New Delhi: Edinburgh-based Cairn Energy Plc may have to once again extend the deadline for concluding sale of 40% stake in its Indian unit to Vedanta Resources as a ministerial panel vetting the deal is unlikely to meet before next week.
A desperate Cairn Energy Plc chief executive Bill Gammell Wednesday met oil minister S Jaipal Reddy to press for a decision before the 20 May deadline his firm and Vedanta have set for concluding the $9.6 billion deal.
Gammell, who could not get an audience with Reddy yesterday, “expressed deep concern” on missing the deadline, a source privy to the deliberations at the meeting said.
Reddy on his part expressed helplessness as finance minister Pranab Mukherjee is the one who has to convene the meeting of the group of ministers (GoM). Moreover, the deadline were internal to Cairn and Vedanta and had got nothing to do with government.
Cairn Energy spokesperson David Nisbet could not be reached for comments immediately.
“There is no indication of the GoM meeting being held this week. Finance minister’s office has inquired of availability between 17 and 19 May and it is very unlikely that the meeting can take place before that,” the source said.
It is not clear if the GoM would take more than one meeting to vet the proposal, after which it has to go back to the Cabinet Committee on Economic Affairs (CCEA) -- the final approval authority in this case.
Cairn, which had previously set 15 April as the deadline for concluding the sale, had made much hue and cry saying the timelines were sacrosanct and could not be extended.
But a day after CCEA on April 6 refered the deal for vetting to the GoM, the deadline got prolonged to May 20.
The source said Gammell, who also had a brief meeting with the law minister M Veerpa Moily, again harped that the 29 May deadline cannot be extended.
The GoM, which besides Mukherjee, Reddy and Moily comprises of Planning Commission deputy chairman Montek Singh Ahluwalia and telecom minister Kapil Sibal, is split right in the middle on the issue of giving approval to the deal.
Law ministry and Planning Commission have backed Reddy’s first option of giving clearance to Vedanta only if it agrees to ONGC being allowed to recover the Rs 18,000 crore the state-owned firm is liable to pay in royalty on behalf of Cairn India in the all important Rajasthan oilfields.
Finance ministry is in favour of Reddy’s second option of government giving consent without any pre-condition and taking appropriate decisions to protect ONGC’s interests.
Incidentally, Gammell also attempted to meet Mukherjee and Ahluwalia though it is not clear whether he was successful.
The GoM to vet the Cairn-Vedanta deal was originally to have its first meeting on 2 May. It was however postponed without assigning any reason. 12-13 May was the next date talked about for the meeting but that too has been pushed back to possibly next week.
The ministerial panel was to deliberate on whether Vedanta, with no experience in oil and gas sector, should be given unconditional approval for buying a company that owns the nation’s largest onland oil fields or given clearance after attaching reasonable conditions.
The official said Reddy had listed two options. The first was giving approval subject to state-owned ONGC being allowed to recover the Rs 18,000 crore it is liable to pay in royalty on behalf of Cairn India.
Alternatively, he suggested that the government gives its consent to the deal without any pre-condition and take an ‘appropriate decision´ to enforce ONGC’s right.
Oil and Natural Gas Corp (ONGC) has a 30% stake in Cairn India’s mainstay Rajasthan oilfields, but it is liable to pay royalty not just on its share but also on Cairn’s 70 per cent share of crude oil from the field.
Royalty at the rate of 20% of the crude price is payable to the state government and ONGC, a month before the Cairn-Vedanta deal was announced in August, 2010, had cited the provisions of the field contract to demand its cost recovery.
The oil ministry is backing the ONGC demand that royalty payment be added to the project cost, which can be recovered from the sale of oil before profits are split between the partners and the government.
However, such a move is being opposed by Cairn Energy and Vedanta as it will lower Cairn India’s profitability.
The Solicitor General of India, the nation’s second highest law officer, had opined that Vedanta must agree to cost recovery of royalty before the government nod.
Vedanta, a mining company controlled by billionaire Anil Agarwal, with no experience of the oil and gas business, agreed in August last year to buy at least 40% and as much as 51% in Cairn India from Edinburgh-based Cairn Energy.