Government seeks USD 520 million from Cairn Oil & Gas; company slaps arbitration notice

NEW DELHI: The government has slapped a USD 520 million (around Rs 3,941 crore) demand notice on billionaire Anil Agarwal's oil and gas unit Cairn after an audit found alleged discrepancies in cost recovery in the Rajasthan oil and gas fields operated by the company, sources said adding the firm has disputed the demand and initiated arbitration proceedings.

The Directorate General of Hydrocarbons (DGH), the upstream technical arm of the Ministry of Petroleum and Natural Gas, sought USD 520 million in additional profit petroleum for the government after an audit of capital and operating expenses incurred on the Mangala and other oilfields in the Rajasthan block RJ-ON-90/1, sources with direct knowledge of the development said.

The audit alleged discrepancies in the way capital expenses made on setting up the infrastructure to produce oil were booked.


The law provides for operators recovering all the capital and operating cost from revenues earned from the sale of oil and gas before sharing a fixed percentage of profit with the government. Booking a higher expenditure curtails government's profit share.

Cairn Oil and Gas, a vertical of Agarwal-controlled Vedanta Ltd, earlier this month sent an arbitration notice, disputing the demand, they said.

A company spokesperson declined to comment.

Cairn is the operator of Rajasthan block with 70 per cent interest while the balance is held by state-owned Oil and Natural Gas Corp (ONGC).

ONGC is not a part of the arbitration but will have to abide by whatever award of the dispute resolution proceeding comes out, sources said adding the company will have to pay 30 per cent of the USD 520 million demand in case the arbitration panel upholds the DGH demand.