reactions from various ministries,” Mr Reddy said adding that, “therefore the Group of Ministers is being constituted to look into it.”

Though he did not elaborate on the differences and the issues, it is understood that issue of royalty and cess continued to haunt the deal. The CCEA was to take a call on issues relating to royalty, being borne by ONGC for the pre-NELP Rajasthan oil fields and the dispute on cess being paid under protest by Cairn for the fields.

The Petroleum Ministry has been maintaining that ONGC's interests will be protected, and this was reiterated on Wednesday. ONGC and the Ministry were of the view that royalty is recoverable from revenues earned from oil fields. On whether differences on royalty remained, Mr Reddy said “ there are no differences. My own Ministry took a categorical position that royalty should be treated as a cost recoverable item.”

The Petroleum Ministry wants Cairn to withdraw all existing arbitrations — two in Ravva and one in Rajasthan. One of the proposed options suggested that in the 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; Cairn India and its subsidiary to withdraw cess arbitration cases, 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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