CCEA may give nod to Cairn-Vedanta deal on Thursday

The Cabinet Committee on Economic Affairs (CCEA) may on June 30 consider giving nod to Edinburgh-based Cairn Energy Plc selling stake in its Indian unit to London-listed mining group Vedanta Resources.

The $9-billion transaction is listed as the second item on the agenda of CCEA that will meet on 1645 hours on Thursday, a source privy to the development said. As of now, the CCEA has just two items listed for discussion.

As if in preparation for the nod which will come with conditions attached, the Edinburgh-based energy explorer yesterday announced lowering of the price at which it will sell 40% stake in Cairn India to Vedanta by over Rs 3,800 crore.

A Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee had on May 27 recommended that the government nod be given to the transaction only if Cairn or its successor agrees to bear a portion of royalty payable on its mainstay Rajasthan oil fields and also accepts its liability to pay cess on the crude oil produced from the fields.

If imposed, these conditions will materially affect the deal and Cairn/Vedanta by agreeing to lower the sale price appears to be headed towards accepting them.

Cairn Energy will sell its 40% stake in Cairn India to Vedanta at Rs 355 per share instead of Rs 405 a share agreed in August last year. It will now get gross proceeds of Rs 27,007 crore (about $6.02 billion) instead of Rs 30,811 crore ($6.84 billion) it was initially expecting.

The Scottish explorer has for the past 10 months denied the need for government approval to what it called a corporate transaction. It also rejected both the requirement of nod and pre-emption of partner Oil and Natural Gas Corporation (ONGC), which holds stake in 8 out of 10 properties of Cairn India, including the crown-jewel Rajasthan block.

Besides agreeing to take partner consent, Cairn and its successor have to agree to making royalty ONGC pays on entire crude output from Rajasthan despite owning only 30%, as recoverable from sale of oil, the source said.

ONGC had cited provisions of the contract months before the Cairn-Vedanta deal was announced, to demand that royalty be made cost recoverable.

GoM wanted the 20% royalty paid on Rajasthan crude be made cost recoverable and Cairn India agree to pay Rs 2,500 per tonne cess on its 70% share in Rajasthan as preconditions for the government consent for the deal.

Both the conditions had material impact on the deal and Cairn Energy's announcement yesterday that it is willing to forego Rs 50 per share non-compete fee it was charging from Vedanta, indicated its willingness to accept these conditions for the sake of the deal.