Mining group Vedanta Resources' $9.6 billion acquisition of Cairn India is not listed for consideration by the Union Cabinet this week amid talk that Cairn may be asked resubmit applications seeking government approval for the deal without attaching any conditions.
Cairn India had on November 23 last year, more than three months after its parent firm Cairn Energy announced the sale of its majority stake in the company to Vedanta, made conditional applications, which have come in for questioning following a Delhi High Court ruling.
"As of now, it is not listed on the agenda of the Cabinet meeting slated for tomorrow," an Oil Ministry source said.
The Delhi High Court had last week upheld the state's sovereignty on the grant of consent in case of "any material change in the status of the companies or their shareholding".
It used this ground to allow the government to terminate Canoro Resources' contract for the Amguri oilfield in Assam. The Canadian firm had sold shares to Barbados-based MASS Financial Corp without seeking prior government nod.
Sources said Cairn, after repeated reminders, had on November 23 applied for the sale of a 51% stake to Vedanta, but with a rider that government consent was not mandatory and that the corporate deal involving a share transfer does not trigger partner state-owned ONGC's preemption rights.
This is contrary to the Delhi High Court ruling that held the government's right to approve transactions resulting in a change in the status of companies, they said, adding that after the deal, Vedanta will have a 60% stake in Cairn India, a material change in a firm that controls the nation's largest oilfield.
The Oil Ministry had opposed the conditional application, which is mentioned in the note for Cabinet seeking approval for the $9.6 billion deal.
This was also cited in the draft note it sent to the Prime Minister's Office for inclusion in his reply to UK Prime Minister David Cameron's letter alleging delays in approval of the deal.
"The question before us is if we can apply different standards to Canoro and Cairn," the source said. "So far, no decision has been taken."
Cairn's application stated, "No consent is required or contractually called for," and it was seeking the nod as a responsible citizen which fully respects sovereignty.
The Delhi High Court in its ruling said: "An interpretation, either of a law or a contract, which impinges on the sovereign power of the state to safeguard its vital and strategic interests (and not just commercial interests), would be eschewed by the court to save the law, or the contract, from being void on the ground of it being opposed to public policy."
Sources said the watered down conditions for approval of the Cairn-Vedanta deal are likely to be considered by the Cabinet only next week.
The Oil Ministry wanted the deal to come up before the Cabinet Committee on Economic Affairs (CCEA) this week, but it is not listed for the meeting slated for tomorrow.
The ministry has watered down its preconditions and has almost withdrawn its contention that Rs 21,802 crore in royalty and cess paid by ONGC on behalf of Cairn India from the Rajasthan oilfields should be equitably shared.
"In January, the Oil Ministry wanted the Cabinet to give its nod only after Cairn India agrees to equitable sharing of royalty and paying its share of cess," the source said.
"However, in the note that was finally circulated, the Oil Ministry has given an alternative that it will continue to legally pursue equitable sharing of royalty and cess, but will not make it a precondition for approval of the deal," he said.
The note lists two alternatives. In the first, it lists out five preconditions, instead of the 11 it had originally proposed to Cairn/Vedanta in January.
The five preconditions include royalty being made cost-recoverable, Cairn India withdrawing arbitration disputing its liability to pay cess, Cairn India obtaining partner ONGC's no-objection and Vedanta providing performance and financial guarantees, the source said.
As an alternative to the precondition of royalty and cess, the ministry has suggested that government shall pursue all legal recourse for establishing its rights under the Production Sharing Contract (PSC) in the case of cess. On royalty, it shall take appropriate decision to enforce the provisions of PSC to make royalty cost-recoverable.
Sources said it was unlikely that the Cabinet will go with the first option when an easier and least controversial option has been given in the second.
But the condition that Cairn India will have to obtain a no objection certificate (NOC) from its partner Oil and Natural Gas Corporation (ONGC) has been retained, the source said.
ONGC holds a stake in eight out of 10 properties held by Cairn India. The ministry is of the view that the change of control of Cairn India amounts to an indirect assignment or transfer of participating interest in the blocks, so there is a need for the government, as well as the partner's nod.
The Oil Ministry's position on an NOC from ONGC has also been upheld by the Law Ministry and the nation's second highest law offer, the SGI.
"The Oil Ministry has moved a Cabinet note seeking approval for the deal subject to Cairn India and its subsidiaries seeking a NOC from partner ONGC," he said.
The ministry has, however, withdrawn the precondition asking Cairn India to give up its legal rights on future disputes over its mainstay Rajasthan oilfield and abide by the government and oil regulator DGH's diktat.
