The Cabinet Committee on Economic Affairs (CCEA) is likely to next week consider imposing stringent conditions for giving the nod to mining group Vedanta Resources's $9.4 billion takeover of Cairn India.
Oil Minister S Jaipal Reddy said the CCEA, chaired by Prime Minister Manmohan Singh, may meet next week or at latest the week after that to consider the recommendations of a Group of Ministers that went into the issue of granting approval for Cairn India's parent firm, Cairn Energy, to sell its stake to Vedanta.
The GoM headed by Finance Minister Pranab Mukherjee had on May 27 asked for the contentious issue of royalty-sharing between state-owned ONGC and Cairn India in the Rajasthan fields to be renegotiated and stated that Cairn should accept its liability to pay cess on oil production.
If imposed, these conditions will materially affect the deal.
Reddy, who had on May 27 stated that the Cairn-Vedanta deal would go to the CCEA in two weeks, today said Mukherjee has finalised the minutes of the meeting and sent it to the Cabinet Secretariat for listing on the CCEA agenda.
"It will depend upon the flexibility of the Cabinet Secretariat, it will come next week or week the thereafter," he said.
Sources said the GoM wants Cairn or its successor to agree to make royalties paid by state-owned Oil and Natural Gas Corp (ONGC) on its most important Rajasthan oilfields cost-recoverable from oil sales.
ONGC owns a 30% interest in the Rajasthan oilfields, but has to pay royalty at the rate of 20% of the crude oil price realised on all of the 240,000 barrels per day of peak output expected from the fields.
At a $70 per barrel oil price, it has to pay Rs 12,600 crore in royalties on Cairn India's behalf over the life of the field, making India's largest onland fields a losing proposition for it.
ONGC had cited provisions in the Production Sharing Contract (PSC) of the Rajasthan oilfields in July last year, which was more than a month before the Cairn-Vedanta deal was announced, to demand that royalty like other taxes and levies should first be deducted (recovered) from the sale proceeds of oil before the profits were split between partners and the government.
Cairn as well as Vedanta have rejected ONGC's demand.
Sources said Cairn has also disputed it liability to pay oil cess at the rate of Rs 2,500 per tonne on its 70% share in the Rajasthan fields, saying ONGC is also liable to pay cess on its behalf, like in the case of royalty.
The government has rejected this position as the PSC imposes the royalty liability on ONGC, but is silent on cess, meaning partners have to pay in proportion to their share. Cairn has initiated arbitration against government on this issue.