After procrastinating for months, the Oil Ministry has taken a watered-down note to the Cabinet for giving consent to London-listed mining group Vedanta Resources' $9.6 billion acquisition of Cairn India.
"We have sent out Cabinet note ... As to when it should be put up before Cabinet Committee on Economic Affairs (CCEA) depends on Cabinet Secretariat," Oil Minister S Jaipal Reddy told reporters here.
The ministry after incorporating comments on its draft note from ministries of finance and law circulated a final note for consideration of the CCEA.
"... It (the issue) can be taken up anytime," Reddy said.
A CCEA meeting is scheduled for tomorrow but the approval for the Cairn-Vedanta deal is not listed on its agenda so far.
Reddy has watered down preconditions for giving approval to Cairn-Vedanta deal that was announced in August 2010 and has almost withdrawn the ministry's contention that Rs 21,802 crore in royalty and cess paid by ONGC on behalf of Cairn India on the Rajasthan oilfields should be equitably shared.
The Oil Ministry under previous minister Murli Deora, had conditioned the government nod to Cairn India agreeing to equitable sharing of royalty and paying its share of cess.
However, the note that was circulated after Reddy took over, the Ministry listed 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.
"As a ministry, we are off the view that royalty should be treated as cost recoverable item. Whether it is to be pre- conditioned or not, it is another matter," Reddy said.
His cabinet note lists two alternatives. In the first, five preconditions are listed, 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.
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.
"We have given two options to the Cabinet," Reddy said. "I cannot speculate on what the Cabinet will decide."
Reddy did not say if the Cabinet may asked Cairn India to make an unconditional application seeking government consent for the transaction.
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," a 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."
"The Law Ministry, in its opinion on the preconditions, stated that any terms and conditions to be stipulated should be mutually agreed and they cannot be unilaterally imposed," the source said. "The condition that Cairn has to forego its legal right shall be void under the Indian Contract Act."
ONGC owns a 30% stake in the Rajasthan block, but pays royalty on the entire quantum of crude oil produced from the fields. Over the life of the field, the royalty burden works out to Rs 18,000 crore, of which ONGC also has to bear Cairn's share of about Rs 12,600 crore.
Cairn has also disputed any liability to pay Rs 2,500 per tonne cess on its 70% share of production from the Rajasthan blocks, which totals Rs 9,202 crore for ONGC over the life of the field.
Sources said ONGC wants royalty and cess to be cost-recoverable, like capital and operating expenses. Under the PSC, capital and operating expenses are first deducted from the sale of oil and the profits shared between the stakeholders, including the government, thereafter.
Cairn and Vedanta are opposed to the move as it would lower Cairn India's profitability.
Sources said all the Oil Ministry now wants Vedanta to make appropriate disclosures to market regulator Sebi when it makes an open offer for acquiring an additional 20% stake in Cairn India, as per takeover rules.
Comments on the note are likely to be received by next week and the matter may go to the Cabinet in the following week for consideration.
Though Cairn Energy and Vedanta have a timeline of April 15 to close the transaction, the deal will go through even if Cabinet was to give its nod by the month-end.
Once the government's nod is obtained, the two firms can approach their shareholders seeking an extension of the April 15 deadline, saying the conclusion now remains a mere formality.
Sources said that in all likelihood, the deal can be closed by May-end.
The note states that Vedanta Resources had only "very recently" informed the ministry through a letter dated January 28 that the transaction needs to be closed by April 15.
