Govt approves Cairn-Vedanta deal but with riders

New Delhi (PTI) - More than 10 months after USD
9.6 billion-deal was first struck, the Indian government
Thursday gave its approval to Cairn Energy for selling its
Indian unit to Vedanta Resources, subject to the new owner
agreeing to share royalty and pay oil cess on mainstay
Rajasthan oilfields.
The Cabinet Committee on Economic Affairs (CCEA)
headed by Indian Prime Minister Manmohan Singh approved the
sale with the preconditions that Cairn or its successor has to
treat royalty payments on Rajasthan oilfields as recoverable
from oil sales, Oil Minister S Jaipal Reddy told reporters
here.
Also, Cairn India will have to withdraw the
arbitration it has initiated disputing its liability to pay Rs
2,500 per ton oil cess on its 70 per cent share in the fields.
Besides, the approval will be subject to ONGC, which
has a stake in all the three oil and gas producing properties
and five out of seven exploration assets of Cairn India,
waiving its pre-emption rights, which Reddy termed as the
partner's no-objection certificate (NOC).
He said the deal would also need the security
clearance.
"The CCEA endorsed the recommendation of a Group of
Ministers headed by Finance Minister Pranab Mukherjee, which
was asked to go into the transaction," he said.
CAIRN TWO LAST
Last August, London-listed miner Vedanta proposed
buying 51-60 per cent of oil and gas explorer Cairn India for
up to USD 9.6 billion in cash, but the deal has been delayed
due to a lack of government and regulatory approvals.
Approval has been delayed over royalty payments that
ONGC makes on behalf of Cairn India in Rajasthan oilfields.
ONGC owns a 30 per cent stake in Cairn India's
Rajasthan oil field but pays the entire royalty on production
under the government's previous policy of giving discounts to
attract investors.
ONGC had, much before the Cairn-Vedanta deal was
announced, cited contractual provisions to demand that the
royalty to be recovered as a cost from revenue.
The state-owned firm maintained that as a partner it
has preemption or right of first refusal and the deal should
not proceed without its concurrence, Reddy said.
Both Cairn and Vedanta disputed royalty being made
cost recoverable as it would dent Cairn India profits. They
also opposed the need for partner consent for the transaction.
The GoM held that ONGC's views were correct and
recommended to the Cabinet that the deal be approved if Cairn
or its successor agreeing to adding royalty to the project
cost and recovered from oil sales besides agreeing to pay its
share of Rs 2,500 per ton oil cess.
Sensing the mood, Cairn lowered the price it is
demanding from Vedanta to make up for reduced profitability on
acceptance of the preconditions. It removed a non-compete
provision and related non-compete fee of Rs 50 per share.
Vedanta's total payment at the reduced price of Rs 355
per share for a 40 per cent stake in Cairn India will now be
USD 6.02 billion instead of USD 6.84 billion previously. Asked if the report of the Serious Fraud Investigation
Office (SFIO), which had found Vedanta group firm Sesa Goa
guilty of misconduct, would in anyway affect the government
approval, Reddy said he has communicated the decision taken
by the CCEA.
Refusing to say if the SFIO report was discussed, he
said "The CCEA records decision not the thoughts."