Oilmin sets riders for Vedanta’s Cairn India venture acquisition

NEW DELHI: The oil ministry wants Vedanta to furnish an update on official proceedings against the mining group and unconditionally accept the government's view in legal disputes with Cairn India before it approves the London-listed firm's $9.6-bid to buy Cairn's Indian venture.

The measures are among a slew of conditions proposed by oil ministry officials for an in-principle approval of the controversial deal. While these conditions can be another setback for the controversial deal, which has seen many twists and turns since it was announced last August, top oil ministry officials said these were "minor" issues that could be resolved by a dialogue and the deal remained on track to be approved.

Cairn and Vedanta declined comment. Government officials involved in the matter said Vedanta would have to present a status-report on all proceedings initiated against it by the centre and states. Further, in-principle approval for the deal to be subject to ONGC's pre-emption rights. ONGC is a 30% disgruntled partner in the Rajasthan oil fields, which accounts for over 90% of the total deal value.

ONGC, as the government nominee, was given the 30% stake free of cost but is contractually obliged to shoulder the entire royalty burden of its partner Cairn, which discovered India's largest onshore oilfield in Rajasthan. ONGC says the royalty burden is unfair and has asserted that it has pre-emptive rights and that its consent is needed for the deal to be completed.

Vedanta, which has no experience in oil and gas, would also have to ensure it doesn't tinker with the existing management of Cairn India, failing which the oil ministry would take away the operatorship of the block.
The oil ministry is likely to demand that Vedanta would have to "unconditionally accept" the government's decision on all litigations that Cairn India is involved in with the government.

The ministry wants Cairn to withdraw an arbitration proceeding challenging its liability to pay cess for oil produced from the Rajasthan block. Cairn is paying "under protest" its share of cess at . 2,500 per tonne. But, the company had challenged it through an arbitration suit on the ground of a 15-year-old deal that holds ONGC responsible for paying royalty and other statutory levies.

Vedanta has had run-ins with the environment ministry on the issue of expansion of its aluminium refinery in Kalahandi, Orissa, and was also denied permission to mine bauxite at Niyamgiri in the same state. Permission to set up a university in Orissa was also denied. It is unclear how any of these transactions impact the buyout of Cairn India's stake, which is on the face of it apure commercial transaction.