Cairn and Vedanta deal to get nod next month

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Cairn and Vedanta deal to get nod next month
Saturday, 15 Jan 2011
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ET reported that the Indian government is poised to clear the USD 9.6 billion Cairn Vedanta deal by the middle of February, ending five months of uncertainty over the controversial deal involving the transfer of India’s biggest onshore oilfield operated by the British explorer.

The oil ministry has asked Oil and Natural Gas Corporation to stop obstructing the transaction and accept the fact that it is contractually bound to pay its partner’s share of royalty in the venture in which the state explorer was given 30% equity free of cost. State run ONGC, hoping to renegotiate the contract, had declared it had pre emptive rights and the deal could not be completed without its approval.

The oil ministry, which had initially declared it would guard the interests of ONGC and was dragging its feet on the matter, was asked by the prime minister’s office last week to take a quick decision.

Vedanta Chairman Anil Agarwal recently met Prime Minister Manmohan Singh and Petroleum Minister Murli Deora. The government has now rejected ONGC’s request to ease the royalty burden. India had offered royalty exemption to companies as an incentive to lure private capital to oil exploration in the energy deficient country.

A senior government official with direct knowledge of the matter said that “ONGC has to pay the royalty as per the agreement. Other issues can be resolved through dialogue adding that a formal approval for the deal was expected by mid February.

After Cairn Energy announced the sale of its controlling stake to London listed mines and metals firm Vedanta Resources in August, the deal has faced several setbacks, forcing Cairn Chairman Bill Gammell to visit India eight times and prompting Vedanta to seek the PM’s intervention.

An oil ministry official said the government would review ONGC’s royalty obligation separately so that this issue does not impair examination of the deal by the ministry. He said that “We have already said Cairn Vedanta deal would be judged on merit and a decision would be taken soon by January end or by early February.”