In yet another development that could further delay approval of the multi-billion dollar Cairn-Vedanta deal, legal opinion sought by the Finance Ministry has stated that the Central Government could impose pre-conditions while looking at the issue of clearing Vedanta Resources' takeover of Cairn India Limited.
In his latest opinion to the Finance Ministry, the Solicitor General of India (SGI) has reiterated his earlier opinion that Cairn or its successor should share cess and royalty with State-owned Oil and Natural Gas Corporation (ONGC) in the Rajasthan block.
This is the second opinion given by the SGI to the Government in recent months. Earlier, the Petroleum and Natural Gas Ministry had taken an opinion on the $9.6 billion deal. “The government is not bound to grant consent ipso facto or mechanically,” the SGI has opined. The pre-condition that Cairn/Vedanta agree to cost-recovery of Rs.18,000 crore in royalty that ONGC has to pay on the Rajasthan block would be defensible on parameters of public and national interest, the SGI said in the latest opinion.
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In his first opinion on March 24, the SGI had categorically stated that transfer of Cairn India shares to Vedanta should be allowed only if the latter agrees to treat royalty paid by ONGC as cost-recoverable from its revenues. ONGC owns a 30 per cent stake in Cairn India's mainstay Rajasthan block, but is liable to pay royalty on the entire output from the field. Cairn is also contesting its liability to pay a Rs.2,500 per tonne cess on its 70 per cent share.
Cairn Energy, which is selling a 40 per cent stake in its Indian unit to Vedanta, and the London-listed mining group are opposed to making royalty cost-recoverable as it will lower the profitability of Cairn India.
“The purpose of consent is the provision of a power to regulate the performance of obligations which arise under a contract and not to defy them. Hence, consent can be conditional. The government cannot deny consent except on logical grounds. Such conditions as preserve many different components of public interest can be validly imposed. The conditions must be borne out of fairness, vigilance and public interest,” he said.
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The Group of Ministers headed by Union Finance Minister Pranab Mukherjee is slated to meet on May 27 to discuss imposing pre-conditions on approving the deal. The GoM recommendation will go to the Cabinet Committee on Economic Affairs (CCEA), which had on April 6 asked the ministerial panel to vet the deal. The SGI has also upheld the condition that Cairn should withdraw arbitration it has initiated in protest against the imposition of cess.
ONGC is the licensee of the Rajasthan block and has the right to take 30 per cent interest upon any discovery.