Cairn profit share to dip $1.68 billion on govt riders

NEW DELHI: Cairn India's profit share from Rajasthan oilfields will fall by $1.68 billion in case riders imposed by the government for approving its parent Cairn Energy selling stake to Vedanta Resources are accepted. The Cabinet had on Thursday approved Cairn Energy selling 40% stake in Cairn India to Vedanta subject to the buyer/seller agreeing to cost recovery of royalty in the Rajasthan fields. Sources said while Cairn India will not have to pay any royalty and state-owned ONGC will continue to pay royalty on its behalf to the state government but the levy will be added to project costs which are first deducted from oil sale revenues before profits are split between partners and the government.

Acceptance of this condition by Edinburgh-based Cairn Energy or its successor Londonlisted miner Vedanta will lower Cairn India's profit over the approved life of lasting till 2020 from $7.43 billion to $5.75 billion. Sources said the lower profits have been calculated at approved peak output of 175,000 barrels a day and considering a crude oil price of $70 per barrel. The present net value of Cairn India's loss of profitability is $1.39 billion, a little more than the $800 million concession in the purchase price that Vedanta has already got from Cairn Energy.

Cairn also has to agree to end arbitration against the government, disputing its liability to pay cess on its 70% share of oil from Rajasthan fields. Cairn currently pays Rs 2,626.5 per tonne cess under protest but unlike royalty, treats it as a cost-recoverable item.