Oil min may seek legal opinion on Cairn’s application

Oil min may seek legal opinion on Cairn’s application

New Delhi: The oil ministry may seek a legal opinion on Cairn Energy Plc’s conditional applications seeking approval for the sale of a majority stake in its Indian unit to Vedanta Resources.

On 23 November, Cairn had formally submitted applications seeking separate approvals for the transfer of control in all 10 of its properties in the country to Vedanta, as demanded by the government, but refused to acknowledge ONGC’s claim that it had the right to preempt the $9.6 billion transaction.

“We have a law ministry opinion signed by the law minister Veerappa Moily and an opinion from the solicitor general stating that Cairn Energy’s sale of a majority stake in Cairn India requires prior government approval and triggers ONGC’s preemption rights," a senior oil ministry official said.

The oil ministry, which has set a February-end deadline for deciding on the approval, is mulling whether to seek a legal opinion on the stand Cairn has taken, he said. “It is not easy for anyone to overlook law ministry and SGI opinions," he said.

The official said the applications submitted by Cairn Energy for its three producing blocks -- which the UK explorer earlier claimed did not require government approvals -- were not in accordance with the production sharing contracts (PSC) provisions.

“Cairn has made a general application, which is open to interpretation. Besides, the company is self-contradictory. While it has agreed to the need of government consent, it continues to deny the existence of partner ONGC’s rights. The two things cannot co-exist. Government consent and ONGC’s preemption rights go hand-in-hand, at least that is what the legal opinions we have say," the official said.

The official said through the legal opinion, the ministry wants to ascertain if Cairn has fulfilled all its statutory obligations and if ONGC’s preemption rights can be ignored while deciding on Vedanta’s acquisition of an up to 60% stake in Cairn India.

Edinburgh-based Cairn Energy CEO Bill Gammell this week made his third trip to India since the deal was announced in August to meet finance minister Pranab Mukherjee and principal secretary to the Prime Minister TKA Nair, among others, but skipped meeting ONGC top brass during his three-day visit.

ONGC partners Cairn in all three of its producing properties in the country, including the mainstay Rajasthan oilfields, besides five out of seven exploration blocks, by virtue of which it claims to have preemption rights over the Vedanta deal.

The world-over, as well as in India, it is mandatory for firms to have prior experience in order to secure a lease for exploration and production of oil and gas and the oil ministry will need to satisfy itself that Vedanta -- a mining major with no oil sector experience -- can satisfactorily operate Cairn’s oilfields.

Cairn Energy had initially denied there was any need for government approval on what it called a “corporate transaction", involving the sale of shares and transfer of control of Cairn India to Anil Agarwal’s mining group.

In September, Cairn partially relented to the demand and applied for a formal nod to transfer control in seven non-producing exploration blocks, which Cairn India had won during the course of the new exploration licensing policy (Nelp) rounds since 2000.

However, it left out its mainstay producing properties, like the landmark Barmer oilfields in Rajasthan, saying these were pre-NELP blocks and did not have provisions requiring prior government consent.

Nevertheless, the oil ministry, backed by a legal opinion from the law ministry and the nation’s second highest law officer, the solicitor general of India (SGI), insisted on Cairn applying for permission for each block separately.

Subsequently, on 23 November, Cairn yielded ground and made the conditional application.

In a 23 November letter, Cairn said: “We must make expressly clear that we are acceding to the government of India’s position (that the proposed transaction needs their consent), whilst we fully reserve our position regarding any rights available to our joint venture partner (ONGC)."

“Nothing in this letter may be construed as an acceptance of any claim to a requirement for consent or preemption rights of ONGC arising from the proposed transaction," it said.

The law ministry and SGI have given separate opinions that the transaction was nothing but transfer of control in all 10 properties held by Cairn India. As such, it would require government consent and trigger the preemption or right of first refusal (RoFR) of ONGC, as it partnered the UK-based company in all three producing properties and several exploration acreages.

Cairn, however, continues to insist that the requirement for government consent on the deal does not trigger ONGC’s preemption rights.