Newspaper reports suggest that the Edinburgh-based Cairn Energy Plc may not find it easy to get government approval to sell a majority stake in Cairn India Ltd?in which it owns a 62% share (other shareholders of Cairn India include the state-owned LIC)?to the UK-based Vedanta Resources. While the ministry of petroleum, which has to give the approval, is keeping mum, unnamed officials along with some ministers of the Cabinet are pointing to various reasons why the deal should not be approved. One, it is argued, Vedanta has never worked in petroleum and so has no experience. Two, since ONGC is a partner with a subsidiary of Cairn India Ltd?the subsidiary, Cairn Energy India Pty, is the operator of the fields such as those in Rajasthan that shot the little-known company into the limelight?it is argued it should have got the first right to buy Cairn India Ltd?s shareholding. So, among the options being bandied about in the press is ONGC mounting a rival bid of its own. While some say the government has directed it to do so, ONGC?s chief has denied any such instruction, but says he is examining the Right of First Refusal (RoFR) clause. Implicit in all this is the view that, one, since the oil fields Cairn India is operating through its subsidiary are the property of the government (a view strengthened after the Supreme Court judgement in the Ambani brothers fight over KG-D6 gas), the fields have to remain with the government. Linked to this is the view that the national interest can only be embodied by a PSU.
Most of the arguments are specious. For one, since the sale is taking place at the holding company (Holdco) level, which is one notch higher than the operating company (Cairn India Ltd?s shares are being sold, not Cairn Energy India Pty?s), the operator of the field remains the same. In which case, Vedanta?s expertise or the lack of it becomes irrelevant. Since the sale is taking place at the Holdco level, the question of the RoFR coming into play does not arise, since ONGC has no shareholding in Cairn India Ltd. Thus, while the agreement Cairn Energy India Pty has signed with the government requires the government to agree to any change in shareholding patterns, this should pretty much be automatic. As for the question of whether PSUs should be increasing their role in the economy and whether they represent the national interest, it?s useful to keep in mind that in most sectors where competition has been allowed for long enough, like telecom and aviation, the PSUs have been beaten hands down?in the oil and gas sector, firms like Reliance are giving the state-owned ONGC a run for its money. It is bad enough that the government refuses to privatise. Wanting to increase the role of PSUs is unacceptable.