GoM recommends nod to Cairn deal

Cabinet panel to take the final view in two weeks

A group of ministers (GoM) has decided to recommend approval to the $9.8-billion Cairn-Vedanta deal to the Cabinet Committee on Economic Affairs (CCEA). A final call on whether the approval will be conditional will be taken by CCEA within two weeks.

After the GoM meeting, which lasted more than an hour, Petroleum Minister S Jaipal Reddy did not say whether it would be a conditional approval. “It (GoM) has taken a view on the matter ... It will be placed before CCEA in two weeks,” he said.

The deal was opposed by Oil and Natural Gas Corporation (ONGC), Cairn’s partner in its most prolific block in Barmer in Rajasthan. Under the original agreement, ONGC was to pay the entire royalty on production, though it was entitled to just 30 per cent revenue. After the deal was announced, ONGC said the royalty should be ‘cost-recoverable’. Making royalty cost-recoverable will pass on some burden on this account to Cairn India and the government.

Reddy reiterated support for ONGC’s claim. “My view was contained in the note put up to CCEA. I have always taken the view that ONGC’s claim that the royalty should be cost-recoverable is supported by us,” Reddy said, but clarified that he was not referring to the recommendation that might be made by the GoM. (Click here for table & graph)

Reddy said the GoM had “no authority to take a decision” but added it had taken a unanimous view.

Vedanta wants to buy a majority stake in Cairn India. Sesa Goa, its subsidiary, has already bought a 8.1 per cent share in an open offer. It has also bought a 10.4 per cent stake from Malaysia’s Petronas, raising its total holding to 18.5 per cent. On approval, Cairn Energy Plc will sell a 40 per cent stake in Cairn India to Vedanta. After this, Cairn will hold a 21.7 per cent stake in the company.

In April, the cabinet, which was supposed to take a decision on the deal, referred the matter to the GoM. The petroleum ministry circulated a cabinet note that gave two options — either conditional clearance or absolute clearance while leaving legal recourse open to both Cairn India and ONGC.

There is also an issue of cess on production from the Barmer block that is under arbitration.

In August 2010, London Stock Exchange-listed Vedanta Resources had announced plan to buy up to 60 per cent stake in Cairn India for $9.6 billion. The deal however ran into hurdles with petroleum ministry insisting on written applications to clear the deal.