Riders on Cairn deal will not violate UK trade treaty

The government imposing preconditions for approving Edinburgh-based Cairn Energy's stake sale in its Indian unit to Vedanta Resources will not violate the country's investment protection treaty with UK, a ministerial panel on the $9.6 billion deal has opined.

A panel headed by Finance Minister Pranab Mukherjee had on May 27 decided that Cairn or its successor has to agree to paying cess on its share of 70% in the crownjewel Rajasthan oilfields and treat royalty paid by state-owned ONGC on its behalf as cost recoverable for the government giving its consent.

At the June 7 meeting of the Group of Ministers, which was constituted to vet the Cairn-Vedanta deal, it was opined that the provisions of India-UK Bilateral Investment Protection and Promotion Agreement (BIPA) will not be applicable in Cairn-Vedanta deal.

Sources in know of the development said Planning Commission Deputy Chairman Montek Singh Ahluwalia had at the GoM meeting enquired whether the provision of BIPA as pointed by the Ministry of External Affairs were applicable if the government was to impose pre-conditions for approving the transaction.

To this, Human Resource Development Minister Kapil Sibal, who is also an eminent lawyer by profession, stated that the provisions of BIPA were not applicable in this case, they said.

Some industry pundits had previously felt that pre-conditions may violate Indian's obligations under BIPA.

Article 3 of the India-UK BIPA requires India to give a fair and equitable treatment to all foreign investments by UK nationals and

companies.

Also, Article 7 provides for easy transferability of investment. India's rigid pre-conditions and delay in giving approval to the transaction led many to believe that it is a potential violation of these Articles in letter and spirit.

However, the GoM, whose recommendation will go to the Cabinet Committee on Economic Affairs (CCEA) this week or latest by next, felt otherwise, sources said.

Industry watchers had said that though Vedanta has not yet made any investments here, as defined under the India-UK BIPA, it could claim protection under Article 3 (1) of treaty claiming failure to provide favourable conditions to make investment.

Sources said at the GoM meeting, Sibal, Law Minister Veerappa Moily and Montek Singh favoured imposing stringent conditions for approving the Cairn-Vedanta deal.

After 75 minute deliberation, the GoM recommended to the CCEA that approval to Cairn Energy selling majority stake in its Indian unit be granted subject to five conditions.