Even before the deal between the Vedanta Group and Cairn Energy for a stake sale in Cairn India can be sealed, there is controversy whether or not the deal requires a nod from the government of India.
Some experts say if there is no change in the consortia which runs Cairn's assets in India, a clearance from the government or its nominee may not be required. As Cairn India will remain a member of the consortia — only its control will move from Cairn Energy to Vedanta, if the deal goes through — these experts said the company might need to just notify the government and take an informal clearance.
Some others said that a clearance from the government would be required in case Vedanta acquires a controlling stake in Cairn India, unlike the Petronas acquisition of 15 per cent stake in the company which was only "strategic and not controlling in nature". Oil and Natural Gas Corporation (ONGC) is Cairn's partner in all the assets under production. It is not clear whether ONGC would have the first right of refusal on operatorship (the company that manages day-to-day production) of the assets. "We are still seeking clarity on the matter. If the controlling stake is bought over by Vedanta, we do no think there would be any issue.said a senior ONGC executive who did not wish to be identified.
He added: “We, however, still need to study if we can have the first right of refusal in the deal. The government's go ahead, however, would be mandatory".
He said the government’s approval was mandatory for the Vedanta-Cairn Energy deal since oil & gas fields as well as their produce was owned by the government and only leased to the companies. The deal, nevertheless, would set a legal benchmark for India which had privatised its oil production and exploration in the 1990s but has not had to deal with such a situation earlier.
There is no global benchmark for such approvals since different countries follow their own rules. In Russia, for instance, a clearance from the government's antimonopoly authority is required if the asset is "strategic". The term strategic in Russian context means if the recoverable reserves are more than 70 million tonne of oil or 50 billion cubic metre of gas.
Petroleum secretary S Sundershan had on Friday said any company that had signed a production-sharing contract with the Indian government for an oil exploration block would need the latter's approval if some stake in the field or the company is sold.
"All contracts have provisions for appropriate government approvals before such changes in the ownership are made," he said. Each production-sharing contract in India is structured differently, especially for blocks like the Barmer and Ravva blocks of Cairn India which were privatised before the new exploration and licensing policy was implemented.