ONGC may okay Cairn-Vedanta deal on Sept 27

22 Sep 2011 Evaluate

State-owned ONGC may next week give consent for transfer of control in Cairn India to Vedanta Resources, provided the Cairn Energy subsidiary and the Anil Agarwal-led firm sign a legally binding agreement to share royalty and pay cess on production from their Rajasthan field. The need for a legal document has arisen because Cairn India insisted on ONGC giving no-objection to the Cairn-Vedanta deal before it agrees to accept conditions that the government has set for clearing the $9 billion transaction.

Oil and Natural Gas Corp (ONGC) can waive its preemption rights only when Cairn India agrees to pay its share of the Rs 2,500 per tonne cess on production from the all-important Rajasthan oilfields, as per its stake of 70 cent, and also makes royalty payments cost-recoverable. ONGC holds 30% interest in the Rajasthan fields and Cairn previously felt the state-owned firm was liable to pay royalty and cess on its share of production, as well as Cairn's 70% participating interest.

Cairn doesn't want to agree to paying royalty and cess without getting a no-objection certificate (NOC) from ONGC, while ONGC doesn't want to give its consent without Cairn agreeing to the conditions set by the government. A way out of this would be for ONGC, Cairn India, Vedanta and UK's Cairn Energy -- which is selling its 40% stake in its Indian unit -- to sign a legally binding document agreeing on the government conditions as well as a separate paper granting clearance to the transaction simultaneously.

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