New Delhi: State-owned Oil and Natural Gas Corporation Limited (ONGC) may next week give consent for transfer of control in Cairn India to Vedanta Resources, provided the Cairn Energy subsidiary and the Anil Agarwal-led firm sign a legally binding agreement to share royalty and pay cess on production from their Rajasthan field.
The need for a legal document has arisen because Cairn India insisted on ONGC giving no-objection to the Cairn-Vedanta deal before it agrees to accept conditions that the government has set for clearing the $9 billion transaction.
Sources privy to the development said the board of ONGC can waive its preemption rights only when Cairn India agrees to pay its share of the Rs 2,500 per tonne cess on production from the all-important Rajasthan oilfields, as per its stake of 70%, and also makes royalty payments cost-recoverable.
ONGC holds 30% interest in the Rajasthan fields and Cairn previously felt the state-owned firm was liable to pay royalty and cess on its share of production, as well as Cairn’s 70% participating interest.
“There is mutual distrust between the two partners,” a source said. “Cairn doesn’t want to agree to paying royalty and cess without getting a no-objection certificate (NOC) from ONGC, while ONGC doesn’t want to give its consent without Cairn agreeing to the conditions set by the government.”
A way out of this would be for ONGC, Cairn India, Vedanta and UK’s Cairn Energy - which is selling its 40% stake in its Indian unit - to sign a legally binding document agreeing on the government conditions as well as a separate paper granting clearance to the transaction simultaneously.
Sources said ONGC board may on 27 September agree to waive its right of first refusal (ROFR) on the proposal, subject to Cairn India and others signing the legal document. Upon board approval, the legal agreement can be signed that very day if Cairn/Vedanta so desire, they said, adding that the NOC will be handed over upon signing of the papers.
SBI Caps, which had been appointed by ONGC to advice on exercising its preemption rights, has opined that the Rs 355 a share price that Vedanta is paying Cairn Energy for buying a majority stake in Cairn India is too high a price.
Stating that SBI Caps was in the process of finalizing its report, sources said the valuation - along with a recommendation for waiver of ONGC’s ROFR over the deal - would be put before the state-run oil and gas explorer’s board on 27 September.
In a postal ballot earlier this month, 97% of Cairn India’s shareholders - including Cairn Energy (52.1%) and Vedanta (28.5%) - had voted for acceptance of the government conditions so that the transaction can conclude.
The company board, which met on 14 September, accepted the shareholder’s mandate, but added a caveat that the conditions would be accepted only upon receiving a NOC from ONGC.