Cairn deal: SC notice to govt, ONGC, others

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Apr 24 2012, 07:31am hrs
The Supreme Court on Monday sought replies from the Centre, ONGC and others on a PIL seeking a CBI probe into the $8.48-billion Cairn-Vedanta deal, besides a direction to the government to cancel its approval for the deal on the ground that the country would lose over Rs one lakh crore in the process.

The Cabinet Committee on Economic Affairs, headed by Prime Minister Manmohan Singh, had on January 24 granted final approval to Vedanta Resourcess acquisition of a majority stake in Cairn India for $8.48 billion.

A bench headed by Justice D K Jain while issuing notice to the petroleum ministry, Cairn, Vedanta and ONGC on the PIL filed by Arun Kumar Agrawal, a Bangalore resident, also sought the Comptroller and Auditor General (CAG) audit of the governments approvals for acquisition of majority stake of Cairn India by the Anil Agarwal firm. This is in view of the contention that offer should have gone first to the state-owned ONGC.

The deal for acquisition of 40% stake of oil explorer Cairn India by London-based mining group Vedanta Resources got delayed due to a disagreement over the royalty payments to the state of Rajasthan. While clearing the deal, the CCEA imposed the condition that Cairn India must agree to cost recovery of the royalty that partner ONGC is paying on their joint ventures Rajasthan crude oil output. The CCEA also imposed the condition that Cairn must drop the arbitration proceedings it has initiated against the government on its alleged liability to pay the Oil Industry Development Act cess of R2,500 per tonne of oil produced.

Cairn and Vedanta agreed to these conditions and re-worked the deal, which forced Cairn to forgo the R50 per share non-compete fee, that was part of the original offer, leading to a 5.3% reduction in post-tax proceeds.

ONGC, on its part, initially considered a counter-offer for Cairn India, but eventually decided not to make it.

Cairn stated that dropping the non-compete fee will result in a fall in the sale price from $8.66 per Cairn India share to $7.85. Accordingly, the total consideration for the 40% stake sale come down from $6.65 billion to $6.02 billion.

The deal, touted as the biggest acquisition in the energy sector, invited criticism on account of the alleged human rights violations, default of payment and environmental damage associated with Vedantas mining and metal projects in India, as pointed by the Internal Security section of the home ministry.

Seeking to declare the $8.48-billion Cairn-Vedanta deal as illegal, counsel Prashant Bhushan, appearing for the petitioner, argued that ONGC had a right of first refusal (RoFR), but Cairn and Vedanta all throughout denied its existence.

The government took a political decision to allow the Cairn-Vedanta deal and thereafter to avoid legal hassles, the government asked Cairn to take NoC from ONGC, Bhushan argued while adding that Cairn wrote to ONGC on September 26, 2011 and on the very next day ONGC gave the NoC without calculating the huge profit it could have made if it had exercised its RoFR and bought the shares.

The petitioner, a financial expert and a lawyer, had alleged that the Centres approval for transfer of oil resources worth lakhs of crores of rupees to the foreign private firm is based on extraneous considerations and need to be probed.

The petition also sought a direction to ONGC to exercise its right of preemption over the sale of shares of Cairn India on the same terms without causing any loss or profit to Cairn Energy.

Besides, Agarwal wants the CBI investigation into the circumstances under which ONGC and the government relinquished their rights under the RoFR to acquire 41% of the shares in the Rajasthan oil block, one of the largest onland oil fields in the world.

The petition also sought a CBI probe into why ONGC, the Cairn Indias partner, was made to pay royalty at the rate of 20% for the entire output instead of only on its 30% share of production on oil resources in the Rajasthan block.

It has also sought a direction to CAG/Government to calculate the losses from the payment of 100% of royalty and cess by ONGC before the Cairn -Vedanta deal and direct ONGC/Government to recover the excess royalty paid by ONGC from Cairn India. According to the petition, the difference in the payment of the royalty by Vedanta and ONGC amounted to around R47,000 crore which alone should have been sufficient reason to force Cairn to offer the shares to ONGC.