Cabinet move on Cairn-Vedanta deal: oil ministry remains unhappy

A decision on the proposed sale of a major stake in Cairn India to mining conglomerate Vedanta Resources is expected ''soon'', petroleum secretary S Sundareshan told newspersons on Monday, virtually confirming the widespread expectation that the union cabinet would take a final decision at its meeting on Wednesday.

"The Cairn-Vedanta deal has been placed before the highest levels of the government. Hopefully a decision will be taken very soon," Sundareshan said in New Delhi.

An early decision by the government is vital for the deal to go through, as Vedanta's bid for Cairn India lapses on 15 April.

The Anil Agarwal-controlled Vedanta, listed in London but focussed on India, had announced last August that it would buy up to 60 per cent of Cairn India – an arm of Scotland's Cairn Energy - for around Rs42,600 crore ($9.6 billion). But the deal, which both parties expected to sail through after they agreed on the terms, ran into trouble with the Indian authorities.

Cairn's Indian partner Oil & Natural Gas Commission, which through anomalies in government policy bears the entire royalty burden for the Rajasthan oil fields which are at the heart of the deal, was far from happy. ONGC receives 30 per cent of the output from Cairn's oil fields but pays royalties on 100 per cent of the production under a "royalty holiday" scheme dating from the 1990s to promote oil exploration in India.

ONGC has been pushing for a fairer sharing of the royalties before the government approves the sale – and all indications so far are that the government, and particularly the petroleum ministry, are backing the state-run explorer and producer on this.