In first signs that Cairn India may do a somersault so that its parent Cairn Energy Plc can sell stake to Vedanta Resources, the company has gone silent on the government preconditions that it had so far been bitterly opposing.
Cairn India, whose board had on February 10 passed resolutions opposing change in contract to make the company liable for payment of royalty and cess on oil produced from its showpiece Rajasthan fields, does not mention a word in its annual report on the same being made a precondition by the government for approving Cairn-Vedanta deal.
The company has so far maintained that Oil and Natural Gas Corp (ONGC) which got 30 per cent stake in the prolific Rajasthan oil fields for free, is contractually liable to pay royalty and cess on the entire production.
Besides the board resolution, Cairn India had since its parent Cairn Energy announced sale of 40 per cent interest in the company to Vedanta in August last year, written letters opposing it being asked to pay Rs 2,500 per tonne cess and making royalty cost recoverable.
But now that the Cabinet Committee on Economic Affairs (CCEA) has actually made cost recovery of royalty and payment of cess as preconditions for approval of the USD 9-billion deal, Cairn India Managing Director and CEO Rahul Dhir in the annual report for 2010-11 did not mention a word on it.
"What ought to have been a straightforward transaction subject to shareholder approval has now been drawn into the government's decision-making ambit," he said, adding Cairn India has not been informed of CCEA decision till now.
Analysts tracking the deal said it was strange for a company, which was 'out-of-turn' so vocal, to have suddenly gone silent.
"Acceptance of the preconditions were for the current owner (Cairn Energy) and the new owner (Vedanta) to decide. Yet Cairn India out-of-turn passed board resolution opposing it saying they were not in the interest of the company and its shareholders," an analyst said.
"If the silence is a sign of its acceptance of the preconditions, Cairn India will have to explain at least to the minority shareholders what changed for it to suddenly accept the riders. Can it compromise on minority shareholder interest to facilitate one shareholder to exit," another analyst asked.
The CCEA decision imposing preconditions was announced by the Oil Minister S Jaipal Reddy at a press conference.
Dhir in the annual report said, "the long hiatus starting from mid-August 2010, when the deal was announced, has caused delays and uncertainty in managing a business that necessarily has to deal with the government and the Rajasthan joint venture partner, ONGC."
