In a significant development, the Law Ministry has opined that UK's Cairn Energy cannot sell stake in its Indian unit to Vedanta Resources without government nod for transfer of control in all its properties including the giant Rajasthan oilfields.
"We had been criticised for being overzealous and so we took the opinion of the Law Ministry which has unequivocally stated that Cairn Energy must apply and seek government approval in all of its assets in India," an oil ministry official said here.
The Edinburgh-based firm, in its August 16 announcement for sale of its 40 to 51 per cent stake in Cairn India to London-listed Vedanta Resources for as much as $8.48 billion, did not say the deal was conditional on government approvals.
On being shown the relevant provisions of the contracts for exploration it has with the government, Cairn Energy about a month later made an application for permission that left out all of its three producing properties including its mainstay 6.5 billion barrels Rajasthan block.
"The Law Ministry in an opinion sent late last month has clearly held that the share sale is nothing but transfer of control (in all of the 10 properties of Cairn India) and so government nod is required in all of them," the official said.
Previously, the Solicitor General of India, the nation's second highest law officer, had held the same view on being asked for advice by Oil and Natural Gas Corp (ONGC).
"Cairn India is primarily an aggregation of interests that it holds directly or indirectly through its subsidiaries in 11 blocks (in India and Sri Lanka). A transfer of controlling stake in Cairn India amounts to a transfer of the respective participating interests, therefore necessitating government approval," the official said.
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And transfer/sale/assignment of interest to third party will trigger pre-emption rights of state-owned ONGC, which partners Cairn India in most of its properties.
The official said Cairn was awarded exploration blocks on the basis of the group's financial strength, technical capabilities and past experience in the area of exploration and
production of oil and natural gas worldwide including operatorship experience.
Vedanta on the other hand would not have won a single block on its own due to lack of experience in oil and gas sphere. But by acquiring Cairn India, it is "circumventing the technical expertise criteria required for bids and assignment (in oil and gas properties)," he said.
The new owner of Cairn India will have to meet the technical expertise criteria set for operations of complex oil and gas fields.
Cairn says the Vedanta deal is only a corporate transaction involving share transfer which does not trigger issues like examination of new owners' technical capability and ONGC's pre-emption rights.