In a setback to U.K.-based Vedanta Resources' attempt to "seal the deal" with Cairn Energy Limited (CIL), the Cabinet Committee on Economic Affairs (CCEA) decided to refer the matter to a Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee, following sharp differences in the Cabinet over granting approval to the deal.
The GoM headed by Mr. Mukherjee would also include Law and Justice Minister M. Veerappa Moily, Petroleum and Natural Gas Minister Jaipal Reddy, Union Human Resources Development Minister Kapil Sibal and Planning Commission Deputy Chairman Montek Singh Ahluwalia.
The deal had become 'controversial' following adverse opinion of the Solicitor General of India and the Law and Justice Ministry that London-based Vedanta Resources must agree to equitably share royalty on oil produced from Cairn India's mainstay, Rajasthan oilfields, before the government nod.
The Home Ministry had also felt that the security vetting process will have to be undertaken, if desired, as foreign investors and corporates are involved in the $9.6-billion Cairn Energy and Vedanta Resources deal. The Prime Minister’s Office (PMO) had shown keen interest in fast track approval of the deal.
Sources in the government said that as soon as the CCEA met under the leadership of Prime Minister Manmohan Singh, a number of Ministerial colleagues referred to the ramifications the deal could have on the domestic and international front. It was felt that as the issue was complicated and involved the interests of a State-owned public sector company – Oil and Natural Gas Corporation (ONGC) – it was important that further scrutiny of the deal was carried out.
It was felt that overruling the opinion of the Solicitor General of India Gopal Subramanium and that of the Law and Justice Ministry would not set a good precedent and therefore the matter should be studied further.
Union Commerce and Industry Minister Anand Sharma is learnt to have stated as the deal involves national and international issues, it is important that the matter be further examined. Union Agriculture Minister Sharad Pawar was also in favour of deferring the deal at the present juncture.
"It has been referred to the GoM to be headed by Finance Minister Pranab Mukherjee,’’ Petroleum Minister, Minister S. Jaipal Reddy said here after the CCEA meeting.
On Tuesday, U.K.-based Vedanta Group had said it has received market regulator SEBI’s nod to acquire a 51 per cent stake in Cairn India and will launch an open offer soon.
The ONGC in July 2010, more than a month before Cairn Energy announced stake sale in its Indian unit to Vedanta, had said that royalty, like any other levy, is cost recoverable. It had cited provisions in the field contracts to assert its point. With the deal being referred to GoM, Vedanta Resources would find it difficult to close the deal before the April 15 deadline it had sought from its shareholders.
