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Cairn moves to mollify Centre

business Updated: Aug 24, 2010 23:25 IST
HT Correspondent
HT Correspondent
Hindustan Times
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Cairn Energy Plc said on Tuesday that it will seek the UPA government's "endorsement and necessary consent" for the sale of its majority stake in Cairn India to Anil Agarwal-controlled Vedanta Resources for $8.48 billion.

A turbulent week

Aug 16: Vedanta, Cairn Energy announce the $9.6-bn deal.

Aug 16: ONGC and petroleum ministry cry foul.

Aug 17: Cairn's Global CEO Bill Gammell arrives in India to meet petroleum minister Murli Deora; gets cold shoulder.

Aug 18: PetroMin says govt nod mandatory under the production sharing contract for Cairn's Rajasthan oil block.

Aug 22: State-owned IOC, Oil India join ONGC, attempt to counter Vedanta's offer.

Aug 23: Vedanta chief Anil Agarwal in Delhi to try and convince Deora on the deal.

"For the Vedanta transaction, we will seek the Government of India's endorsement and any necessary consent," the UK-based company's Chief Executive Bill Gammell told analysts in a conference call.

Cairn Energy is selling up to 51 per cent of its 62.37 per cent stake in Cairn India to Vedanta, the mining company controlled by NRI billionaire Anil Agarwal.

"We continue to work closely with the Indian government, with whom we have built an enduring partnership, throughout this process," said Gammell, who had flown to Delhi to meet Oil Minister Murli Deora soon after announcing the Vedanta deal on August 16.

Gammell, however, did not specify the approvals that Cairn Energy would be seeking.

Cairn Energy had last week written to the oil ministry detailing the deal with London-listed Vedanta. But the ministry was not satisfied with details of the transaction, and wrote to Cairn Energy seeking an explanation on provisions of the production sharing contract (PSC) in case of stake transfer.

According to sources, Cairn Energy, which received the ministry's letter late on Friday, is expected to give its reply soon. The letter says some PSCs Cairn India signed for oil and gas exploration have parent company guarantees. Some PSCs have an explicit provision of prior government consent in case of change of ownership.

Sources said the ministry feels government approval is a pre-requisite for concluding the Cairn-Vedanta deal. On the other hand, Cairn Energy feels the Vedanta deal is a corporate transfer, and not a sale of stake in an oil field that would have triggered need for regulatory approvals.

Had Cairn Energy sold its shareholding in the stock market, the government could not have done anything, officials in Cairn said, adding Cairn India as a company continues to exist and only its shareholding is changing.

Cairn India holds 70 per cent operator interest in the 6.5 billion barrels Rajasthan block that is at the centre of its parent, Cairn Energy's deal with Vedanta.

The PSC for the Rajasthan block provides for explicit government approval only in case of a party selling its interest in the block, but does not make the nod mandatory in case of change of ownership at corporate level like in the Cairn-Vedanta deal.

Similar is the case with its other producing properties —the Cambay basin block and eastern offshore Ravva oil and gas fields. But the seven exploration blocks that Cairn India won in NELP rounds have provisions that require prior government approval before ownership of a participating company can be changed.