Cairn India deal delay won't help India, says Gammell

Oil ministry says decision on Cairn India takeover by December

International investment in the domestic energy sector could get affected if the government unduly delays the deal between Cairn Energy and Vedanta Resources, says Bill Gammell, Cairn India Chairman and CEO of its British parent.

At a joint press conference with Vedanta Resources’chairman, Anil Agarwal here today, he said: “Oil companies have the opportunity to invest anywhere in the world. The process (deal) should take its natural course, but it has a timeline. India should be a destination for investments. In so far as there are delays, it doesn’t help India.”

Gammell’s statement comes four days before the government is to launch the ninth edition of its New Exploration and Licensing Policy (Nelp-IX), where it plans to offer 34 oil and gas fields. Last year, it got bids for just 36 of the 70 blocks on offer, due to disputes over production-sharing contracts and the global financial meltdown.

Gammell later said he hoped the government’s approval will come by the end of this year — something petroleum secretary S Sundareshan also said in New Delhi today.

‘Average waiting’
Not all felt the delay in the deal would have such an effect. “Such a timeline is part of any global deal of such a size. The government has its fair say in a deal which involves a nation’s energy security. In countries like Russia and Kazakhstan, deals take much longer to materialise. The waiting period for Cairn and Vedanta are average by Indian standards,” said the head of oil and gas business at a professional services organisation, who did not wish to be named.

Cairn India holds stakes in 10 oil and gas blocks in India. Its key asset is the oil block in Barmer in Rajasthan. The production there of 125,000 barrels a day accounts for about 17 per cent of India’s total crude output. Cairn India has a 70 per cent stake in the block and Oil and Natural Gas Corporation (ONGC) holds the rest.

‘No raise of offer price’
This August, the UK-based Vedanta Group agreed to buy 51-60 per cent stake in Cairn India for $8.5-9.6 billion. Cairn Energy has 62.36 per cent stake in its Indian unit. The London Stock Exchange-listed Vedanta Resources has arranged overseas loans from a group of banks for the $6.5 billion of debt to be used to finance the deal, Agarwal said.

He added the company had no plans to raise the offer price for minority shareholders of Cairn India. “Our Rs 355 per share price is final and it’s a good price,” Agarwal said.

Sesa’s offer frozen
Sesa Goa, a unit of Vedanta, has deferred its offer for Cairn India shares, pending approval from the stock market regulator. It was due to make an open offer today. The regulator takes 45-60 days to approve open offers, according to Agarwal.

Meanwhile, according to agency reports, the petroleum secretary said: “We still have two-and-a-half months to decide on the deal. That should be a fair enough time.”

Sundareshan added there was “no delay on the part of the government” in deciding, and that Cairn Energy hadn’t sought permission when it initially informed the government about the deal. “We responded (to Cairn Energy) that, as per the production-sharing contract, they need government clearance,” he said.

According to the petroleum ministry, any changes in ownership of the blocks (according to the production-sharing contracts) requires government consent. ONGC is Cairn India’s 30 per cent exploration partner in the prolific Rajasthan field.

Agarwal also ruled out taking over royalty payment on crude oil produced from Rajasthan. Currently, state-owned ONGC has to pay royalty on all the crude oil produced from the block, though it has just 30 per cent share of the production.