Petroleum ministry looks at CCEA to resolve Cairn-Vedanta deal

The Ministry of Petroleum has turned to the Cabinet Committee on Economic Affairs (CCEA) to resolve the deadlock on the $9.6 billion Cairn-Vedanta deal.

The deal between Vedanta Resources and Cairn India had reached a stalemate last week when both companies refused to abide by any of the preconditions set by the ministry to clear the deal.

After the inauguration of IOC’s Naphtha Cracker Plant in Panipat, Union Minister of Petroleum S Jaipal Reddy said, “We are trying to go to the CCEA after our note is looked into by all the ministries. We will take a view on the issue after that. The note may go to the Cabinet in two to three weeks’ time.”

The ministry had asked Cairn India to agree to a change in the clause of the production-sharing contract with ONGC that would result in sharing of royalty between ONGC and Cairn India.

Cairn India had rejected the conditions as it would have reduced the company’s valuation before the proposed share sale to London-listed mining group Vedanta Resources.

“As far as ONGC’s interests are concerned we cannot bail out any buyer (Vedanta Resources),” said Reddy.

ONGC will pay $3 billion (over the life cycle of the Rajasthan field) as royalty under the existing contract. While ONGC has a 30% stake in the Mangla oilfields in Rajasthan, it pays 100% royalty on the production of oil from that field.

ONGC has proposed recovering the Rs14,000 crore royalties that it will have to pay over and above its 30% share from the Rajasthan fields from the sale of oil.

Cairn India has been refusing to adjust the royalty payment from its revenue as it will reduce the value of its assets in India.

According to Cairn India, the production-sharing contract absolves Cairn from sharing any royalty burden on the crude oil produced from these fields.

The government has also asked the Anil Agarwal-controlled Vedanta Group to settle all ongoing arbitration in the government’s favour.