Cairn-Vedanta deal set to go through as ONGC gives its nod
28 September 2011
The board of Oil & Natural Gas Corp decided on Tuesday to allow the takeover of most of Cairn Energy's Indian assets by Vedanta Resources, the Anil Agarwal-run mining and minerals conglomerate.
ONGC said it will issue a no-objection certificate (NOC) for the deal, which has been hanging fire for 10 months awaiting government approvals. The deal was held up mainly by objections from the state-run oil explorer and producer, which was concerned about royalty and cess burdens it would face if the deal went through.
ONGC has a 30-per cent stake holding in the Cairn India-operated Rajasthan oil and gas fields, one of the country's most productive onshore finds. Under the current arrangement, ONGC bears the entire tax burden although it gets only 30 per cent of the profits.
In a statement issued after the board meeting, ONGC said, ''After detailed deliberations on pre-emptive rights and economic evaluation, and as Cairn has agreed to the two conditions relating to cost recovery of royalty and withdrawal of cess arbitration in respect of RJ-ON-90/1 (Rajasthan oilfields). The board of ONGC resolved that Cairn's request may be agreed to, subject to Cairn, Vedanta and their affiliates executing a formal agreement with ONGC agreeing to the royalty and cess conditions.''
Apparently, Cairn and Vedanta have bowed to the condition of a more equal share in the royalty burden.
The two companies were earlier reluctant to a change in the taxation agreement, saying their shareholders would suffer; but it seems they have conceded ground on this point.