The Cairn soap opera

| Updated on March 12, 2018

The Government would do well to grant approval for the Cairn-Vedanta deal while encouraging ONGC to pursue legal methods to protect its interests.

And so it continues. Just when one thought the soap opera over what should have been a simple, straightforward approval process for the proposed sale of Cairn India by its parent, Cairn Energy, to the Vedanta Group, was winding to a close, the Government has sprung yet another surprise. The omnipresent, omnipotent Group of Ministers (GoM), headed by the Finance Minister, Mr Pranab Mukherjee, is back in action and will now examine the deal to see if approval should be granted and, if yes, in what form, conditional or unconditional. This is strange given the seriousness of the issues involved. Here is a deal that has been waiting for government approval for the last six months and more; a number of documents have been studied; the issues involved have been analysed threadbare and, at the end of it all, the respective positions of the government and Cairn Energy on the issues are clear as crystal. And these have been discussed all the way up from the bureaucrat's level in the Petroleum Ministry to the Cabinet. What more is the GoM going to examine now that the Cabinet, and others before it, have not already discussed?

In fact, the question now is whether the two points of dissonance — should ONGC, minority partner in the Rajasthan field, pay the entire royalty or should it be written off in the field operating costs; and arbitration over payment of cess — are so great that the government would be justified in withholding approval to the deal? Surely these are commercial disagreements that can be sorted out between ONGC and Cairn India through legal recourse?

By delaying approvals yet again, the Government runs the risk of being charged with using the disagreements on payment of royalty and cess to torpedo the deal totally. It is obvious that Cairn Energy cannot agree to ONGC's demands because it would mean a devaluation of Cairn India and bring down the deal value. The latter's valuation is premised on the assumption that royalties and cess would not be borne by the company. If it seems that Cairn Energy is walking off with large profits, so be it, because it has invested tremendous risk capital in the Rajasthan field, given up as useless by no less than Shell. The best course of action for the Government is to grant approval for the deal while encouraging ONGC to pursue all legal methods to protect its interests. Cairn India, after all, will continue to exist, albeit with a new promoter, and is liable for the contracts it has signed with ONGC, as indeed with others in the past.

Published on April 08, 2011

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor