The Cabinet Committee on Economic Affairs headed by the Prime Minister, Dr Manmohan Singh, is likely to clear London-listed mining group Vedanta Resources’ $9.6-billion acquisition of Cairn India tomorrow after overruling the Law Ministry’s opinion on state-owned ONGC’s rights.
“The Cabinet Committee on Economic Affairs (CCEA) has been scheduled for tomorrow afternoon...in all likelihood, it will give an in-principal approval to the Cairn-Vedanta deal,” an official privy to the development said.
The Cabinet panel, which will besides the Prime Minister, includes the Finance Minister, Mr Pranab Mukherjee, the Home Minister, Mr P. Chidambaram, the Oil Minister, Mr S. Jaipal Reddy, the Environment Minister, Mr Jairam Ramesh, the Law Minister, Mr M. Veerappa Moily, and the Corporate Affairs Minister, Mr Murli Deora, may overrule the opinion of the Solicitor General of India that Vedanta must agree to equitably share royalty on oil produced from Cairn India’s mainstay Rajasthan oilfields before the Government nod.
“The pre-condition will be overruled by arguing that the Government’s stake from Rajasthan oilfields will be impacted if Rs 18,000-crore royalty ONGC will pay in excess of its share in the oilfields is cost recovered from revenues,” the official said. “The Government revenues will be dented by $1 billion.”
Incidentally, the Government is committed to reimbursing in full the royalty ONGC pays in excess of its 30 per cent share in Rajasthan oilfields in case it is not cost recovered.
Oil and Natural Gas Corp (ONGC) had in July 2010, more than a month before the Edinburgh-based Cairn Energy announced sale of majority stake in its Indian unit to Vedanta, cited provisions in the field contracts to say royalty, like any other levy, is cost recoverable.
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.
Besides opposing the 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 the rights of ONGC, which has stake in eight out of 10 properties of Cairn India.
The official said CCEA may ask Cairn to seek ONGC’s no-objection. Oil Ministry’s Cabinet note lists royalty being made cost-recoverable as a pre-condition for approval as an option.
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.