22 NOV, 2011, 08.18PM IST, PTI
ONGC likely to give NOC for Cairn-Vedanta deal by December end
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NEW DELHI: State-owned Oil and Natural Gas Corp is likely to give its 'no-objection certificate' to Cairn Energy Plc's stake sale in its Indian unit to Vedanta Resources by the year-end, its Chairman Sudhir Vasudeva said today.
"Our Board had in principle given the NOC (no-objection certificate) in September," he told reporters here.
The NOC will be given after Cairn Energy, its Indian arm Cairn India and the mining group sign a legally binding agreement accepting to share royalty and pay cess on the most important Rajasthan oilfields.
The need for a legal document has arisen because Cairn India insisted on ONGC giving a no-objection to the Cairn- Vedanta deal before agreeing to twin conditions that the government had set for clearing the USD 9-billion deal.
"The agreement is in the final leg," Vasudeva said. "I am hopeful the NOC will be given before end of December."
Cairn Energy, which holds a 52.1 per cent stake in Cairn India, plans to sell a 30 per cent stake to Vedanta. The government had in June, approved the deal subject to consent from ONGC, which is a partner in its mainstay Rajasthan block.
ONGC, for whom the Rajasthan project had been a losing proposition because it paid royalty not just on its 30 per cent share but also on Cairn India's 70 per cent interest, has demanded an equitable sharing before the deal was cleared.
The mutual distrust has given rise to the need of a legal document where in Cairn will give in writing that it will pay Rs 2,500 per tonne cess on its share of production from the all-important Rajasthan oilfields and also makes royalty payments cost-recoverable. ONGC will agree to issue NOC.
Cairn India does not pay any royalty on its 70 per cent stake in the Rajasthan fields. Royalty, as per the contract, is paid by state-owned ONGC, which got a 30 per cent stake in the 6.5 billion-barrel-field for free.
However, even before the USD 9.6 billion Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty should be added to the project costs, considering it as revenue earned from oil sales before profits were split between partners.
Cairn had opposed this as it would lower its profitability and had also initiated arbitration against the government contesting its liability to pay oil cess on its share. It believed that cess, like royalty, was also the liability of ONGC.
But Cairn Energy and Vedanta agreed to the conditions to get the deal cleared.