Cairn deal on the brink over royalty dispute

Despite a high-level diplomatic intervention from British PM David Cameron to his Indian counterpart Manmohan Singh, the landmark foreign direct investment deal worth $9.6 billion involving the sale of majority stakes in oil and gas firm Cairn India to Vedanta Resources is in jeopardy. Anupama Airy reports.

Despite a high-level diplomatic intervention from British Prime Minister David Cameron to his Indian counterpart Manmohan Singh, the landmark foreign direct investment deal worth $9.6 billion (Rs43,200 crore) involving the sale of majority stakes in oil and gas firm Cairn India to Vedanta Resources is in jeopardy.

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With both petroleum ministry and Cairn refusing to budge from their positions on who will bear the burden of royalty payments due from Rajasthan oilfields, India's biggest on-land oil producing block, the matter is headed for final consideration by the Cabinet next week. There is no middle ground in sight.

In its February 21 draft cabinet note, a copy of which is available with HT, the ministry stated that the “positions of Cairn and Vedanta Resources and those of the ministry over two important issues, concerning royalty and cess, have become irreconcilable, leading to a stalemate”.

The note says the government is ready to “pursue all legal recourses for establishing its rights”. Under the government’s proposal to the Cabinet for a “conditional approval”, Cairn and Vedanta must agree to pay statutory levies on oil from Rajasthan.

UK-based Cairn Energy Plc, Cairn India’s parent, had sought approval from the government for the deal that would give NRI billionaire Anil Agarwal-led Vedanta access to 10 oil and gas blocks in India including the critical Rajasthan fields.

The deal is stuck over the recovery of Rs18,000 crore in royalty from the sale of crude oil produced and who will pay the Rs13,246 crore cess burden on the output until 2020. Cairn India is currently paying the cess under dispute.

Agarwal, chairman of Vedanta Resources, was in Delhi on Friday and met up with petroleum secretary S Sundareshan. “We had a very constructive meeting and we look forward to a positive outcome,” Agarwal told reporters after his meeting.