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Cairn-Vedanta deal on edge

India’s biggest merger and acquisition deal in the oil sector could well fall apart, with both the petroleum ministry and Cairn Energy Plc digging their heels over the $9.6 billion (Rs 43,500 crore) deal that involves the British firm’s sale of controlling stakes in India to Anil Agarwal-led Vedanta Group. Anupama Airy reports.

business Updated: Feb 17, 2011 02:56 IST
Anupama Airy

India’s biggest merger and acquisition deal in the oil sector could well fall apart, with both the petroleum ministry and Cairn Energy Plc digging their heels over the $9.6 billion (Rs 43,500 crore) deal that involves the British firm’s sale of controlling stakes in India to Anil Agarwal-led Vedanta Group.

Just a day after petroleum minister S Jaipal Reddy said he would in the next few weeks take to the Cabinet the vexed royalty payment issue stalling the deal, UK’s Cairn has informed the government that it will not wait beyond February 20 for its approval and will be “obligated to inform its shareholders” accordingly.

Highly placed official sources told HT that a meeting between petroleum secretary S Sundareshan and the senior management of Cairn Energy and Cairn India Ltd took place on Wednesday to discuss the pending approval linked by the ministry to higher royalty for ONGC.

Cairn Energy’s chairman Bill Gammell and Cairn India’s CEO Rahul Dhir attended the meeting, sources said, adding the British parent has categorically written to the ministry saying “a decision on the government of India’s (GoI) approval is critical by February 20 in order for us (Cairn Plc) to be able to complete the transaction (with Vedanta) by April 15, as approved by Vedanta and Cairn shareholders.”

“Accordingly, if the GoI approval is not obtained, we would then be obligated to inform our shareholders and the appropriate regulatory authorities accordingly,” the letter said.

Jaipal Reddy had said on Tuesday that his ministry will approach the Cabinet Committee on Economic Affairs in two to three weeks after seeking comments from other ministries such as finance, corporate affairs and law on the royalty issue blocking the transaction.

Petroleum secretary S. Sundareshan told HT that he had no comments to offer either on the outcome of Wednesday’s meeting or on the February 20 deadline set by Cairn Plc.

Repeated mails to Cairn India and calls mad to Cairn Plc’s spokesperson went unanswered.

The Scottish Cairn Energy owns 62.4% in Cairn India, while Malaysia’s state-controlled oil company Petronas holds 15%.

Cairn India has a 70% stake in the Rajasthan field that produces about 125,000 barrels of crude oil a day. ONGC holds the remaining 30%.

ONGC pays the entire 100% royalty on oil production from Cairn’s Rajasthan oil field.

The government has asked all stakeholders of Rajasthan oil field to either share the royalty burden equally or make the cost recoverable from the profits earned on the oil produced from the fields.

The petroleum minister has said his ministry will support ONGC's concerns on the royalty-sharing issue. He said the ministry supports ONGC's claim that the royalty should be added to project costs and recovered from the sale of crude oil produced from the Rajasthan field.