The battle for acquisition of Cairn India's stake by Anil Aggarwal-owned Vedanta Resources is all set to get ‘vociferous' with Cairn India unlikely to allow ONGC to have its way on payment of royalty and giving up on the rights to arbitration.
The February 6 meeting of the management committee headed by Petroleum Secretary S. Sundareshan is likely to witness some fireworks as Vedanta has shot off a letter to the Petroleum Ministry stating that it is opposed to royalty being made cost recoverable and Cairn India giving up its rights in present and future disputes.
In its communication to the Petroleum Ministry, Vedanta Resources CEO M. S. Mehta has stated that it is agreeable to most of the Ministry ‘s 11 pre-conditions for giving approval but it is opposed to royalty being made cost recoverable and Cairn India giving up its rights in present and future disputes.
“Cairn India and its subsidiaries are the signatories to and counter-parties in the various production sharing contracts (PSCs) entered into with the Central Government,'' Mr. Mehta said in his January 28 communication to Mr. Sundareshan.
“As Vedanta will not be a party to any of these contracts, and will be merely a shareholder of Cairn India (after completion of the deal), it will be neither possible nor appropriate for Vedanta to agree to any conditions,'' Mr. Mehta added. The letter further said some of the pre-conditions being set would involve a significant departure from the terms of the existing contracts entered into by Cairn India and the Union Government. “We understand that these (pre-conditions) would have a material adverse impact on Cairn India's value and thus negatively impact the interest of all shareholders, including the minority shareholders,'' he added.
“Acceptance of any of these proposals is likely to be challenged by Cairn India's minority shareholders under the provisions of the Companies Act. As such you will kindly appreciate that we are not in a position to accept these,'' it said. The committee meeting is likely to be attended by Cairn Energy CEO Bill Gammell, which is selling most of its 62.4 per cent stake in the Indian unit to Vedanta, and Cairn India CEO Rahul Dhir. Vedanta would be represented by Mr. Mehta and CFO Tarun Jain, official said here. ONGC wants the 20 per cent royalty to be added to the project cost, which can be recovered from the sale of oil. The move is being opposed by Cairn, as it will lower its profits from the field that, it says, has potential to produce 2.40 lakh barrels a day. During the meeting,
Cairn India is likely to put forth the point on behalf of Cairn India that it would not accept allowing ONGC to cost cover royalty payments at a cost to the Union Government and Cairn India; withdrawal of current arbitration proceedings and acceptance of government's view in legal disputes as well as its decision on all litigation that Cairn India is involved in with the government. Cairn India has maintained that all conditions were in violation of the production sharing contracts between the government and the subsidiaries of Cairn India.
