Mining group Vedanta Resources' $9.6 billion acquisition of Cairn India is not listed for consideration by the Union Cabinet this week amid talk that Cairn may be asked resubmit applications seeking government approval for the deal without attaching any conditions.
On November 23, Cairn India, made conditional applications, which have come in for questioning following a Delhi high court ruling.
"As of now, it is not listed on the agenda of the Cabinet meeting slated for tomorrow," an Oil Ministry source said on Monday.
The Delhi high court had last week upheld the state's sovereignty on the grant of consent in case of 'any material change in the status of the companies or their shareholding'.
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 state-owned ONGC's preemption rights.
This is contrary to the Delhi high court ruling that held the government's right to approve transactions resulting in a change in the status of companies, they said, adding that after the deal, Vedanta will have a 60 per cent stake in Cairn India, a material change in a firm that controls the nation's largest oilfield.
The oil ministry had opposed the conditional application, which is mentioned in the note for Cabinet seeking approval for the $9.6 billion deal.
This was also cited in the draft note it sent to the Prime Minister's Office for inclusion in his reply to UK Prime Minister David Cameron's letter alleging delays in approval of the deal.
"The question before us is if we can apply different standards to Canoro and Cairn," the source said.
"So far, no decision has been taken." Cairn's application stated, "No consent is required or contractually called for," and it was seeking the nod as a responsible citizen which fully respects sovereignty.
The Delhi high court in its ruling said: "An interpretation, either of a law or a contract, which impinges on the sovereign power of the state to safeguard its vital and strategic interests (and not just commercial interests), would be eschewed by the court to save the law, or the contract, from being void on the ground of it being opposed to public policy."
Sources said the watered down conditions for approval of the Cairn-Vedanta deal are likely to be considered by the Cabinet only next week.
The Oil Ministry wanted the deal to come up before the Cabinet Committee on Economic Affairs this week, but it is not listed for the meeting slated for Tuesday.
The ministry has watered down its preconditions and has almost withdrawn its contention that Rs 21,802 crore (Rs 218.02 billion) in royalty and cess paid by ONGC on behalf of Cairn India from the Rajasthan oilfields should be equitably shared.
"In January, the Oil Ministry wanted the Cabinet to give its nod only after Cairn India agrees to equitable sharing of royalty and paying its share of cess," the source said.
"However, in the note that was finally circulated, the Oil Ministry has given an alternative that it will continue to legally pursue equitable sharing of royalty and cess, but will not make it a precondition for approval of the deal," he said.
The note lists two alternatives.
In the first, it lists out five preconditions, instead of the 11 it had originally proposed to Cairn/Vedanta in January.
The five preconditions include royalty being made cost-recoverable, Cairn India withdrawing arbitration disputing its liability to pay cess, Cairn India obtaining partner ONGC's no-objection and Vedanta providing performance and financial guarantees, the source said.
As an alternative to the precondition of royalty and cess, the ministry has suggested that government shall pursue all legal recourse for establishing its rights under the Production Sharing Contract in the case of cess.
On royalty, it shall take appropriate decision to enforce the provisions of PSC to make royalty cost-recoverable.
Sources said it was unlikely that the Cabinet will go with the first option when an easier and least controversial option has been given in the second.
But the condition that Cairn India will have to obtain a no objection certificate from its partner Oil and Natural Gas Corporation has been retained, the source said.
ONGC holds a stake in eight out of 10 properties held by Cairn India.
The ministry is of the view that the change of control of Cairn India amounts to an indirect assignment or transfer of participating interest in the blocks, so there is a need for the government, as well as the partner's nod.
The Oil Ministry's position on an NOC from ONGC has also been upheld by the Law Ministry and the nation's second highest law offer, the SGI.
"The Oil Ministry has moved a Cabinet note seeking approval for the deal subject to Cairn India and its subsidiaries seeking a NOC from partner ONGC," he said.
The ministry has, however, withdrawn the precondition asking Cairn India to give up its legal rights on future disputes over its mainstay Rajasthan oilfield and abide by the government and oil regulator DGH's diktat.
"The Law Ministry, in its opinion on the preconditions, stated that any terms and conditions to be stipulated should be mutually agreed and they cannot be unilaterally imposed," the source said.
"The condition that Cairn has to forego its legal right shall be void under the Indian Contract Act."
ONGC owns a 30 per cent stake in the Rajasthan block, but 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 (Rs 180 billion), of which ONGC also has to bear Cairn's share of about Rs 12,600 crore (Rs 126 billion).
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 (Rs 92.02 billion) for ONGC over the life of the field.
Sources said ONGC wants royalty and cess to be cost-recoverable, like capital and operating expenses.
Under the PSC, capital and operating expenses are first deducted from the sale of oil and the profits shared between the stakeholders, including the government, thereafter.
Cairn and Vedanta are opposed to the move as it would lower Cairn India's profitability.
Sources said all the Oil Ministry now wants Vedanta to make appropriate disclosures to market regulator Securities and Exchange Board of India when it makes an open offer for acquiring an additional 20 per cent stake in Cairn India, as per takeover rules.
Comments on the note are likely to be received by next week and the matter may go to the Cabinet in the following week for consideration.
Though Cairn Energy and Vedanta have a timeline of April 15 to close the transaction, the deal will go through even if Cabinet was to give its nod by the month-end.
Once the government's nod is obtained, the two firms can approach their shareholders seeking an extension of the April 15 deadline, saying the conclusion now remains a mere formality.
Sources said that in all likelihood, the deal can be closed by May-end.
The note states that Vedanta Resources had only 'very recently' informed the ministry through a letter dated January 28 that the transaction needs to be closed by April 15.
© 2024 Rediff.com -