Cairn-Vedanta received their 'go ahead' nod on the deal from CCEA

Stocks

oi-Shoaib MD

By Shoaib Md

Published: Friday, July 1, 2011, 10:25 [IST]

Finally the biggest deal in India at US $19 billion was completed as the Cabinet Committee on Economic Affairs (CCEA) gave its approval nod. But they added two riders to it.

First, Cairn India will bear royalty on its Barmer fields in Rajasthan. This implies that Cairn India will lose out Rs 16, 800 crore. Although the deal will be a positive for both Vedanta and ONGC. Jaipal Reddy, Oil Minister, said the royalty payment will be treated as a cost recoverable item.

The other rider was that Cairn India will withdraw the arbitration suit that the company had filed against cess payment. This means that the company will additionally have to pay Rs 2,500 per tonne cess on its 70% share in Rajasthan.

Next step

Now Cairn India will have to obtain a no-objection certificate from its partner, i.e. ONGC. Also Vedanta will take a view on the conditions that have been put up by the CCEA. After that the companies will have to commit to some conditions or no approval.

Finance minister Pranab Mukherjee said the clearance of the Cairn-Vedanta deal “will create positive sentiment in the market".

View: From ONGC's point it was important that the royalty burden be shared between the two companies based on the share of the oil field. And the government's decision was on the right track, in fact it should have never allowed this in the first place at the time of NELP.

Regarding the Cess charge the issue should have been settled by way of arbitration rather than arm twisting, which is what the government did.

The conditions placed by the government is a clear win for ONGC and even Vedanta. But Cairn India has lost out. It is yet to be seen how the company will manage the news and will there be renegotiation with Vedanta.

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