In a startling revelation of facts, both ONGC Videsh Limited (OVL) and the petroleum ministry have accepted before the Empowered Committee of Secretaries (ECoS) that they had considered re-negotiation of the $2.6 billion deal for acquiring the assets of the UK listed firm?Imperial Energy Limited by OVL in the wake of current depressing global economic situation.

However, fearing that this may lead to ?reputational damage to OVL, ONGC, the Indian government and potentially the India Inc?, the government has decided to allow OVL to go ahead with the deal and make an open offer to the shareholders of Imperial Energy. The open offer will made by OVL before December 9.

?We are in the process of making the open offer to the shareholders of Imperial, who will then have 28 days time i.e up to January 6, 2009 to tender the shares. If acceptances are received in respect of 90% shares, OVL would be required to make payments to the shareholders, expected latest by mid January,? confirmed a senior company official on the condition of anonymity.

Delays on part of OVL to make an open offer has seen the share price of the UK listed firm?Imperial Energy trade below the offer price of ?10.5 a share for some time. As against a price of ? 11.48 per share on November 11, the Imperial Energy stock was quoting a price of ? 10.30 on December 5

FE is in possession of documents, prepared by the petroleum ministry for the consideration of the Empowered Committee of Secretaries (EcoS), which revealed that petroleum ministry had advised OVL to ?confidentially explore the possibilities of making a revised offer? in the changed economic circumstances. The EcoS was told that the withdrawal of the offer was not considered desirable as ?it may have undermined the company?s and the country?s credibility besides depriving an opportunity to acquire such an asset abroad, which is crucial to enhancing India?s energy security.?

The documents further revealed that the adverse global financial conditions and the plunging crude oil prices have led to a massive fall in the projected returns to OVL from the acquisition of Imperial Energy Limited?s assets. The acquisition of Imperial Energy?s assets by OVL was based on an Internal Rate of Return of over 10% and at a long term crude oil price of $75-80 a barrel. However, with a steep fall in the crude oil prices, currently ruling at close to $40 a barrel, the IRR from the project has fallen considerably.

?The IRR from the project (acquisition of Imperial?s assets by OVL) would be less than 10% in case long term crude oil prices remain below$85 a barrel. At Brent crude prices of $80, 75, 70, 65, 60 and 55 per barrel, the IRR would be 9.86%, 9%, 8.09%, 7.13%, 6.08% and 4.9% respectively,? said the ECOS document.

Significantly, with the IRR from the project undergoing a change, the payback period for the $1 billion bridge loan to be raised by OVL from domestic and international banks and FIs, considered to be 10 years, too, will get prolonged and would go much beyond the earlier 10 year period. OVL has informed the government that below $75 a barrel, the IRR of the project would go below 10% with loan financing.

Company sources said the delay in making an open offer was because certain fresh approvals were required by OVL from the Indian cabinet before going ahead with the deal. The earlier approvals accorded by the cabinet in August this year were subject to certain key financial parameters, which had seen a complete reversal following the recent developments in the global financial markets. ?The cabinet had to be informed of the subsequent changes before going ahead with the deal,? the ONGC official said.

Moreover, the petroleum ministry has also informed the ECOS that the Russian national oil company Rosneft, which had expressed interest in participating OVL in Imperial Energy earlier is not interested now as its financial conditions are stated to be affected by the current financial meltdown.

OVL had also obtained legal and financial advices from leading global firms including Deutsche Bank, M/s Linklaters as also from M/s Slaughter and May on the re-negotiation of the Imperial Energy offer. All these firms advised OVL against it and said any such move would lead to ?a reputational damage to OVL, ONGC and the Indian government and potentially India Inc. It will also affect the ability of other Indian companies to access international capital markets.?