Vedanta’s acquisition of Cairn India may have to wait longer, as both Cairn and its Indian partner, Oil and Natural Gas Corporation, continue to stick to their claims on issues related to royalty and cess. Cairn hopes to now complete the $8.5-billion deal by April 15.
ONGC insists that issues related to royalty and cess payment from Cairn’s Rajasthan block is ‘cost recoverable’ and must be sorted before the deal is cleared. A senior petroleum ministry official today said the ministry “doesn’t want to stand in the way of the deal, but the two issues need to be addressed”. Cairn India has been maintaining that the royalty is not cost recoverable.
“We are for expediting the process (of approval) after addressing all the concerns, particularly relating to (ONGC’s liability) to pay royalty and cess on behalf of Cairn India,” he said.
Last month, an ONGC board resolution had urged the ministry not to clear the Vedanta deal till Cairn resolved the royalty issue. ONGC will end up paying Rs 14,000 crore yearly as royalty for the life of Cairn’s Rajasthan block.
According to licence conditions for the block, ONGC has the right to take 30 per cent in any discovery free of cost but the state-run firm has to pay not only its share of royalty but also the 70 per cent share of the operator. Royalty of 20 per cent has to be paid to the Rajasthan government on the price crude may fetch.
ONGC said it wants to recover the yearly liability from the sale of oil. Acceptance of the demand would impact Cairn India’s valuation, as its future profits will go down and the company says its minority shareholder interest will be compromised.
