On 19 April, Anil Agarwal, chairman of London-listed Vedanta Resources, moved one small step closer to fulfilling his dream of getting a controlling stake in Cairn India, courtesy Malaysian oil and gas major Petronas, which held 14.94 per cent share in Cairn India. Petronas sold its entire stake of 283.4 million shares for about $2.1 million. Sesa Goa, Vedanta's subsidiary, picked up about 11 per cent while institutional investors bought the remaining 3.94 per cent."The stake sale has reduced free float of Cairn India stock, leaving only 26 per cent with minority investors. The development would improve the acceptance ratio to 77 per cent (53 per cent earlier) in Sesa Goa's open offer initiated on 11 April," says Ballabh Modani, analyst at Religare Capital Markets. (Cairn Energy is selling 51 per cent of Cairn India, of the 62.2 per cent it owns, to Vedanta for $9.6 billion, subject to government approvals.) The transaction has also lowered Vedanta's acquisition cost as it bought the 11 per cent stake at Rs 331 a share when the open offer price is Rs 355. Another analyst points out that until the government gives its approval to the Cairn Energy-Vedanta deal, "the present buyout (of the Petronas stake) would not change the management structure of Cairn India. So, the company's valuation should not drop. We will have to see how things move when Vedanta Resources actually manages to take over the entire stake". WORK IN PROGRESS The biggest oil and gas deal in India has followed a twisted route 16 AUGUST 2010: News of Vedanta Resources buying majority stake in Cairn India for $9.6 billion leaked17 AUGUST: Deal formally announced. Cairn India's partner in Rajasthan, ONGC, wants royalty to be taken as cost recoverable31 AUGUST: Ministry of Petroleum and Natural Gas asks Cairn Energy to get government clearance14 DECEMBER: Vedanta Resources shareholders approve the proposed acquisition in Cairn India11 JANUARY 2011: Prime Minister's Office asks the petroleum ministry to approve the deal by end of January — a month sooner than the ministry's deadline24 JANUARY: The petroleum ministry is ready to give an ‘inprinciple' approval if Vedanta agrees to 11 pre-conditions. Cairn disagrees with some14 MARCH: Green signal to the open offer by Sesa Goa, Vedanta's subsidiary in India, for Cairn India's minority shareholders6 APRIL: A Cabinet committee on the deal ends inconclusively. The case is referred to a group of ministers11 APRIL: Sesa Goa makes open offer19 APRIL: Vedanta buys 11 per cent in Cairn India from Petronas Given that Vedanta's open offer for Cairn India shares had just opened, the sudden negotiated sale of the Petronas stake at a lower price has left some analysts foxed. "It would have been a better option financially to sell in the open market,'' points out one market watcher. Petronas sold its stake for Rs 24 less than the open offer price of Rs 355 — and also lost out on the tax benefits that come from selling during an open offer. Some analysts say that Cairn Energy may have persuaded Petronas to do the deal — the Malaysian company and Cairn Energy are partners in six operational blocks in Greenland (Petronas has a 10 per cent stake in these fields). Cairn Energy has told its shareholders that the money generated from the stake sale of Cairn India would be invested in these fields. Silver LiningThe Cairn Energy-Vedanta deal has been stuck since it was announced in late 2010, because it has failed to get government approval. The big hurdle is that ONGC, which is Cairn India's partner in the Barmer block, and the Ministry of Petroleum and Natural Gas, have been opposing the deal until issues of royalty and cess payments are resolved. ONGC wants Cairn Energy to pay a share of the royalty to the government (Cairn Energy says ONGC is supposed to pay the entire amount) before it gives its approval to the deal. The petroleum ministry wants the cess dispute — arbitration proceedings are taking place on this in London — resolved before clearing the deal. Government clearance is mandatory for this deal to happen because oil fields are sovereign assets, and the government needs to clear any change of ownership and management that takes place in any field. However, Vedanta recently found support from the finance ministry, which threw its weight behind the deal in the last meeting of the Cabinet Committee on Economic Affairs (CCEA) held on 6 April. Documents in possession of Businessworld reveal that the finance ministry's view at the meeting was that the disputes over subsidy and cess should be delinked from the issue of shareholding transfer in Cairn India. The Department of Economic Affairs' view was that differences lay in the interpretation of the production sharing contract (PSC) and could be resolved with the new shareholder after the deal was done. At the end of the meeting, the CCEA had two options for Cairn Energy. The first option was essentially the same as what the petroleum ministry wants — that the royalty is paid and the cess arbitration proceedings are dropped before the deal is approved. The second option was softer — it asked Cairn Energy to take prior consent from ONGC, and complete the deal with the proviso that the government would be free to take a decision on the royalty issue after the deal was fructified. (The implication being that both Cairn and Vedanta would agree to whatever decision the government took on the royalty issue.) break-page-breakThe second option is, of course, more attractive for