India hopes for solution to Cairn sale stand-off

6th February 2011, Comments 0 comments

India's government said Sunday it hoped for a "positive solution" to a dispute over Cairn Energy's plans to sell a majority stake in its Indian unit to British resources giant Vedanta.

The statement by India's Oil Secretary S. Sundareshan came after a meeting in New Delhi attended by Scotland-based Cairn's chief Bill Gammell and representatives of Vedanta to discuss the deal worth up to $9.6 billion.

The talks were called amid growing doubts over whether the bid by London-listed Vedanta for a majority stake in Cairn India would go through.

The two sides had "an extremely constructive dialogue," the oil secretary told reporters, adding, "we hope to move forward to a positive solution."

Cairn also described the deliberations as "constructive," adding it and Vedanta were working "with the government of India to complete the proposed transaction before April 15, 2011."

India's government has said it wants to set conditions before giving its consent to Vedanta to assume control over Cairn India, whose most important asset is the oil-rich Mangala field in the western state of Rajasthan.

Cairn India holds stakes in 10 oil and gas blocks in the country and has tie-ups with state-owned Oil and Natural Gas Corp (ONGC), energy-hungry India's largest oil producer by output.

The Rajasthan block, which accounts for 90 percent of the value of Cairn India, is a losing proposition for ONGC.

The company has to pay 100 percent royalties on production, even though its share of production is just 30 percent, under a scheme put in place earlier by the Indian government to give incentives to private firms to draw investment.

ONGC is now seeking a more even sharing of the royalty payments.

The Press Trust of India quoted unnamed sources as saying that India stuck to its demand for renegotiation of the royalty payments.

Cairn's Gammell warned last year that New Delhi's handling of the sale would be a litmus test for foreign investors, especially those considering eventually selling Indian assets.

Acceptance of the government's royalty demands would hurt Cairn India's valuation as its future profits would suffer. Indian newspaper The Economic Times reported last week Vedanta might scrap the deal if the royalty arrangements were changed.

Vedanta had originally hoped to conclude the Cairn deal by December.

Vedanta has also run into controversy over a mining project in eastern India, which was fiercely opposed by tribal villagers, environmental and human rights campaigners, plus the Indian government.

© 2011 AFP

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