Vedanta Cairn bid to go to India cabinet for decision

27th May 2011, Comments 0 comments

British resource giant Vedanta's long-delayed bid to buy a majority stake in the Indian unit of Cairn Energy will go to the cabinet for a decision within two weeks, a minister said Friday.

Britain-based Cairn Energy has called the government's ruling on the proposed $9.6 billion deal, in limbo for nearly 10 months, a litmus test for India as it seeks to woo foreign investors.

The Indian government's announcement came after a ministerial group, headed by Finance Minister Pranab Mukherjee, met to consider the controversial bid but did not disclose its recommendation.

"The GOM (Group of Ministers) has looked at various aspects of the deal. It has taken a view on the matter," Oil Minister S Jaipal Reddy told reporters after the more than hour-long meeting.

"This view will be presented to the Cabinet Committee on Economic Affairs," he said, adding that the "outer limit" for a decision was two weeks.

In August 2010 London-listed Vedanta, owned by billionaire Anil Agarwal, said it would purchase a majority stake in Cairn India for $9.6 billion, adding to its assets that already include aluminium, copper, iron ore and zinc mines.

But the deal ran into problems because India wanted to set conditions before allowing Vedanta to assume control over Cairn India, whose biggest holding is the Mangala deposit in Rajasthan -- the country's largest onshore oil field.

Cairn and its Indian state-owned partner Oil and Natural Gas Corp (ONGC) are at odds over the payment of royalties on the Rajasthan oil production.

ONGC owns a 30 percent stake in the Cairn-operated Rajasthan block.

But it 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 has been pushing for a sharing of the royalty burden that fairly reflects the two companies' ownership stakes before the Indian government approves the sale.

Reddy refused to disclose the ministerial panel's decision, saying traditionally its deliberations are kept secret.

But in a hint that a compromise could be in the offing, Reddy said the oil ministry's earlier stand that ONGC's demand for the royalty payments to be equitably split before the sale goes through "may not be the Group of Ministers' recommendation."

Cairn Energy has insisted any changes to the current division of the royalty burden would affect the valuation of the deal and could kill the sale.

© 2011 AFP

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