“We expect that the government would not link royalty issue with the deal,” Vedanta chairman Anil Agarwal said in London on Thursday, adding, “it is a clear deal between two companies — Vedanta Resources and Cairn Energy”.
He was responding to queries in an investor call after announcing the financial results of the company.
Moreover, the company also expressed confidence that the deal would be closed “as soon as possible” and said it would acquire 58.5 per cent stake in Indian arm of Edinburgh-based Cairn Energy for $9.4 billion, post completion of the open offer by its subsidiary Sesa Goa.
“We would be happy to close this transaction as soon as possible. The government has set up a body to evaluate this transaction,” Vedanta CEO M.S. Mehta said in the investor call.
Both the firms — Cairn Energy and Vedanta Resources — have set a deadline to rap up the deal by May 20, after extending the initial deadline of April 15.
Vedanta Resources, through its subsidiary Sesa Goa, currently holds 18.5 per cent stake in the Cairn India and has tied up funds to the tune of $6 billion to acquire another 40 per cent stake from Cairn Energy.
The company purchased 10.4 per cent stake in Cairn India from Malaysian firm Petronas at Rs 331 per share last month, paying over Rs. 6,620 crore, while it managed to get 8.4 per cent stake through open offer for about Rs. 5,503 crore.
Last month, the Cabinet Committee on Economic Affairs had referred the Cairn-Vedanta deal, announced in August, 2010, to a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee as there were sharp differences over the conditions to be set for giving its approval.
However, the first meeting of the GoM, which was to be held on last Monday, was postponed and a new date has not yet been fixed.
The bone of contention, due to which the deal has not yet got the government nod, is state-run ONGC’s claim that Cairn India must pay the royalties equitably for its oil production from the Barmer oil fields in Rajsthan.
At present, ONGC pays 100 per cent royalty on the entire crude oil production from the oil-field, although it holds only 30 per cent stake. Over the life of the field, the royalty burden works out to be Rs. 18,000 crore, of which ONGC also has to bear Cairn’s share of about Rs. 12,600 crore.
Cairn India, which holds 70 per cent stake in the 6.5 billion barrels Rajasthan block, does not pay any royalty and is opposed to making it cost recoverable as it will dent its profits.
Cairn has also disputed any liability to pay Rs. 2,500 per tonne cess on its 70 per cent share of production from the Rajasthan blocks, which totals Rs. 9,202 crore for ONGC over the life of the field.
Besides opposing cost recovery of royalty, Cairn Energy has maintained that its stake sale to Vedanta does not require the government nod and had through its Indian unit made a conditional application in November-end on insistence of the Oil Ministry.
The application also rejected rights of ONGC, which has stake in eight out of 10 properties of Cairn India.
However, a legal opinion given by Solicitor General of India (SGI) and endorsed by Law Minister M. Veerappa Moily, said that Vedanta must agree to equitably share Rs. 18,000 crore royalty ONGC pays in excess of its share from Cairn India’s mainstay Rajasthan oilfields, before the government nod.
According to the proposal, put forward to the CCEA, the Petroleum Ministry had listed two options — in the first making royalty cost-recoverable as a pre-condition for approval.
Alternatively, it has suggested that the government gives its consent to the deal without any pre-condition and “appropriate decision” will be taken to enforce ONGC’s right.
SGI had however, opposed the second option suggested by the Oil Ministry saying: “The second option which has been suggested in the Cabinet note i.e. pursuing rights under the PSC (production sharing contract) to recover the rightful dues of ONGC, would involve an undesirable amount of time and resources to be spent and would be contrary to the public interest.”
The Cabinet note has admitted that Cairn or Vedanta Resources could later play hooky as it was doing in the arbitration case on payment of cess on Rajasthan oil.
SGI’s opinion was taken on the insistence of Finance Ministry which wanted to know the legality of ONGC’s demand.
More than three months after announcing the sale of its up to 51 per cent stake in the Indian unit to Vedanta, Cairn Energy on November 23 last year had made a conditional application to seek the government’s nod but refused to accept partner ONGC’s rights.
ONGC holds stakes in eight out of Cairn India’s 10 assets, including the mainstay Rajasthan oilfields.