Companies

CCEA likely to clear Cairn-Vedanta deal next week

PTI New Delhi | Updated on March 09, 2011 Published on March 09, 2011

The Cabinet is likely to consider giving approval to Vedanta Resources’ $9.6-billion buyout of Cairn India next week.

“Comments on the draft note that the Oil Ministry circulated last month have not been received from all the ministries. A couple of ministries are yet to give their comments,” an official with direct knowledge of the matter said.

The Oil Ministry will move the Cabinet Committee on Economic Affairs (CCEA) once comments from the ministries of finance, law, home, environment and corporate affairs are received.

In all probability, the CCEA is likely to give an in-principle nod to the deal where the London-based mining group Vedanta, which has no prior experience in oil sector, is buying up to 51 per cent stake of UK’s Cairn Energy Plc.

The Oil Ministry has watered down its pre-conditions and has almost withdrawn its contention that the Rs 21,802 crore in royalty and cess paid by ONGC on behalf of Cairn India from the Rajasthan oilfields should be equitably shared.

“In January, the Oil Ministry wanted the Cabinet to give its nod only after Cairn India agrees to equitable sharing of royalty and paying its share of cess,” the official said.

“However, in the note that was finally circulated, the Oil Ministry has given an alternative that it will continue to legally pursue equitable sharing of royalty and cess, but will not make it a pre-condition for approval of the deal,” he said.

The note lists two alternatives. In the first, it lists out five pre-conditions, instead of the 11 it had originally proposed to Cairn/Vedanta in January.

The five pre-conditions include royalty being made cost-recoverable, Cairn India withdrawing arbitration disputing its liability to pay cess, Cairn India obtaining partner ONGC’s no-objection and Vedanta providing performance and financial guarantees, another official said.

As an alternative to the pre-condition of royalty and cess, the Ministry has suggested that the Government shall pursue all legal recourse for establishing its rights under the Production Sharing Contract (PSC) in the case of cess. On royalty, it shall take appropriate decision to enforce the provisions of PSC to make royalty cost-recoverable.

But the condition that Cairn India will have to obtain a no-objection certificate (NOC) from its partner Oil and Natural Gas Corp (ONGC) has been retained, an official said.

ONGC holds a stake in eight out of 10 properties held by Cairn India. The Ministry is of the view that the change of control of Cairn India amounts to an indirect assignment or transfer of participating interest in the blocks, so there is a need for the Government as well as the partner’s nod.

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Published on March 09, 2011
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