Oil ministry stand may push Cairn-Vedanta deal to court | business | Hindustan Times
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Oil ministry stand may push Cairn-Vedanta deal to court

business Updated: Jan 25, 2011 03:17 IST

The $9.6 billion (R43776 crore as of today) acquisition of Cairn India by Anil Agarwal-promoted Vedanta Resources may finally end up in a court, as the petroleum ministry’s conditional approval to the deal is unlikely to find favour with the London-based mining firm.

“There is no question of either Cairn or Vedanta accepting the conditions being imposed by the petroleum ministry over royalty and cess payment on the crude oil being produced from the Rajasthan oil block,” a source close to the Anil Agarwal group and familiar with the development said.

“What is the sanctity of legal contracts if they have to be altered with time,” the source said, while referring to the production sharing contract (PSC) that Cairn India had signed with the government (petroleum ministry) for the Rajasthan field.

The production sharing contract absolves Cairn from sharing any royalty burden on the crude oil produced from these fields. Both Cairn India’s and Vedanta’s spokesperson in India refused to offer any official comments. “We have no comments to offer at this stage,” Cairn India’s director (corporate affairs) Manu Kapur said.

The petroleum ministry has laid a set of 11 preconditions for Vedanta before clearing its takeover of Cairn India. Of these, two conditions relating to sharing of the royalty and cess burden by Cairn India’s new promoter — Vedanta Resources — on the crude oil have become a major bone of contention. If Vedanta agrees to the two conditions, it would amount to the mining firm shelling out close to R15,000 crore to the government.

State-owned ONGC, which is Cairn’s partner in the Rajasthan oilfields with a 30% share, pays the royalty on the entire quantum of production. However, in line with the PSC, Cairn India — despite of its holding a 70% share in the oilfield — does not pay any royalty on the oil output from the block.

“The government has its own reasons to justify but it cannot wake up years after the arrangement has been in place,” the source said. “It is sheer arm twisting as all these are coming at a time when the company (Cairn India) has been bought over by Vedanta.”