1. Editorial: Cairn’s 9/11 bomb

Editorial: Cairn’s 9/11 bomb

That’s the day when it can start arbitration

By: | Updated: August 20, 2015 11:35 AM
Cairn India

While the inter-ministerial group that is to take a call on the Cairn Energy arbitration is yet to meet, the government would do well to keep in mind that it has already been 19 months since the first tax notice was sent to Cairn (Reuters)

While the inter-ministerial group that is to take a call on the Cairn Energy arbitration is yet to meet, the government would do well to keep in mind that it has already been 19 months since the first tax notice was sent to Cairn, and there has been no resolution so far—hardly surprising then, that the British oil explorer has lost patience and said it will seek damages for the losses caused to it by the government attaching its shares in Cairn India; over the last year, with oil prices crashing 47%, the shares of Cairn India have fallen 53%. Indeed, there has been precious little progress on even the process of arbitration which Cairn Energy initiated on March 11, 2015—the government’s stance remains ‘that tax proceedings are not covered by the Bilateral Investment Promotion and Protection Agreements and hence dispute cannot be resolved by arbitration’. Interestingly, if the government does not agree to arbitration, and to appoint its arbitrator, under the terms of the agreement, Cairn can approach the International Court of Justice to appoint an arbitrator on behalf of the government of India—that 6-month deadline expires on September 11, or 9/11 to use the American phraseology.

If Cairn was an isolated example, that would be one thing, though it is unconscionable that an investor—and the company is a big investor with a very successful track record of value creation in India—should have to wait so long for justice; more so since the BJP’s election campaign talked about eradicating the tax terror unleashed by the UPA government. While Cairn India’s tax matter—this pertains to the same Cairn Energy tax case, albeit from a different angle—will be heard in Delhi High Court later today, there is also a Reliance Industries Limited (RIL) case in the Supreme Court that is similar. In this case, 15 months ago, RIL filed an arbitration to get the government to raise gas prices as per the Rangarajan Committee’s recommendation—the government stance is that fixing gas pricing is a sovereign right of the state and cannot be a matter of arbitration. While the Production Sharing Contract that the government has signed with RIL allows for market-pricing of gas—and the implementation of Rangarajan Committee recommendations is a step towards that—the issue is similar to that of Cairn in the sense that, when a large investor has a problem, the government has to address it, through arbitration if need be. Indeed, RIL has other arbitration proceedings as well which have been going on for 4-5 years since, at various points in time, there have been issues with getting the government to either appoint its arbitrator or to agree to the presiding arbitrator—given that arbitrations should get over in months, this is a big delay we are  talking about. For a government that is not keen on settling issues bilaterally since this can open it up to the charge of corruption—this is also why it did not remove the retrospective tax from the statute—the next best solution is to allow arbitration; it is odd that it should be doing its best to delay even this.

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