Oil Minister S. Jaipal Reddy today said the government is prepared to give approval to Vedanta Resources’ $ 9.6 billion acquisition of Cairn India, provided the concerns of state-run ONGC are addressed.
“I told him (Cairn Energy Plc CEO Bill Gammell) that the government would support the deal in-principle, but some of the concerns of ONGC need to be addressed before clearing the deal,” Mr. Reddy said.
“He (Gammell) seemed satisfied,” he added.
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Mr. Gammell described the 30-minute meeting as “positive and constructive” and said he was hopeful of concluding the $ 9.6 billion within the schedule of timeframe of April 15.
However, the Cairn CEO said his firm will not go back to its shareholders for extending the April 15 deadline for concluding the transaction.
“Cairn continues to work with the GoI to complete the proposed transaction before April 15,” he said.
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Shortly after formal applications were submitted to the Oil Ministry for the proposed sale of a majority stake in Cairn India to Vedanta, the deal hit a stumbling block in the form of a set of 11 preconditions imposed by the Oil Ministry for approving the deal.
Among these, the demand for royalty paid on crude oil produced from Cairn’s mainstay Rajasthan block being included in the project cost for purposes of profit calculation, as well as unconditional acceptance of the government’s position on various issues that are being contested in court and future exploration activities and expenditures as “final and binding”, have found no consensus from the private companies.
As per the approval accorded to the deal by shareholders of Cairn and Vedanta, the transaction was to be concluded by April 15.
However, unless the parties involved are able to find a middle ground on the preconditions imposed by the government by end-February, it will be impossible to adhere to this deadline, according to sources.
This is because after acquiring Cairn Energy’s stake, London-listed Vedanta’s Indian unit, Sesa Goa, is required to make an open offer for an additional 20 per cent stake to minority shareholders of Cairn India.
As this open offer would have to remain open for a period of 60 days after the government gives consent, if the government decision on the deal was to come by February-end (or in March, as was indicated by former Petroleum Minister Deora), the open offer can not begin before the first week of March and it will only close in end-April or early May, missing the April 15 deadline, they said.