GoM refers Cairn deal back to CCEA

NEW DELHI: A ministerial panel on Friday upheld the conditions set by former oil minister Murli Deora for clearing Scottish explorer Cairn Energy's nearly-$10 billion deal to sell control in its Indian arm-—Cairn India—to Londonlisted Vedanta Resources of NRI metals tycoon Anil Agarwal. A final call on the panel's view would be taken by the Cabinet Committee on Economic Affairs (CCEA).

Sources said the panel's "unanimous view" was that the two firms would have to agree to pay cess on crude produced from the Barmer acreage—the mainstay of Cairn India's valuation—and treat royalty as part of cost of running the oilfields.

The conditions could derail the deal since they would affect its valuation. But a different outcome appears unlikely in the light of the opinions from the solicitor-general and the law ministry supporting the oil ministry's earlier conditions. The royalty and cess issues have been a hurdle to the deal since it was announced in last August. State-run ONGC is Cairn's 30% partner in Barmer fields, but pays 100% royalty due to a historical policy anomaly. Cairn is paying cess "under protest", and has launched arbitration proceedings.

Agreeing to the conditions would mean that Cairn—or subsequently Vedanta— would have to pick up a Rs 18,000-crore royalty tab. Now, ONGC bears this burden, which makes the Barmer fields a losing proposition for it. Accepting the condition on the Rs 2,500 per tonne cess would entail withdrawing the arbitration proceedings.

Oil minister S Jaipal Reddy declined to say what the panel's view was but said it would be put up for the Cabinet's consideration "within 15 days". The panel, under FM Pranab Mukherjee, was set up on April 6 to examine clearance to the deal after the CCEA failed to take a call. The panel also upheld ONGC's claim of first right of refusal. Now, Cairn would have to seek clearance from the state-run firm that is a partner in eight of the company's 10 acreages in India. The ONGC board had passed a resolution, requesting the ministry to withhold permission until Cairn agrees to royalty and cess issues. Besides, Vedanta would also have to seek "security clearance" from the home ministry. The deal has attracted some high-level lobbying. First, UK PM David Cameron wrote to PM Manmohan Singh to say its smooth passage was important for promotion of bilateral investments. This was followed up by the British envoy.

Cairn Energy CEO Bill Gammell and Agarwal have been lobbying policymakers and said the deal's passage was important for bolstering investor confidence and any adverse outcome would impact FDI inflows. Earlier this year, Singh wrote to then oil minister Deora, setting a deadline for the ministry to take a call. At the same time, however, there were protests against allowing Vedanta to acquire Cairn India without addressing ONGC's interests. Left MP Tapan Sen and former power secretary E A S Sarma, among others, wrote to the PM against the deal.

Vedanta raises $1.65 bn to part finance deal: To part finance the $9.6-billion acquisition of Cairn India, Vedanta Resources on Friday completed raising $1.65 billion through two separate but simultaneous international bond offerings.

The London-listed Vedanta raised $750 million through a five-year bond at 6.75% rate of interest, while it raised another $900 million through a 10-year offering at 8.25%. "The proceeds from the bond offerings would be used to part finance the acquisition of 40% stake in Cairn India," a release from the company said.

The largest corporate bond issuance by a non-banking company from India was lead arranged by Citi, along with StanChart, Barclays, Credit Suisse and The Royal Bank of Scotland.

Marathon Enters Last Leg
Aug 16, 2010 | Vedanta says will take up to 60% stake in Cairn India for $9.6 bn. ONGC has a 30% stake
Sept 13, 2010 | ONGC nod not required, says Cairn
Feb 15, 2011 | No deal without ONGC, says oil minister J Reddy Mar 18, 2011 | Sebi asks Vedanta to tweak share purchase pact for Cairn deal
Apr 05, 2011 | Sebi has okayed Cairn open offer, says Agarwal
Apr 07, 2011 | Govt refers deal to GoM
Apr 19, 2011 | Petronas sells its 14.9% stake in Cairn India
May 27, 2011 | GoM refers deal to CCEA