The Supreme Court is scheduled to hear a public interest litigation later this week, challenging the role of the central government and ONGC in the deal between Cairn India and Vedanta Resources, in allowing the latter to explore oil in the Rajasthan block.
The petition prays for a declaration that the agreement and the government’s approval are void. Apart from an inquiry by the Central Bureau of Investigation into the matter, it wants ONGC to exercise its right of preemption over the sale of shares of Cairn India. It also wants the court to direct ONGC or the government to recover the excess royalty paid by ONGC from Cairn India.
Cairn Energy Plc entered into an agreement with the Vedanta group on June 16, 2010, to sell 51-60 per cent of its shares in Cairn India for $8.5-9.6 billion, without offering the shares to its partner in the joint venture, ONGC, under an agreement of right of first refusal (ROFR).
According to the petition filed by Arun Kumar Agrawal, a lawyer from Bangalore, the Rajasthan block has 6.5 billion barrels of oil in place, capable of producing over 1.4 billion barrels of oil, according to the latest balance sheet of Cairn India. The operating cost of extraction is $3.5/barrel, while the sale price realised is over $100/barrel. This vast oil reserve would represent 30 per cent of India’s total crude oil production.
It’s alleged the joint operation agreement with the Cairn group had a clause that stated if the group wanted to sell its shares in Cairn India, it would first offer the same to ONGC. If ONGC refused to buy the stake, then only the group could sell it to another party. Hence, ONGC had the ROFR. However, Cairn Energy signed a deal with the Vedanta group to sell 51-60 per cent of its shares in Cairn India, without making an offer to ONGC. In fact, it denied there was any such ROFR with ONGC, the petition claims.
