Petroleum ministry decision on Cairn-Vedanta deal likely in 4-6 weeks

06 Sep 2010

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The petroleum ministry is expected to give its ruling on the $9.6-billion acquisition of Cairn India's assets by UK-based mining giant Vedanta Resources in about four to six weeks' time, reports quoting petroleum minister Murli Deora said today.

Vedanta Resources has struck a deal with Cairn energy, Plc to acquire up to a 60-per cent stake in it Indian arm Cairn India, in a $9.6-billion deal.

The deal, however, needs approval from the government of India under the production-sharing contract for oil and gas exploration.
 
ONGC, which holds a 30-per cent interest in the Cairn India project, had also written to the Bombay Stock Exchange and the National Stock Exchange saying its consent was needed for the deal with Vedanta. ONGC had also invoked "rights" under the three-way agreements signed with Cairn and the government.

The Vedanta announcement of the open offer has failed to mention that the deal was subject to the government's approval. It also ignored the pre-emptive right of ONGC, Cairn partner in India.

The petroleum ministry also has to tackle the issue of royalty obligation, which currently falls entirely on state-run ONGC.

Under the production-sharing contract with the government, ONGC had to bear 100-per cent of the royalty payment obligation of the Cairn-ONGC project in Rajasthan.

It was subsequently changed to 30 per cent following representation by ONGC.

The ONGC obligation is something that started before the adoption of the New Exploration and Licensing Policy (NELP) in 1997, when ONGC was a state-owned commission.

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