ONGC board approves Cairn India's sale of assets to Vedanta

Stocks

oi-Shoaib

By Shoaib Md

Published: Wednesday, September 28, 2011, 12:22 [IST]

ONGC announced that it's board has given consent to the Cairn India's parent firm Cairn Energy regarding its stake sale to Vedanta Resources, a company led by Anil Agarwal.

The only clause it placed was that Cairn India will have to sign a legal pact that ensures that it will be sharing the royalty and cess burden in their productions.

In a statement issued after the board meeting, ONGC said, "After detailed deliberations on pre-emptive rights and economic evaluation, and as Cairn has agreed to the two conditions relating to cost recovery of royalty and withdrawal of cess arbitration case in respect of RJ-ON-90/1 (Rajasthan oilfields), the board of ONGC resolved that Cairn's request may be agreed to, subject to Cairn, Vedanta and their affiliates executing a formal agreement with ONGC agreeing to the royalty and cess conditions."

ONGC has a 30% stake in the Cairn-operated oil and gas fields. The conditional approval over the $6 billion deal came after a delay of more than 10 months. The transaction was held up over royalty payments between the two partners.

Currently Cairn India does not pay any royalty on its 70% stake in the Rajasthan fields as the contract between the two partners state that royalty will be paid by the state owned ONGC, which has 30% stake in the field. Therefore, ONGC demanded an equitable sharing of royalty before the deal received its clearance.

However, even before the Cairn-Vedanta deal was announced in August last year, ONGC had demanded that like all other taxes, royalty should be added to the project costs, considering it as revenue earned from oil sales before profits were split between partners.

This will increase the share price of Cairn India as there is a possibility that the company may announce dividend from this cash.

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