The 11-month wait, says state-run Oil and Natural Gas Corporation (ONGC), has been worth it. After the government today cleared the $6-billion deal between Anil Agarwal-owned Vedanta Resources and Cairn Energy, though with stiff riders, ONGC said it could not have asked for more.
The approval came with a pre-condition that royalty is cost-recoverable for the Barmer field in Rajasthan. If so, royalty is made cost recoverable, it would first be deducted from the sale proceeds of oil before profits are split between the partners and the government. This implies that Cairn India, which owns a 70 per cent stake in India’s largest onshore field, will have to pay royalty at a rate of 20 per cent on produce. Cairn India derives 90 per cent of its revenue from the Barmer field.
ONGC, with a 30 per cent stake in the Rajasthan oilfields, has been paying the entire royalty on the output. It has been objecting to the Cairn-Vedanta deal, saying its approval is a must for Cairn to sell a controlling stake in its Indian arm to Vedanta.
“We would have gone on and on with our payment. But this change will now allow us to earn. Now, if we make payment at the beginning of the year, we will be able to get our share from the sales,” said a senior ONGC official, who is also a board member.
The ONGC board will have to clear the deal once Cairn India seeks it after accepting the government’s conditions. The member said this development was the biggest positive for the company’s upcoming follow-on public offer (FPO). “This boosts the investors confidence. We will now be able to go ahead with our roadshows,” he said.
The board is all set to file the red herring prospectus for its proposed Rs 11,500-crore FPO. The government is selling five per cent, or 427.77 million shares.
The FPO will hit the market in three weeks from the filing of RHP. Bank of America Corp, Nomura Holdings, HSBC Holdings Plc, JM Financial Services, Citigroup Inc and Morgan Stanley are managing it.