India gives conditional nod to Cairn-Vedanta deal
India gave conditional clearance Thursday to the multi-billion dollar sale of British oil explorer Cairn Energy's Indian oilfields to London-listed mining group Vedanta Resources.
The approval came with the key rider that Cairn India's new owner share the oilfields' royalty burden, currently borne in whole by India's state-owned Oil and Natural Gas Corp (ONGC).
The sale, one of the biggest in Indian corporate history, was originally valued at 9.6 billion dollars, but Cairn and Vedanta agreed earlier this week to cut the price by more than 600 million dollars.
Cairn had agreed to sell a 40 percent stake in Cairn India to Vedanta nearly a year ago, but the deal had become bogged down in a dispute over royalties.
"The cabinet gives conditional approval to the sale," Oil Minister Jaipal Reddy told reporters.
Cairn India's biggest holding is the Mangala deposit in Rajasthan -- the country's largest onshore oil field.
Cairn and its Indian partner, ONGC, have long been at odds over the payment of royalties from the Rajasthan oil production.
ONGC owns a 30 percent stake in the block but pays royalties on 100 percent of the output under a "royalty holiday" scheme dating from the 1990s aimed at promoting private oil exploration in energy-hungry India.
ONGC had been pushing for a more equitable sharing of the royalty burden which Reddy laid out as the main condition behind the cabinet green light.
"The royalty must be treated as cost recoverable," Reddy said, adding that Cairn or its successor must also accept its liability to pay tax on the crude oil produced from the fields.
Cairn had previously insisted that the original royalty arrangements be upheld, arguing that changing them would affect the valuation of the deal by hurting Cairn's profitability.
"The rules of the game have not been changed," ONGC's financial director D.K. Sarraf told the NDTV news channel after the cabinet approval was announced.
"The rules of the game have already been written in the production-sharing contract and the joint operating agreement, and I believe personally that the approval of the government is based on the rules of the game," Sarraf said.
In May, Cairn India reported a 10-fold, year-on-year leap in quarterly profit to a record 24.6 billion rupees ($543 million) thanks to a surge in crude oil prices and production.
© 2011 AFP