Vedanta deal before CCEA
The Cabinet Committee on Economic Affairs (CCEA) is likely to meet, on Wednesday, to consider giving its approval for the $9.6 billion acquisition of Cairn India by London-based mining group Vedanta Resources.
“The CCEA may consider giving its approval to Vedanta’s acquisition of Cairn India, in which the state-owned Oil and Natural Gas Corporation (ONGC) has stakes,” Petroleum Ministry sources said.
After studying the proposal over months, the Petroleum Ministry is learnt to have sent the second revised note to the Cabinet seeking its approval to Vedanta’s proposal to acquire Cairn India, which is currently the joint venture between the UK-based energy major Cairn and ONGC. The Petroleum Ministry after incorporating comments on its first draft note from Ministries of Finance and Law submitted a final note for consideration of CCEA. The Ministry has virtually withdrawn its earlier contention that Rs 21,802 crore in royalty and cess paid by ONGC on behalf of Cairn India on the Rajasthan oilfields should be equitably shared. The Ministry in its revised Cabinet note has suggested an alternative that it will continue to legally pursue equitable sharing of royalty and cess, but will not make it a precondition for the deal’s approval.
In the note, the Petroleum Ministry has listed five pre-conditions to be met before giving final approval to the Cairn Vedanta deal. The five preconditions include royalty being made cost-recoverable, Cairn India withdrawing arbitration disputing its liability to pay cess, Cairn India obtaining no objection certificate (NOC) from its partner ONGC over Vedanta’s takeover and Vedanta providing performance and financial guarantees.
As an alternative to the precondition of royalty and cess, the Petroleum Ministry has suggested that the government will pursue all legal recourse for establishing its rights under the Production Sharing Contract (PSC) in the case of cess.
On royalty, it will take appropriate decision to enforce the provisions of PSC to make it cost-recoverable.
The Law Ministry, in its opinion on the preconditions, is understood to have suggested that any terms and conditions to be stipulated should be mutually agreed and they cannot be unilaterally imposed.
Currently, ONGC pays royalty on the entire quantum of crude oil produced from the fields. Over the life of the field, the royalty burden works out to Rs 18,000 crore, of which ONGC also has to bear Cairn's share of about Rs 12,600 crore.
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.
ONGC wants all payments made towards royalty and cess should be shown as operating cost like capital and operating expenses.
