After a prolonged delay, the Union Cabinet will take up on Wednesday for approval the $9.6-billion acquisition of Cairn India Ltd. (CIL) by London-listed Anil Agarwal owned mining group Vedanta Resources.
After securing the views of the Finance Ministry and the Law and Justice Ministry the mater has been listed for the consideration of the Union Cabinet on Wednesday. The matter will be taken up by the Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh. “The Government has tried to work out a solution to the satisfaction of all. We are not in favour of sending any kind of negative message to foreign investors but at the same time the interests of public sector units cannot also be overlooked. The Cabinet will look at two options and approve one of them,'' a senior Petroleum and Natural Ministry official said.
It is learnt that the Petroleum Ministry has watered down the pre-conditions for giving approval to the Cairn-Vedanta deal that was announced in August last. The Ministry is understood to have withdrawn its earlier stand that Rs.21,802 crore in royalty and cess paid by ONGC on behalf of Cairn India on the Rajasthan oilfields should be equitably shared. The Ministry, under its previous Minister Murli Deora, had conditioned the government nod to CIL agreeing to equitable sharing of royalty and paying its share of cess.
However, in a fresh move under the present incumbent and Petroleum Minister Jaipal Reddy, a new Cabinet note was circulated. The Ministry has listed an alternative in which it will continue to legally pursue equitable sharing of royalty and cess, but will not make it a precondition for approval of the deal. The Ministry's view is that the royalty should be treated as cost recoverable item. Whether it is to be pre-conditioned or not, will be decided by the Cabinet.
ONGC owns a 30 per cent stake in the Rajasthan block, but pays royalty on the entire quantum of crude oil produced from the fields. Over the life of the field, the royalty burden works out to Rs.18,000 crore, of which ONGC has to bear Cairn's share of about Rs.12,600 crore. CIL has disputed any liability to pay Rs.2,500 a tonne cess on its 70 per cent share of production from the Rajasthan blocks, which totals Rs.9,202 crore for ONGC over the life of the field. The Cairn-Vedanta deal has a timeline of April 15 to close the transaction.