Cairn Energy. However, sources told BW that there is concern that the move would seem too favourable towards Cairn Energy and Vedanta in an atmosphere where the government is being criticised for being soft towards many businessmen. For the important Barmer block — which is Cairn India's richest asset so far, and which was given in a pre-NELP agreement — the finance ministry has asked the petroleum ministry and ONGC to consult the law ministry to check if the royalty and other disputes can be sorted out after the change in management. The finance ministry fears that such wranglings would affect the efforts being made to attract foreign direct investments. Petroleum ministry officials, on their part, cited a 7 March Delhi High Court judgement in a case in which Canada-listed Canoro Resources challenged the ministry over contract termination. The petroleum ministry had terminated the PSC with Canoro for Amguri oilfield in Assam after Canoro raised 95 million Canadian dollars in April 2009 through a mix of debt and equity sale to Barbados-based Mass Financial, without taking the Indian government's consent. The petroleum ministry said that the court validated that the government has a say if the management of the oil blocks — a sovereign asset — is changing hands. Moreover, solicitor general of India Gopal Subramanium has countered the finance ministry's advice of taking legal recourse as a non-feasible option. Some market watchers say that the just-concluded Vedanta-Petronas deal was supposed to have gone through last year when Cairn India's open offer got the government's approval. However, it was then shelved "after seeing the stiff resistance from the government to the deal". Now, with the finance ministry behind it, Vedanta Resources is perhaps more confident of moving forward. anilesh(dot)mahajan(at)abp(dot)in
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India is considering exporting fuel to Pakistan if allowed, to help its neighbour meet a shortfall, an Indian official said on Monday, a move that could bring a new market for refiners such as Reliance Industries and Essar Oil.Like much of their commerce, fuel trade between the two nuclear-armed neighbours has been held hostage to their years of hostility, with Pakistan intermittently lifting a ban on imports of Indian petroleum products when relations have improved.The issue of fuel trade between the two rivals came up in the middle of 2008, but has been on hold as relations deteriorated following the November 2008 attacks in Mumbai that killed 166 people.The possiblity of the ban being lifted again comes as the two countries, which have fought three wars since their independence from Britain in 1947, are trying to revive a sluggish peace process derailed by the Mumbai attacks."It's a possibility that is being looked at with a positive frame of mind from our side," an Indian government official said on condition of anonymity given the sensitiveness of relations between the two nations.It was not immediately clear how much fuel could be exported by India and from when.On Monday, the Economic Times newspaper said New Delhi had agreed to export fuels to Pakistan and provide a new market for large refineries of Reliance Industries and Essar Oil."Pakistan is ... keen to import refined petroleum products from across the border to save cost," the newspaper quoted an Indian government official with direct knowledge of the matter as saying."The Indian side will firm up the proposal in an internal meeting on Monday before the bilateral meeting," the unnamed source told the paper.At the end of March, the prime ministers of the two countries watched their teams in a semi-final of the cricket World Cup in India, fanning hopes of further improvements in relations.Pakistan has about 12 million tonnes of refining capacity, which meets only half of its annual requirements. India exports about 25 per cent of its 185 million tonne refining capacity, the Economic Times said.A decision to import from India could help Pakistan cut its widening trade deficit and reduce rising transport costs on imports from far-off countries such as Kuwait.Officials at Reliance Industries and Essar Oil could not immediately be reached by Reuters for a comment.But a top executive at state-run Indian Oil Corp. told reporters his firm may consider fuel exports to Pakistan if an import ban by that country of Indian petroleum products is lifted.IOC's head of refineries, B.N. Bankapur, said if Pakistan lifts the import ban it would provide an opportunity to expand IOC's 300,000 barrels per day (bpd) refinery in the northern Indian town of Panipat.(Reuters)
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Admonishing the defiant Reliance Industries, the Oil Ministry has ordered the Mukesh Ambani-run firm to immediately stop natural gas sales to non-core users like Essar Steel to meet the full demand of fertilizer and power plants.Citing the May, 2010, Supreme Court ruling that upheld the government's right to frame gas utilisation policy, the ministry last week wrote to Reliance directing it to first supply natural gas from its KG-D6 fields to priority sectors like fertiliser and power, official sources said.Reliance is currently producing around 50 million cubic metres a day of gas from its eastern offshore KG-D6 gas block, just enough to meet contracted demand of priority sectors -- urea manufacturing units, power plants, LPG extraction plants and city gas distribution companies.It had refused to