Cairn, Vedanta to be soon informed of deal approval: Reddy

More than three weeks after the Cabinet approved UK-based Cairn Energy's proposal to sell its Indian unit to Vedanta Resources, Oil Minister S Jaipal Reddy today said a formal letter communicating the decision will be sent to the companies within "next few days."

The Cabinet Committee on Economic Affairs (CCEA) had on June 30 approved Cairn Energy selling 40% stake in Cairn India to Vedanta with certain riders but the decision has not yet been communicated to Cairn/Vedanta.

"In next few days, decision will be formally communicated to them," Reddy told reporters here.

Law Ministry is vetting the letter communicating the preconditions. "We have been told that the vetting in the law ministry is nearing completion. We should be able to communicate the decision in next few days," he said.

Officials in his ministry said the Law Ministry is likely to send its response by early next week and the same will be communicated to Cairn/Vedanta in the next day.

The CCEA, headed by Prime Minister Manmohan Singh, had on June 30 the Cairn-Vedanta deal subject to the buyer/seller agreeing to cost recovery of royalty in Cairn India's mainstay Rajasthan fields.

Sources said although Cairn India will not have to pay any royalty, and state-owned Oil and Natural Gas Corporation (ONGC) will continue to pay royalty on its behalf to the state government, the levy will be added to project cost that is first deducted from oil sale revenues before profits are split between partners and the government.

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

ONGC pays royalty on its 30% share of oil from Rajasthan fields as well as on operator Cairn India's 70% stake. It will contractually continue to pay royalty on all the oil produced from Rajasthan but this will be added to project cost.

Also, the deal has to be approved by ONGC, which has a stake in all three of Cairn India's producing assets and five of its seven exploration assets, waiving its pre-emption rights. And finally, the acquisition will need security clearance.