A ministerial panel is likely to decide on Friday if the Government should approve Cairn Energy Plc’s sale of stake in its Indian unit to mining group Vedanta Resources with conditions or without any precondition.

The Group of Ministers (EGoM) headed by the Finance Minister, Mr Pranab Mukherjee, is scheduled to hold its first meeting at 4.30 p.m., on May 27, an Oil Ministry official said today.

The Cabinet Committee on Economic Affairs (CCEA) had on April 6 asked the GoM to vet the $9.6-billion deal, but the panel has not held a single meeting in seven weeks since then.

Earlier, the then Oil Minister, Mr Murli Deora, was accused of delaying approval for the transaction, but he moved to the Corporate Affairs Ministry in late January and there is still no sight of a decision.

Industry sources said they were apprehensive about the prospects of the GoM arriving at any decision tomorrow as key Oil Ministry officials — Special Secretary Mr P.K. Sinha and Joint Secretary-Exploration Mr D.N. Narasimha Raju — who have been dealing with the subject for the past nine months, are on official tour abroad.

Oil Secretary Mr G.C. Chaturvedi, who came to the Ministry of Petroleum and Natural Gas only this month, is still grappling with the subject, while Oil Minister Mr S. Jaipal Reddy too is relatively new to the job.

Sources said things have also become complicated for the GoM after Solicitor General Mr Gopal Subramaniam reaffirmed his earlier opinion that the Government can impose preconditions like asking Cairn or its successor to share cess and royalty with the state-owned Oil and Natural Gas Corp (ONGC) in the all-important Rajasthan block.

In his second opinion, which was sought by M Pranab Mukherjee, the SGI said: “The government is not bound to grant consent ipso facto or mechanically.”

The precondition that Cairn/Vedanta agree to a cost recovery of Rs 18,000 crore in royalty that ONGC has to pay on the Rajasthan block would be “defensible on parameters of public and national interest’’, the SGI said in the second opinion.

Sources said the GoM itself is split in the middle on the issue of treating royalty paid by ONGC as cost-recoverable from its revenues. While Mr Reddy has played it safe by giving an alternative to ONGC’s demand, which was originally made a month before the Cairn—Vedanta deal was announced in August last year, the Law Ministry and Planning Commission have backed making cost-recovery of royalty a precondition for approval.

The Finance Ministry is in favour of Mr Reddy’s second option of the government giving consent without any precondition and taking appropriate decisions to protect ONGC’s interests. It remains to be seen if Mr Pranab Mukherjee will sideline the SGI opinion in approving the deal.

In his first opinion on March 24, the SGI had categorically stated that the transfer of Cairn India shares to Vedanta should be allowed only if the latter agrees to preconditions on the deal.

ONGC owns a 30 per cent stake in Cairn India’s mainstay Rajasthan block, but is liable to pay royalty on the entire output from the field. Cairn is also contesting its liability to pay Rs 2,500 per tonne cess on its 70 per cent share.

But unlike royalty, it is treating cess as a cost-recoverable item. All cost-recoverable items like capital and operating expenditure are first deducted from revenues earned from the sale of oil before profits are shared between stakeholders, including the government.

Cairn Energy, which wants to sell at least a 40 per cent stake in its Indian unit to Vedanta, and the London-listed mining group are opposed to making royalty cost-recoverable as it will lower the profitability of Cairn India.

“The purpose of consent is the provision of a power to regulate the performance of obligations which arise under a contract and not to defy them. Hence, a consent can be conditional,” the SGI said in the second opinion on April 6.

The Government “cannot deny consent except on logical grounds. Such conditions, as preserve many different components of public interest, can be validly imposed. The conditions must be borne out of fairness, vigilance and public interest,” he said.

Sources said the recommendation of the GoM, whose other member is Telecom Minister Kapil Sibal, will go to the CCEA for final approval.

The SGI has also upheld the condition that Cairn should withdraw the arbitration it has initiated in protest against the imposition of cess on it.

“Can Cairn be asked to withdraw the cess arbitration case? As a part of negotiation, it can be asked to withdraw the cess arbitration case,” he opined.

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