The government wants more time to untie the knots in a deal between Cairn Energy Plc to sell a 51% stake in its Indian operations to Vedanta Resources Plc for upwards of $8 billion. This despite British Prime Minister David Cameron writing to his Indian counterpart Manmohan Singh seeking an early decision to the takeover announced by the two Britain-based companies in October 2010.
With an empowered group of Cabinet ministers now looking into the issue, Cairn has extended the deal-making deadline by over a month till May 20. Vedanta, on the other hand, is confident about making an open offer to minority shareholders for another 20% stock required under India’s takeover code after getting clearances earlier this week from the stock market regulator.
Yet, as petroleum minister S Jaipal Reddy put it after Wednesday’s Cabinet meeting, issues remain. At the core are royalty payments made by ONGC, the junior partner in a Cairn oilfield in Rajasthan, which the government wants the British company to chip in with before it cashes out.
It also wants Cairn to withdraw litigation over taxes paid on the oil it is drilling out of India. Cairn points out that if it agrees to either of these terms, its selling price will take a hit.
But the government is also fairly clear that if the sale goes through without these questions being resolved, the buyer could continue with the bickering over concession agreements drafted before India put in place an oil exploration policy. If the group of ministers can’t break the stalemate, we are staring at a long court battle.
That certainly does not help India’s image as a destination for foreign investment. Big Oil has resolutely stayed away since the Indian operations of Exxon, Shell and Chevron were nationalised after the 1973 oil shock. The pressing need then — apart from controlling fuel prices — was to build India’s refining capacity. Both were achieved: India is among the world’s largest refiners of oil, and fuel prices are still subsidised by the government.
The enormous refining capacity, however, cloaks our measly crude output. Efforts to get international oil majors to prospect in India have till now been stonewalled — the only significant player has been Cairn. BP’s purchase in February of a 30% stake in 23 of Reliance’s oil and gas fields for $7.2 billion was timed after India sorted out vigorously contested issues over who owns the gas found after exploration, whom it can be sold to and at what price.
A nation starved of energy can ill afford policy snafus to come in the way of more vigorous exploration.