BW Communities

Taking It Out Of The Pipeline

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[A precedent has been set by the government in clearing the estimated $9.6 billion Cairn-Vedanta deal. The Cabinet Committee on Economic Affairs that approved the deal on Thursday was under pressure to ensure, that there is no revenue loss, like in case of 2G spectrum. The government expects to garner about Rs 17,000 crore if the approvals suggested by CCEA are accepted by the management of Cairn and Vedanta. But initial indications are that legal option is on top of the various options mulled by Cairn and Vedanta. Sources who attended the meeting said, there was consensus in CCEA, not to dilute on the ONGC stand on royalty payment. "The Oil Minister (Jaipal Reddy, Union Minister for Petroleum and Natural Gas) stood ground on royalty and cess issues." The suggestion by a few members in CCEA to get the royalty issue reexamined by a core group of experts was dismissed by him. To an observation by one of the cabinet members, that, foreign investors are closely watching government's decision on Cairn Vedanta issue. Reddy reiterated in the CCEA meeting held on Thursday evening, that government cannot be seen bending backwards to get foreign direct investment. "They (investors) need to see a firm government with clear policy," he was quoted by sources to have said at the meeting. Oil and Natural Gas Corp (ONGC), which has 30 per cent stake in three of the 10 oil fields, has paid a royalty and cess of Rs 21,802 crore for the whole field, to Government, on behalf of Cairn India on production from the Rajasthan oilfields. This, government has said, royalty and cess should be equitably shared by ONGC and Cairn. A senior analyst with a firm advising Cairn on the deal said, "A possible oversight by the CCEA (to ask Cairn pay royalty and cess), it will not be acceptable to Cairn." It seems so. A Cairn spokesperson said, "Cairn and Vedanta continue to work with the Government of India to secure the necessary consents and approvals." The tenor of the statement from Vedanta was same, even after the government notified the CCEA decision on its website. The government has thrown the ball in Cairn-Vedanta's court. A senior Vedanata official said, "It is a status-quo on issues raised by us with the government." CCEA's decision has not only questioned Cairn's arbitration proceeding on cess liability, but also sought an end to it, in various courts globally. A senior ONGC official, who helped draft the company's strategy in its submissions to GoM, said, "We expect them to accept, but are prepared for a longer battle in courts, provided, we get support from our largest shareholder (the Government)."  The public sector oil major is confident, that it will get the support, considering that two major policy deciders in the government—Group of Ministers and CCEA hold the same view on Cairn-Vedanta deal. Cairn and Vedanta are non committal about the legal option. But, it should not be surprising if they were to knock the doors of justice soon.  Considering, the CCEA has endorsed the suggestions made by the Group of Ministers in matters related to royalty and cess. Cairn had moved Delhi High court, challenging government's objection to the share holding between Carin and Vedanta in 10 Rajasthan oilfields and changes in production sharing contract. But, the Delhi High Court had upheld the government's sovereign right to safeguard its vital and strategic interests. Analysts advising Cairn, said, "The companies (Cairn and Vedanta) cannot go back on this deal, they will have to find way out and it will have to be forward, even if it is to be legal." The government approval came after 11 months of Cairn and Vedanta announcing the deal. Reddy after announcing the CCEA's decision said, "We are happy that we took the final decision…" The stakes are still high for Cairn and Vedanta, to make such a statement yet. (This story was published in Businessworld Issue Dated 11-07-2011)