ONGC to give consent for Cairn India, Vedanta deal
Posté: Mar 27 Sep 2011 16:15Press Trust of India / New Delhi September 27, 2011, 19:29 IST
ONGCState-owned Oil and Natural Gas Corporation (ONGC) today said its board had agreed to give consent for transfer of control in partner Cairn India to Vedanta Resources, but wants the Cairn Energy's subsidiary as well as the mining firm to sign legal agreement to share royalty and pay cess on Rajasthan oil.
The board of ONGC met today and agreed to waive its pre-emption rights, an official said, adding the no-objection certificate (NOC) will be issued when Cairn and Vedanta sign legal documents on royalty and cess.
Cairn India's 97% owners, including parent Cairn Energy, and new management Vedanta have accepted the riders set by the government for clearing the $9 billion deal, but insist on seeing NOC from ONGC before agreeing to share royalty and payment of cess.
ONGC, for whom the Rajasthan project had been a losing proposition because it paid royalty not just on its 30% share but also on Cairn India's 70% 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 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.
The official said the NOC can be given in a week's time.
SBI Caps, appointed by ONGC to advise on exercising its preemption rights, has opined that the Rs 355 a share price that Vedanta is paying Cairn Energy for buying a majority stake in Cairn India is too high a price.
Cairn India does not pay any royalty on its 70% stake in the Rajasthan fields. Royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion-barrel-field for free.
However, even before the $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.
In a postal ballot earlier this month, 97% of Cairn India's shareholders -- including Cairn Energy (52.1%) and Vedanta (28.5%) -- had voted for acceptance of the government conditions so that the transaction can be concluded.
The company board, which met on September 14, accepted the shareholders' mandate but added a caveat that the conditions would be accepted only upon receiving a NOC from ONGC.
ONGCState-owned Oil and Natural Gas Corporation (ONGC) today said its board had agreed to give consent for transfer of control in partner Cairn India to Vedanta Resources, but wants the Cairn Energy's subsidiary as well as the mining firm to sign legal agreement to share royalty and pay cess on Rajasthan oil.
The board of ONGC met today and agreed to waive its pre-emption rights, an official said, adding the no-objection certificate (NOC) will be issued when Cairn and Vedanta sign legal documents on royalty and cess.
Cairn India's 97% owners, including parent Cairn Energy, and new management Vedanta have accepted the riders set by the government for clearing the $9 billion deal, but insist on seeing NOC from ONGC before agreeing to share royalty and payment of cess.
ONGC, for whom the Rajasthan project had been a losing proposition because it paid royalty not just on its 30% share but also on Cairn India's 70% 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 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.
The official said the NOC can be given in a week's time.
SBI Caps, appointed by ONGC to advise on exercising its preemption rights, has opined that the Rs 355 a share price that Vedanta is paying Cairn Energy for buying a majority stake in Cairn India is too high a price.
Cairn India does not pay any royalty on its 70% stake in the Rajasthan fields. Royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion-barrel-field for free.
However, even before the $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.
In a postal ballot earlier this month, 97% of Cairn India's shareholders -- including Cairn Energy (52.1%) and Vedanta (28.5%) -- had voted for acceptance of the government conditions so that the transaction can be concluded.
The company board, which met on September 14, accepted the shareholders' mandate but added a caveat that the conditions would be accepted only upon receiving a NOC from ONGC.