UK's Cairn Energy has said it will accept all riders the government has attached for giving approval to its stake sale in Cairn India to mining group Vedanta Resources.
Cairn Energy chairman Bill Gammell, who had till recently maintained that forcing Cairn India to pay royalty and cess on the mainstay Rajasthan oil block was against the signed contract and would hurt minority shareholder's interest, on August 3 wrote to Oil Secretary GC Chaturvedi saying all the preconditions set by the government were acceptable to the company and Vedanta.
To get $6.02 billion from the sale of a 40% stake, Gammell said Cairn Energy and Vedanta would vote at a shareholders' meet for acceptance of the royalty and cess riders, ignoring the resolution passed by the Cairn India board in February opposing the value demolishing preconditions.
"Cairn UK Holdings (a wholly-owned subsidiary of Cairn Energy), holding 52.11% of the issued share capital of Cairn India, and Vedanta Resources Plc Group, holding an aggregate of 28.5% of the issued share capital of Cairn India, shall both be voting in favour of acceptance" of these conditions, Gammell wrote.
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 crude oil produced from the Rajasthan fields.
The company currently does not pay any royalty on its 70% interest in the Rajasthan fields. The royalty, as per the contract, is paid by state-owned ONGC, which got a 30% stake in the 6.5 billion barrel field for free.
The Cabinet Committee on Economic Affairs (CCEA) on June 27 gave consent to the Cairn-Vedanta deal, but subject to Cairn or its successor agreeing to charging or deducting the royalty paid by ONGC from revenues earned from sale of oil before profits are split between the partners.
This cost recovery of royalty will lower Cairn India's profitability.
Also, the CCEA said Cairn India must pay a Rs 2,500 per tonne cess on its 70% share of oil production. Cairn maintains that cess, like royalty, is a liability of ONGC and had initiated arbitration against the government on being forced to pay cess.
Gammell said Cairn Energy and Vedanta will vote in a postal ballot being conducted among Cairn India shareholders for withdrawal of the cess arbitration.
Cairn Energy, together with Vedanta, has 80% voting rights in Cairn India and can overrule the objections of minority shareholders to see any proposal through.
"We expect the results of the shareholder vote to be announced in September and hope thereafter to be in a position to comply with all of the conditions set," he wrote, seeking an extension of the one-month deadline the government has set for acceptance of the conditions.