Cairn-Vedanta deal: Finance Ministry for legal opinion on ONGCs claims

New Delhi: The finance ministry wants a legal opinion from the law ministry to be taken on royalty state-owned ONGC pays on behalf of Cairn India before Cabinet considers giving nod to Vedanta Resources’ USD 9.6 billion acquisition of Cairn India.

Oil and Natural Gas Corp (ONGC) owns 30 per cent in Cairn India’s mainstay Rajasthan oilfields but pays royalty on not just its share of oil but also on Cairn’s 70 per cent share.

It had on July 14, 2010, a month before Vedanta announced buying most of Cairn Energy Plc’s stake in Cairn India, cited contractual provisions to say royalty — like other duties, levies and fees alongside capital and operating expenditure — is recoverable from sale of oil before profits are split between all stakeholders including government.

Sources said the finance ministry was of the view that the grant of consent for the deal cannot be made conditional upon settlement of disputes and instead asked the oil ministry to seek a legal opinion from the law ministry on the issue of cost recovery of royalty paid by ONGC before taking the proposal to the Cabinet.

This was the finance ministry’s response to the waterdown draft cabinet note that the oil ministry had circulated to the ministries of law, finance, home, environment and corporate affairs before taking Cairn-Vedanta deal to the Cabinet for approval.

Sources said other ministries too have concurred with the view that government approval to the USD 9.6 billion deal should be given.

In all likelihood, the approval may come up before the Cabinet Committee on Economic Affairs for consideration next week.

Cairn India had on November 23 last year, more than three months after its parent firm Cairn Energy announced the sale of its majority stake in the company to Vedanta, made conditional applications seeking government nod for the deal.

Some say the conditional application run contrary to this month’s Delhi High Court ruling that held the government’s sovereign right to approve transactions resulting in a change in the status of companies operating national resources.

It used this ground to allow the government to terminate Canoro Resources’ contract for the Amguri oilfield in Assam.

The Canadian firm had sold shares to Barbados-based MASS Financial Corp without seeking prior government nod.

Sources said Cairn, after repeated reminders, had on November 23 applied for the sale of a 51 per cent stake to Vedanta, but with a rider that government consent was not mandatory and that the corporate deal involving a share transfer does not trigger partner ONGC’s pre-emption rights.

ONGC by virtue of its stakes in 8 out of 10 properties of Cairn India claims pre-emption rights.