In a possible spoiler to Vedanta Resources’ $9.6-billion acquisition of Cairn India, Oil and Natural Gas Corp (ONGC) appears keen to buy out partner Cairn’s stake in the Rajasthan oil block — the mainstay property of Cairn.
ONGC on October 21 wrote to Cairn Energy, saying it had preemption rights and asked for value of each of the 10 assets held by the British firm’s Indian unit so as to enable it to “decide on the future course of action,” an official said.
Cairn may not have put a separate value to each of the 10 properties and it, like in the past, is likely to dispute ONGC’s claim for preemption rights on grounds that the deal with Vedanta was more a corporate transaction.
But unless this jurisdiction issue was sorted out, the oil ministry was unlikely to begin processing Cairn’s application for governmental nod to the deal, he said.
For ONGC, which stands to lose $2 billion on Cairn India-operated Rajasthan block, going this far in asserting its preemption rights and then withdrawing would be difficult.
Rajasthan block is a losing proposition for ONGC as it is liable to not only pay statutory levies on its share of 30 per cent interest but also those due on Cairn India. This position will be corrected if ONGC can acquire Cairn India’s 70 per cent holding in the block, the official said.
Vedanta is paying such a high price only on the basis of the exemption it is going to get from paying of 20 per cent royalty and possibly Rs 2,500 per ton oil cess on the Rajasthan block, which is at the heart of its deal with Cairn.
“The fallout of the situation where a foreign seller is allowed to pocket a hefty premium for the burden a public sector company has to bear, will be immense,” he said.
