Stating that it had not been informed till date about the decision taken by the Cabinet Committee on Economic Affairs (CCEA), Cairn India has “preferred” to skip the controversial issue of pre-conditions of royalty payment and cess on crude oil produced in its annual report.

Though the company has been bitterly opposing the imposition of these pre-conditions for approval of the Cairn-Vedanta deal in its communication to the Petroleum and Natural Gas Ministry, no mention is made of it in its annual report released to the media on Wednesday. Cairn India board had on February 10 passed resolutions opposing change in contract to make the company liable for payment of royalty and cess on oil produced from its showpiece Rajasthan fields.

It has maintained that Oil and Natural Gas Corporation (ONGC), which got 30 per cent stake in the prolific Rajasthan oil fields, is contractually liable to pay royalty and cess on the entire production.

However, while approving the deal last month, the CCEA had made cost recovery of royalty and payment of cess as preconditions for approval of the $9 billion deal.

In his comments in the annual report, Cairn India managing director and CEO, Rahul Dhir stated: “What ought to have been a straightforward transaction subject to shareholder approval has now been drawn into the government's decision-making ambit. Cairn India has not been informed of CCEA decision till now.”

Further, Mr. Dhir said the long hiatus starting from mid-August 2010, when the deal was announced, has caused delays and uncertainty in managing a business that necessarily has to deal with the government and the Rajasthan joint venture.

The CCEA, last month, overruled objections to ONGC’s demand by Cairn/Vedanta and held these will have to be met before the approval is granted. It decided to give approval to the deal subject to Cairn/Vedanta allowing royalties from Cairn India’s prize Rajasthan oil fields to be added to project costs and recovered from sales. Also, it has to end arbitration proceedings against the government disputing its liability to pay cess, or tax, on its 70 per cent share of oil from the fields.

“At the time of writing this Management Discussion and Analysis, neither Cairn India nor its Board of Directors know what decisions might have been taken by the GoM, which are expected to subsequently flow to the company as a note from the MoPNG via the CCEA. Whatever the outcome, the fact is that it has created considerable uncertainties. Since the Company has not yet received a letter from the MoPNG containing the CCEA’s decisions, it is inappropriate to comment on its unsubstantiated contents,” the report said.

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