abide by the ministry's previous order that wanted the fuel to go to sectors like steel, refineries and petrochemical only if there was any gas left after meeting demand of core sectors.Non-core sponge iron plants, petrochemicals units and oil refineries have cornered 13.13 mmscmd out of the 60.76 mmscmd of KG-D6 gas that the government had allocated in 2008 and 2009.With production dipping to around 50 mmscmd, a worried Oil Ministry wanted the fuel to first go to core sectors.But Reliance has refused to follow the dictat and has continued to follow the July, 2010, policy of pro rata allocation, translating into proportionate cuts in supplies to all consumers, including urea-making plants and electricity generation units, they said.A Reliance spokesperson could not be immediately reached for comment.With production just a tad above the 47.59 mmscmd quota allocated to core sectors, Reliance says it cannot stop supplies to any customer unless the government indemnifies it against any legal and financial damages arising from such action.Sources said the ministry was not impressed by the firm's reasoning and cited the Supreme Court's ruling to buttress its point.Reliance had in its gas supply and pricing dispute with Anil Ambani Group's Reliance Natural Resources Ltd (RNRL) submitted to the Supreme Court that it is a mere contractor and the government alone has the right to fix price as well as users of the gas.The same stand was taken by the government, which the Supreme Court upheld in its May 7 judgement.Sources said Reliance itself had contended that it has no ownership over gas and it is bound by government orders and its gas utilisation policy (GUP).The logic behind the ministry order is that it does not want fertiliser production or generation of electricity during peak summer months to suffer because of a fall in KG-D6 gas output.Reliance has so far signed up customers for 60.76 mmscmd of gas, while production from its eastern offshore KG-D6 fields in the week ending April 3 was about 49 mmscmd. Output is lower than the 61.5 mmscmd output achieved in March, 2010.The government had accorded highest priority to urea plants followed by LPG extraction units, power plants and city gas distribution projects while allocating KG-D6 gas.Sixteen fertiliser plants have been allocated 15.35 mmscmd of KG-D6 gas on a firm or permanent basis, while 27 power plants in the public and private sector have got 29 mmscmd.A sizeable 7.79 mmscmd of gas has been signed up by steel producers, while LPG plants have been alloted 2.59 mmscmd.Refineries, including that of Reliance, have been given 3.46 mmscmd, city gas projects 0.65 mmscmd and petrochemical plants the balance 1.92 mmscmd.The priority sector allocation totals 47.59 mmscmd, leaving almost very little for steel plants, refineries and petrochemical units from current production, they said.(PTI)
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Nuclear energy may appear cheap at first glance, but the potential human costs of atomic power make it unaffordable over the long term, German Environment Minister Norbert Roettgen said in comments released on Friday.In an article for news weekly Der Spiegel on the 25th anniversary of the Chernobyl nuclear disaster in Ukraine, Roettgen said Germany's decision to move away from nuclear power generation was a matter of responsible economic policy."In the short term, it may look like a cheap source of energy, but if catastrophe strikes, the costs are too high... no economic target is worth endangering people's well-being, today or in future generations."The Fukushima reactor accident in Japan caused an abrupt U-turn in Germany's nuclear energy plans, with the government now focused on how to abandon nuclear power after it shut down several plants.Roettgen said that apart from the human cost, the disaster had dealt a serious blow to the Japanese economy, the world's third largest. He predicted this would lead to a broad reassessment of atomic power, with signs of a rethink already emerging in Europe."The costs of the Fukushima reactor accident will weigh on Japan's economy for years, if not decades," he said. "These economic costs will lead to a rethinking of nuclear energy."The centre-right Berlin government scrapped an earlier decision to extend the lifespans of German nuclear plants but has yet to decide when it will permanently close them down.After Chancellor Angela Merkel met regional leaders this month, the premier of one state said Germany's last nuclear plant would close no later than 2022.No Golden PathSome politicians are calling for an even quicker exit. In Der Spiegel, the head of Merkel's conservative Bavarian sister party, Horst Seehofer, once a fierce opponent of limiting plant lifespans, said all plants could be closed by 2020.Roettgen said Germans would have to be ready to shoulder new costs as a result."There is no golden path to the future that costs nothing and requires effort from no-one," he wrote. "Everyone will have to contribute, both industry and private households."Der Spiegel said Germany's largest energy concerns had made a first assessment of potential costs if the seven nuclear plants now offline remain closed.The study showed cost increases would be only moderate for households -- one euro cent per kWh -- but energy-intensive industries would face some 1.5 billion euros ($2.19 billion) in extra costs annually, above all in the chemicals sector.(Reuters)
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