Govt decision on Cairn India stake sale by Feb-end3 min read . Updated: 16 Dec 2010, 05:10 PM IST
Govt decision on Cairn India stake sale by Feb-end
Govt decision on Cairn India stake sale by Feb-end
New Delhi: Having reluctantly agreed on the need for government approval to sell a majority stake in its India unit to Vedanta Resources, Cairn Energy CEO Bill Gammell on Thursday met top government officials, including oil secretary S Sundareshan, to seek support for the $9.6 billion deal.
“It was a courtesy call... I told him (Gammell) that we will take a decision (on giving approval to the deal) on merit," Sundareshan said after the 20-minute meeting.
Edinburgh-based Gammell, on his third trip to India since announcing a prospective deal to sell up to 51% stake in Cairn India on 16 August, is also believed to have met officials in the Prime Minister’s Office and other key government departments.
“By February-end, we should be able to decide" whether Cairn can sell its majority stake in the Indian unit to a firm with no experience in the oil sector, he said, adding that the oil ministry has not yet formed any opinion on the transaction.
A Cairn spokesperson confirmed that Gammell met with government officials, but refused to elaborate on the discussions.
Indian hydrocarbon law makes it mandatory for companies 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.
The UK explorer 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 billionaire Anil Agarwal-led Vedanta.
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 what Sundareshan said was a “conditional" application.
“They have applied with some conditions... we are accepting it and processing it," he said.
Though the British firm has reluctantly acquiesced to the need for prior government consent, it still maintains that partner Oil and Natural Gas Corp’s (ONGC) nod is not required.
ONGC partners Cairn in all three of its producing properties in the country, besides five of the seven exploration blocks, by virtue of which it claims to have preemption rights over the Vedanta deal.
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.
Cairn had previously applied for permission only with respect to its seven exploration acreages in India, while leaving out the three producing properties.
However, the oil ministry told Cairn that it would have to apply for separate approvals for all 10 assets before the government could consider granting consent to the deal.
On 23 November, Cairn made three separate applications seeking clearance for transfer of its majority stake in the Barmer oilfields in Rajasthan, the eastern offshore Ravva oil and gas fields and the Cambay fields off the west coast to Vedanta.
“Even after acceding to the government of India’s position on this matter, our view and that of the senior counsel remains that the requirement for government consent does not trigger any rights of joint venture partners," the applications stated.
Cairn Energy had on 16 August announced the sale of a 40 to 51% stake in its Indian unit to London-listed Vedanta, but was selective in approaching the government for approval of the deal.
The law ministry had given the opinion that the transaction was nothing but the 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 right.