Cairn-Vedanta deal: ONGC may move court over royalty issue

The state-owned Oil & Natural Gas Corp is said to be readying for a legal battle over royalty and cess payments for India's biggest on-land oilfield in Rajasthan, irrespective of the outcome of Vedanta Resources' $9.6-billion bid to buy Cairn India that operates the field.

The dispute over tax payment has dogged the Cairn-Vedanta deal ever since its inception some 10 months ago. A change in the royalty payment structure will change valuations and could well derail the transaction.

A much-anticipated meeting of the panel of union cabinet ministers set up to spell out the government's stand on the deal on Friday proved a damp squib - the empowered group of ministers (EGoM) merely bounced the ball back to the cabinet committee on economic affairs (CCEA) with a vague proviso that ONGC's interests should be safeguarded.

In a statement issued last Friday, Cairn said it had not received any formal communication from the government on the outcome of the EGoM meeting.

ONGC has a 30-per cent stake in the highly productive Mangala field near Barmer in Rajasthan, but is contractually bound to pay all the duties while Cairn goes scot-free.

So far, ONGC was running along with the arrangement, but after the potential Cairn-Vedanta deal was announced, it says that any contract between the two must also allow ONGC to get this payment reimbursed from the total revenue of the field before profit is calculated. Cairn strongly opposes this.