Cairn deal: Reddy speaks for ONGC
Petroleum minister Jaipal Reddy said on Tuesday that while the government would support Cairn Energy–Vedanta Resources deal, it has to first address the "legitimate concerns" raised by state-owned Oil and Natural Gas Corp (ONGC).business Updated: Feb 08, 2011 22:55 IST
Petroleum minister Jaipal Reddy said on Tuesday that while the government would support Cairn Energy–Vedanta Resources deal, it has to first address the "legitimate concerns" raised by state-owned Oil and Natural Gas Corp (ONGC).
Bill Gammell, chief executive officer of Cairn Energy, which is selling up to a 51% stake in its Indian unit to Anil Agarwal promoted Vedanta, met Reddy to press for an early decision. CEO and MD of Cairn India Rahul Dhir was also present at the meeting.
"I told him (Gammell) that the government would support the deal in-principle, but some of the concerns of ONGC need to be addressed before clearing the deal," said Reddy. "He (Gammell) seemed satisfied."
ONGC, by virtue of its stake in 8 out of the 10 oil and gas properties held by Cairn India, claims that it has preemption rights over the deal. The company wants the issue of excess royalty it has to pay on Cairn India's mainstay Rajasthan block to be addressed before giving its no-objection.
"We cannot be opposed to (Cairn Energy) selling (its) shares (in Cairn India)... ONGC is not prepared to buy (Cairn Energy stake) at the price (Vedanta is paying)," Reddy said.
The deal, involving Vedanta acquiring a 40-51% stake from UK's Cairn Energy Plc and thereafter making an open offer to buy an additional 20% from minority shareholders of Cairn India, is to be completed by April 15.
To meet the deadline, the government approval for the deal needs to come within this month so that Vedanta can meet the 55-60 days timeframe mandated by market regulator SEBI for completion of the open offer.
Gammell described the talks with Reddy as "positive and constructive", but said Cairn will not go to its shareholders for extending the April 15 deadline to close the Vedanta deal.
"We would not go back to our shareholders," he said.
The Rajasthan block, which gives Cairn India 90% of its valuation, is a losing proposition for ONGC, as it has to pay 20% royalty to the state government on the entire output from the field, even though its share of production is only 30%.
The oil ministry has made resolution of the royalty issue one of the 11 pre-conditions for giving its nod. Cairn/Vedanta are opposed to ONGC's demand for recovering the royalty before profits from the sale of Rajasthan oil are split, as it will lower Cairn India's profitability and valuation.