As has been pointed out by FE on various occasions, if ONGC had a problem with its contract to pay all the royalty on oil produced while it owned just 30% of the joint venture (JV) with Cairn India, it should have gone in for arbitration in exactly the way Cairn India hasCairn makes the cess payments on the oil produced but has gone to the arbitration court arguing the payment has to be made by ONGC under the original contract. Indeed, for ONGC, going in for arbitration would have been pretty much a win-win situation. The original deal, which is a loss-making proposition for ONGC (the 30% dividends it gets from the JV are less than the 100% royalty it pays), was signed when ONGC was the Oil and Natural Gas Commission and directly under the formal control of the petroleum ministryso even if ONGC the company lost the arbitration, the government would have to make good the loss it caused to Oil and Natural Gas Commission. If Cairn agrees to allowing royalty payments to be expensed, ONGC will no longer be out of pocket on the deal.
The bad news is that the sign global investors are getting is that the government has no problems playing the heavy and ignoring the legitimate business interests of investors. Thats not a great situation to be in at any time, much less when foreign investors seem to be losing some of their interest in the country.