Cairn-Vedanta deal: queasy govt seeks legal opinion
20 December 2010
Unwilling to give up on state-owned Oil and Natural Gas Corp's pre-emptive rights to Cairn-ONGC's Rajasthan oil fields, the petroleum ministry is considering seeking legal opinion to ascertain if ONGC's rights can be ignored while deciding on Vedanta's acquisition of 60 per cent stake in Cairn India.
On 23 November, Cairn had formally submitted applications seeking separate approvals for the transfer of control in all 10 of its properties in the country to Vedanta, as demanded by the government, but refused to acknowledge ONGC's claim that it had the right to pre-empt the $9.6 billion transaction.
"We have a law ministry opinion signed by the law minister Veerappa Moily and an opinion from the solicitor-general stating that Cairn Energy's sale of a majority stake in Cairn India requires prior government approval and triggers ONGC's preemption rights," a senior oil ministry official told newspersons in New Delhi.
ONGC itself has stepped up its confrontation with Cairn, saying it will not contribute a penny to future development in the Rajasthan oilfield unless the British explorer renegotiates the contract, which puts the entire royalty burden on ONGC, although it holds only a 30 per cent interest.
Though UK-based Cairn Energy has reluctantly acquiesced to the need for prior government consent in the deal, it still maintains that ONGC's pre-emption, or right of first refusal, will not be triggered in a corporate deal as such rights come into force only when there is stake sale in a particular block such as say Rajasthan.
ONGC partners Cairn in all three of its producing properties in the country, besides five of the seven exploration blocks, by virtue of which it claims to have pre-emption rights over the Vedanta deal.