CCEA may mull giving nod to Cairn-Vedanta deal this week
The Cabinet Committee on Economic Affairs (CCEA) may this week consider giving nod to London-listed mining group Vedanta Resources' USD 9.4 billion takeover of Cairn India after imposing stringent conditions.
June 20, 2011 / 20:15 IST
The Cabinet Committee on Economic Affairs (CCEA) may this week consider giving nod to London-listed mining group Vedanta Resources' USD 9.4 billion takeover of Cairn India after imposing stringent conditions.
Oil Minister S Jaipal Reddy said the CCEA, chaired by Prime Minister Manmohan Singh, may meet this week to consider giving the government nod based on recommendations of a Group of Ministers that went into the issue of granting approval to Cairn India's parent firm, Cairn Energy, selling its stake to Vedanta."It is my attempt to take it to the Cabinet this week," he told reporters adding the agenda for the CCEA is decided by the Cabinet Secretrait.The GoM headed by Finance Minister Pranab Mukherjee had on May 27 suggested the government nod only if Cairn or its successor agrees to bear a portion of royalty payable on its mainstay Rajasthan oil fields and also accepts its liability to pay cess on the oil produced.If imposed, these conditions will materially affect the deal.Sources said the GoM wants Cairn or its successor to agree to make royalties paid by state-owned Oil and Natural Gas Corp (ONGC) on its most important Rajasthan oilfields cost-recoverable from oil sales.ONGC owns 30% interest in the Rajasthan oilfields, but has to pay royalty at the rate of 20% of the crude oil price realised on all of the 240,000 barrels per day of peak output expected from the fields.At a USD 70 per barrel oil price, it has to pay Rs 12,600 crore in royalties on Cairn India's behalf over the life of the field, making India's largest onland fields a losing proposition for it.ONGC had cited provisions in the Production Sharing Contract (PSC) of the Rajasthan oilfields in July last year, which was more than a month before the Cairn-Vedanta deal was announced, to demand that royalty like other taxes and levies should first be deducted (recovered) from the sale proceeds of oil before the profits were split between partners and the government.Cairn as well as Vedanta have opposed ONGC's demand.Sources said Cairn has also disputed its liability to pay oil cess at the rate of Rs 2,500 per tonne on its 70% share in the Rajasthan fields, saying ONGC is also liable to pay cess on its behalf, like in the case of royalty.The government has rejected this position as the PSC imposes the royalty liability on ONGC, but is silent on cess, meaning partners have to pay in proportion to their share. Cairn has initiated arbitration against the government on this issue. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
