Cairn Energy chairman Bill Gammell, who had till recently maintained that forcing Cairn India to pay royalty and cess on the mainstay Rajasthan oil block, on 3rd August wrote to oil secretary GC Chaturvedi saying all the preconditions set by the government were acceptable to the company and Vedanta
New Delhi: After pooh-poohing for almost a year, UK's Cairn Energy Plc has said it will accept all riders the government has attached for giving approval to its stake sale in Cairn India to mining group Vedanta Resources, reports PTI.
Cairn Energy chairman Bill Gammell, who had till recently maintained that forcing Cairn India to pay royalty and cess on the mainstay Rajasthan oil block was against the signed contract and would hurt minority shareholders' interest, on 3rd August wrote to oil secretary GC Chaturvedi saying all the preconditions set by the government were acceptable to the company and Vedanta.
To get $6.02 billion from the sale of a 40% stake, Mr Gammell said Cairn Energy and Vedanta will vote at a shareholders' meet for acceptance of the royalty and cess riders, ignoring the resolution passed by the Cairn India board in February opposing the value demolishing preconditions.
"Cairn UK Holdings (a wholly-owned subsidiary of Cairn Energy), holding 52.11% of the issued share capital of Cairn India, and Vedanta Resources Plc Group, holding an aggregate of 28.5% of the issued share capital of Cairn India, shall both be voting in favour of acceptance of these conditions," Mr Gammell wrote.
Cairn India had on 26th July stated that its April-June quarter net profit would halve to Rs1,435 crore if it was asked to share royalty on crude oil produced from the Rajasthan fields.
The company currently does not pay any royalty on its 70% interest in the Rajasthan fields. The royalty, as per the contract, is paid by state-owned Oil and Natural Gas Corporation (ONGC), which got a 30% stake in the 6.5 billion barrel field for free.
The Cabinet Committee on Economic Affairs (CCEA) on 27th June gave consent to the Cairn-Vedanta deal, but subject to Cairn or its successor agreeing to charging or deducting the royalty paid by ONGC from revenues earned from sale of oil before profits are split between the partners.
This cost recovery of royalty will lower Cairn India's profitability.
Also, the CCEA said Cairn India must pay a Rs2,500 per tonne cess on its 70% share of oil production. Cairn maintains that cess, like royalty, is a liability of ONGC and had initiated arbitration against the government on being forced to pay cess.
Mr Gammell said Cairn Energy and Vedanta will vote in a postal ballot being conducted among Cairn India shareholders for withdrawal of the cess arbitration.
Cairn Energy, together with Vedanta, has 80% voting rights in Cairn India and can overrule the objections of minority shareholders to see any proposal through.
"We expect the results of the shareholder vote to be announced in September and hope thereafter to be in a position to comply with all of the conditions set," he wrote, seeking an extension of the one-month deadline the government has set for acceptance of the conditions.
Since the board of Cairn India, which Mr Gammell chaired on 10th February opposed accepting the government preconditions, Cairn Energy wants these conditions to be voted on by the company shareholders.
Besides Vedanta furnishing financial and performance guarantees and an undertaking to keep Cairn India's technical capability undisturbed, the preconditions include ONGC-Cairn India's partner in most of its 10 properties in India-giving a no objection certificate, as well as the home ministry giving security clearance to Vedanta.
Since the Cairn-Vedanta deal was announced in August last year, Cairn India has been opposed to making royalty payments recoverable from the sale of oil and the company being made liable to pay a Rs2,500 per tonne cess, as this was not in line with the Production Sharing Contract (PSC).
A change in the contract was neither in the interest of the company, nor its minority shareholders, it has maintained.
"It should be noted that if royalty were to be cost recoverable, it would lead to a decline in the revenues and profit-after-tax for the current quarter by Rs1,291.6 crore," Cairn India said, announcing its Q1 earnings on 26th July.
Cairn India reported a 10-fold jump in net profit to Rs2,726.6 crore for the April-June quarter.
Last August, Vedanta proposed buying a 51%-60% stake in oil and gas explorer Cairn India for up to $9.6 billion in cash, but the deal has been delayed due to the lack of government and regulatory approvals.
A Group of Ministers (GoM) headed by finance minister Pranab Mukherjee had recommended to Cabinet that the deal should be approved if Cairn or its successor agreed to royalty being added to the project cost and recovered from oil sales, as well as agreed to pay its share of the Rs2,500 per tonne oil cess.
Days before the CCEA accepted the GoM recommendation and gave conditional approval, Cairn Energy lowered the price it was demanding from Vedanta to make up for the reduced profitability from acceptance of the preconditions.
It removed a non-compete provision and related non-compete fee of Rs50 per share.
Vedanta's total payment, at the reduced price of Rs355 per share for a 40% stake in Cairn India, will now be $6.02 billion, instead of $6.84 billion previously.
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"We definitely get adversely affected if the rest of the world slows down... only saving grace is that commodity market is not affected," Planning Commission deputy chairman Montek Singh Ahluwalia said
New Delhi: Terming the negative reaction to the US downgrade as on expected lines, Planning Commission deputy chairman Montek Singh Ahluwalia today said the markets should stabilise in the next couple of days, reports PTI
"I would have expected the negative reaction in markets... (but) the markets will settle down, maybe in next couple of days," he said.
Mr Ahluwalia also said he did not consider the fall of about 2% or so in Asian markets, including India this morning, as severe.
"The downgrade (of the US' long-term sovereign rating) is not actually a surprise... the markets knew about it, the US itself recognised the factors (that led to the rating action)," he told news channel CNBC-TV18.
He said the currency market would be in a little bit of turmoil, but investors would not be looking at that. "They would look at whether the currency markets are well managed," he said.
Ahead of the markets opening this morning, the RBI had said it was closely monitoring global developments and would continuously assess any impact on the rupee, forex liquidity and macroeconomic scenario.
Indian stocks dropped nearly 3% in early morning trade, while losses were seen across all Asian markets.
Noting that the action of Standard and Poor's was a judgement of the rating agency, Mr Ahluwalia said that a downgrade—which has happened for the first time since 1917, when the US was first given a rating—was still a significant event.
He further said that almost all the industrialised nations have problems and the world economy was definitely looking weaker than what it looked about six months ago.
"We definitely get adversely affected if the rest of the world slows down... only saving grace is that commodity market is not affected," he said.
"Generally my feeling is anything that unsettles global economy is a bad news," he said, while urging the global leaders and policymakers for a concerted effort to take the corrective steps.
He also said the focus on the fiscal deficit abroad will actually translate into much greater scrutiny and the people would more interested in looking at India's fiscal deficit position also.
"We have to emphasise that we have a plan to control our fiscal deficit, in terms of what the growth rate is likely to be," he said.
He, however, asserted that India has a sustained capacity for high growth and the Indian fiscal situation did not look bad.