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Business News/ Politics / News/  GoM on Cairn-Vedanta deal to only meet after deadline expires
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GoM on Cairn-Vedanta deal to only meet after deadline expires

GoM on Cairn-Vedanta deal to only meet after deadline expires

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New Delhi: A ministerial panel is likely to meet on 27 May to consider Cairn Energy Plc’s sale of a majority stake in its Indian unit to Vedanta Resources, a full seven days after the current deadline for closing the deal expires.

“A group of ministers (GoM) headed by finance minister Pranab Mukherjee is scheduled to meet at 1630 hours on 27 May to vet Cairn Energy’s sale of 40% interest in Cairn India to Vedanta," a senior government official said here.

Cairn and Vedanta have set 20 May as the deadline for closing the $ 9.6 billion transaction.

Industry sources said Cairn is likely to seek another extension of the deadline in advance of its annual general meeting on 19 May.

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 raised a hue and cry over the government’s procrastinated approach to vetting the deal, saying the timelines were sacrosanct and could not be extended.

But a day after the CCEA on 6 April referred the deal for vetting to the GoM, the deadline was extended to 20 May.

The GoM, which, besides Mukherjee, compromises oil minister S Jaipal Reddy, law minister M Veerapa Moily, 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.

The 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 18,000 crore in royalty that the state-owned firm is liable to pay on behalf of Cairn India in the all-important Rajasthan oilfields.

The finance inistry is in favour of Reddy’s second option of the government giving consent without any precondition and taking appropriate decisions to protect ONGC’s interests.

The GoM to vet the Cairn-Vedanta deal was originally to have its first meeting on 2 May.

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 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 precondition 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% 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 should 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 with no experience in the oil and gas business and controlled by billionaire Anil Agarwal, agreed in August last year to buy at least 40 per cent and as much as a 51% stake in Cairn India from Edinburgh-based Cairn Energy.

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Published: 16 May 2011, 04:20 PM IST
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