Two days after the hearing on the cess arbitration involving Cairn and the Union government took place, the group of ministers (GoM) on the $9.6-billion Cairn-Vedanta deal will meet for the first time tomorrow.
The group, led by finance minister Pranab Mukherjee, would take a call on the issue of Rs 14,000-crore royalty on production from Cairn India’s Barmer oil field.
Besides the royalty sharing controversy, the GoM would also take a call on whether the approval for the deal should come with a rider — the withdrawal of the cess arbitration case by Cairn India. Solicitor General Gopal Subramanium has said the government cannot force Cairn to withdraw the case since it would amount to a violation of Section 27 of the Contract Act.
The arbitration case is going on in London. Stating that the government can grant ‘conditional’ consent to the deal, the government’s chief law advisor said Cairn could be asked to withdraw the case only as a part of the negotiation.
Besides Mukherjee, corporate affairs minister Murli Deora, during whose stint at the petroleum ministry the deal was announced, is also a member of the GoM. Other members are petroleum minister S Jaipal Reddy, law minister Veerappa Moily, telecom minister Kapil Sibal and Planning Commission member Montek Singh Ahluwalia.
The meeting is happening more than a month after the government decided to set up the GoM on April 6. Mukherjee’s preoccupation with the West Bengal assembly elections and the government’s reluctance to take a call on the issue that could adversely impact its own company, Oil and Natural Gas Corporation, have delayed the decision. Among other things, the government is proposing cost recoverability of royalty from the Barmer block while giving clearance to the Cairn Energy’s sale of majority holding in its Indian subsidiary to Vedanta Resources.
Besides, the companies would not be able to go ahead with formalising the deal till Cairn India’s partners in all Indian blocks, including ONGC, grant a no-objection certificate to the company.
Making royalty cost-recoverable would need a clearance from the management committee of the block, though Cairn has maintained that the production sharing contract should have precedence over the decisions of the committee. Being the original licencee, ONGC currently pays royalty on the entire production of Barmer block, though it has only 30 per cent interest in it.
In the event of cost recovery of royalty, ONGC’s burden will be partially shared by Cairn and the government since the portion of petroleum after deduction of costs will come down.
