JOIN USSC moved against Vedanta's oil deal
The $8.48 billion Cairn-Vedanta deal was challenged in the Supreme Court on Monday as a public interest litigation (PIL) alleged that the government’s decision to relinquish public sector ONGC’s right of 41 per cent shares caused over lakhs of crores loss to the exchequer.
The petition filed by advocate Prashant Bhushan on behalf of Bangalore resident Arun Kumar Agrawal sought the apex court to direct CBI investigation as to why the Oil and Natural Gas Corporation (ONGC), which has first right to refusal, did not buy the shares in Cairn India Ltd.
The Cabinet Committee on Economic Affairs (CCEA) had on January 24 given approval to London-based mining group Vedanta Resources Plc’s acquisition of a majority stake in Cairn India Ltd for $8.48 billion.
The PIL questioned the decision of the ONGC and the government to relinquish their right to acquire 41 per cent of the shares in the Rajasthan oil block, one of the largest on-land oil fields in the world.
“The government has allowed transfer of oil resources of the country worth lakhs of crores of rupees to a private company by giving up its own legal rights in complete violation of the public trust doctrine. The premise of the doctrine is that certain resources are of such great public importance that they should not be subjected to private ownership or private commercial exploitation, and must be used in a manner so as to serve common good,” it pointed out. The petition sought the court to declare the deal as ultra vires.
The ONGC through an agreement with Cairn group had a provision that in case the Cairn Group wanted to sell its shares in Cairn India it would first offer the same to the ONGC.
If the ONGC refused to buy the stake, then only Cairn can sell it to another party and hence ONGC had the right of first refusal (ROFR).
“If the deal had been offered to ONGC, it would have been more profitable to ONGC by Rs 40,000 crores compared to Vedanta, on account of the royalty payment made by ONGC being less by 41% when compared with Vedanta,” the petition said.
It pointed out that the Rajasthan block has 6.5 billion barrels of oil in place capable of producing over 1.4 billion barrels of oil, according to the latest balance sheet of Cairns India.
“The operating cost of extraction is a mere US dollar 3.5/barrel while the sale price realized is over US dollar 100/barrel. This vast oil reserve would represent 30 pre cent of the total crude oil production of the country. Similar quantity of crude oil purchased by the oil marketing companies in the international market would cost 24 crore dollars or Rs 120 crores per day or Rs 44,000 crores per annum with additional transport costs,” the petition contended.
It alleged that the government has “virtually gifted away public resources for private commercial exploitation by giving up its own legal rights.”