Cairn India said its net profit would halve to Rs 1,435 crore in the quarter ended June 30 if it is asked to share royalty on crude production from the all-important Rajasthan oilfield, even as its parent Cairn Energy seemed inclined to agree to the proposition.
The board of the company is opposed to accepting riders such as sharing of royalty and payment of cess on the Rajasthan crude for getting government approval for its parent Cairn Energy's controlling stake sale in the company to mining group Vedanta Resources.
In this regard, Cairn Energy wants the conditions to be voted on by the shareholders of Cairn India. Cairn Energy holds a 52.1% stake in Cairn India and together with another 28.5% held by Vedanta, can see any proposal through.
Cairn India, in a press statement, said it had received "a requisition" from Cairn Energy under Section 169 of The Companies Act, 1956, to convene an extraordinary general meeting to consider the government riders.
Although Cairn India's Annual General Meeting (AGM) of company shareholders -- where the issue could have been considered -- is scheduled for August 18, its board, which is headed by Cairn Energy chairman Bill Gammell, at a meeting in Edinburgh yesterday decided to hold a postal ballot.
Cairn India CEO Rahul Dhir told analysts that as per the letter received from the government yesterday, it has to "comply" with the riders set by the Cabinet within a month.
"That may be difficult because the postal ballot itself will take more than a month," he said.
Since its parent announced the USD 9.6 billion deal with Vedanta in August last year, Cairn India has been opposed to making royalty payments recoverable from the sale of oil and the company being made liable to pay a Rs 2,500 per tonne cess, as this was not in line with the Production Sharing Contract (PSC). A change in the contract was neither in the interest of the company, nor its minority shareholders.
Since it would have been difficult to explain why the board changed its stand and compromised on the interest of minority shareholders so that one stakeholder can sell his shares, the matter was posted for hearing at an EGM.
"Based on the requisition, the Cairn India Board has noted its obligations under Section 169 of The Companies Act, 1956 and has reached a conclusion that it would be appropriate to hold a postal ballot of all the shareholders to consider the conditions imposed by the government," the statement said.
"It should be noted that if royalty were to be cost recoverable, it would lead to a decline in the revenues and profit-after-tax for the current quarter by Rs 1,291.6 crore," it added.
Cairn India reported a 10-fold jump in net profit to Rs 2,726.6 crore for the April-June quarter.
