Cairn Energy on Tuesday asked Cairn India to accept all the conditions set by the Cabinet Committee on Economic Affairs (CCEA) and agree to pay royalty and cess on the Rajasthan oilfields to finalise the stake sale to Vedanta Resources.
Cairn Energy, which owns 52.11 per cent stake in Cairn India, has voted to accept government conditions,'' the company said in a statement issued here.
The Edinburgh-based firm, which is selling a 40 per cent stake in Cairn India to Vedanta, has till now maintained that forcing its Indian unit to pay royalty and cess on the mainstay Rajasthan oil block was against the signed contract and would hurt minority shareholders' interest.
“Two of the government of India conditions — cess and royalty payable — are now with Cairn India shareholders for approval, Cairn has voted to accept these conditions, with voting results due on September 14,” the statement said. Together with Vedanta's 28.5 per cent shareholding, Cairn Energy has enough votes to get any proposal passed by its shareholders, ignoring the resolution passed by the Cairn India board in February opposing the value demolishing preconditions. Minority shareholders at Cairn India's AGM in Mumbai last week had booed Cairn Energy for changing track to get $6.02 billion from the stake sale to Vedanta.
Cairn India had on July 26 stated that its April-June quarter net profit would halve to Rs.1,435 crore if it was asked to share royalty on the Rajasthan crude oil. The company now does not pay any royalty on its 70 per cent interest in the Rajasthan fields. The royalty, as per the contract, is paid by Oil and Natural Gas Corporation (ONGC), which got a 30 per cent stake in the 6.5 billion barrel field for free.
The CCEA on June 27 gave consent to the Cairn-Vedanta deal, subject to Cairn or its successor agreeing to charge or deduct the royalty paid by ONGC from the revenues earned from the sale of oil before the profits are split between partners. This cost-recovery of royalty will lower Cairn India's profitability.
Also, the CCEA said Cairn India must pay a Rs.2,500 a tonne cess on its 70 per cent share of oil production.
“Sale of 40 per cent shareholding in Cairn India to Vedanta will be completed in two stages. The first tranche of 10 per cent, which realised about $1.4 billion was completed in July, 2011. The second tranche of 30 per cent, approved by the Indian Government in June, subject to certain conditions, will realise about $4 billion,'' it said.
Sale of 40 per cent shareholding in Cairn India to Vedanta will be completed in two stages