The government's nod to the transaction is subject to Cairn or its successor agreeing to treat royalty payments on Rajasthan oilfields as recoverable from oil sales. Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields
New Delhi: More than three weeks after the Cabinet Committee on Economic Affairs (CCEA) gave conditional nod to the $9-billion Cairn-Vedanta deal, the oil ministry today sent a formal letter to the companies informing of the decision, reports PTI.
"The letter was collected by Cairn India representatives this afternoon," an oil ministry official said.
Cairn Energy Plc, which is selling 40% out its 62.4% stake in its Indian unit to London-listed, India-focused mining group Vedanta Resources, was eagerly awaiting the formal letter so that it can quickly conclude the transaction.
Sources said the letter was immediately faxed to Edinburgh, where the board of Cairn India, whose chairman is Bill Gammell (the head of Cairn Energy), was meeting to approved earnings for the first quarter ended 30th June.
Cairn Energy wants the approval letter to be taken up by the Cairn India board at today's meeting itself, they said.
The CCEA had on 30th June given its approval to Cairn Energy for selling its Indian unit to Vedanta subject to the new owner agreeing to share royalty and pay oil cess on mainstay Rajasthan oilfields.
Sources said since the approval involved conditional access, the oil ministry sent the letter informing of the decision to the law ministry for vetting.
Law minister Salman Khurshid yesterday approved the draft and today the oil ministry sent the letter to Cairn India, which is the company that applied for permission for change of control in its 10 properties, including the crown-jewel Rajasthan oilfields.
The government's nod to the transaction is subject to Cairn or its successor agreeing to treat royalty payments on Rajasthan oilfields as recoverable from oil sales.
Also, Cairn India will have to withdraw the arbitration it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.
Besides, the approval will be subject to ONGC, which has a stake in all the three oil and gas producing properties and five out of seven exploration assets of Cairn India, waiving its pre-emption rights, which CCEA termed as the partner's no-objection certificate (NOC). The deal would also need the security clearance, they said.
Last August, London-listed miner Vedanta proposed buying 51%-60% of oil and gas explorer Cairn India for up to $9.6 billion in cash, but the deal has been delayed due to lack of government and regulatory approvals.
Approval has been delayed over royalty payments that ONGC makes on behalf of Cairn India in Rajasthan oilfields.
ONGC owns a 30% stake in Cairn India's Rajasthan oilfield but pays the entire royalty on production under the government's previous policy of giving discounts to attract investors.
ONGC had, much before the Cairn-Vedanta deal was announced, cited contractual provisions to demand that the royalty to be recovered as a cost from revenue.
The state-owned firm maintained that as a partner it has pre-emption, or right of first refusal, and the deal should not proceed without its concurrence, Mr Reddy said.
Both Cairn and Vedanta disputed royalty being made cost recoverable as it would dent Cairn India profits. They also opposed the need for partner consent for the transaction.
A Group of Ministers headed by finance minister Pranab Mukherjee, which was asked by the CCEA to vet the deal, held that ONGC's views were correct and recommended to the Cabinet that the deal be approved if Cairn or its successor agreeing to adding royalty to the project cost and recovered from oil sales besides agreeing to pay its share of Rs2,500 per tonne oil cess.
Sensing the mood, Cairn last month lowered the price it is demanding from Vedanta to make up for reduced profitability on 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.
While the uptrend has suddenly lost steam, don't expect a sharp selloff
The market came tumbling down today after the Reserve Bank of India (RBI) raised key interest rates by a more-than-expected 50 basis points in the fight against inflation. The Nifty fell below the 5,613 level to close 105 points down at 5,575. But while the uptrend in the market has been interrupted, the drop may not be severe. While today's fall was supported by higher volumes, above the past 10 days' average, in the previous three trading sessions the market had tried to climb higher with a higher high each day.
The market opened marginally higher, tracking its Asian peers that were trading in the positive in early trade. The Nifty resumed trade at 5,688, up eight points from its previous close, and the Sensex opened up 21 points at 18,898. Nervousness ahead of the RBI's quarterly monetary policy review kept the indices range-bound. The indices touched their intra-day high in the first hour, with the Nifty up at 5,702 and the Sensex at 18,945.
But immediately after the announcement of the sharp rate hike, the market plunged and the losses expanded as trade progressed.
The decline hurt all sectoral indices with rate-sensitives like capital goods, realty and banking leading the slide.
The market touched the day's low in the last 30 minutes, with the Nifty falling to 5,560, down 142 points from the day's high. At the day's low the Sensex was down to 18,482. However, the market closed off the lows, the Nifty at 5,575 (down 105 points) and the Sensex at 18,518 (a loss of 353 points).
The advance-decline ratio on the National Stock Exchange (NSE) was 509:1297.
Among the broader indices, the BSE Mid-cap index declined 1.87% and the BSE Small-cap index fell 0.80%.
The BSE Realty index (down 3.55%) was the biggest loser, followed by BSE Capital Goods (down 3.49%), BSE Bankex (down 2.46%), BSE Auto (down 2.14%) and BSE Power (down 1.88%).
TCS (up 0.39%) was the lone gainer among Sensex stocks. The losers were led by Reliance Communications (down 5.53%), BHEL (down 4.46%), DLF (down 4.26%), Mahindra & Mahindra (down 4.20%) and Larsen & Toubro (down 3.84%).
There were three gainers on the Nifty-Power Grid Corporation (up 0.46%), TCS (up 0.27%) and HCL Technologies (up 0.12%). The major losers were RCom (down 6.13%), IDFC (down 6.06%), BHEL (down 4.55%), M&M (down 4.45%) and Kotak Bank (down 4.35%).
The RBI raised key rates by a steep 50 basis points. Accordingly, the repo rate has been increased to 8% from the earlier 7.5% and the reverse repo rate to 7% from 6.5%. The central bank, however, kept the cash reserve ratio (CRR) rate unchanged at 6%. This is the 11th time since March 2010 that the RBI has hiked interest rates in a bid to control inflation.
Markets in Asia registered gains in the range of 0.47% to 1.28% on earnings optimism. The US deadlock over raising its debt ceiling seemed to have taken a backseat, as companies like Cannon, Kao Corporation and Baidu Incorporated reported better-than-expected earnings.
The Shanghai Composite gained 0.53%, the Hang Seng surged 1.25%, Jakarta Composite climbed 1.12%, the KLSE Composite added 0.14%, the Nikkei and the Straits Times rose 0.47% each, the Seoul Composite advanced 0.85% and the Taiwan Weighted jumped 1.28%.
Back home, institutional investors, both foreign and domestic, were net buyers of stocks on Monday. While foreign institutional investors pumped in Rs315.72 crore in shares, domestic institutional investors bought shares worth Rs224.25 crore.
Glenmark Pharmaceuticals today said it has received $15 million (over Rs65 crore) from US-based Salix Pharmaceuticals Inc as an advance payment to upgrade its plant for production of Crofelemer, used for treating diarrhoea. As per the terms of the agreement, Salix had agreed to pay Glenmark $21.6 million (about Rs95 crore) as a commitment fee in five equal annual instalments, with the first annual instalment due in July 2012. Glenmark Pharma rose 2.89% to close at Rs338.50 a share on the NSE.
Onco Therapies, a wholly-owned arm of Strides Arcolab, has received US Foods and Drugs Administration (FDA) approval for Gemcitabine injection, a generic version of chemotherapy drug Gemzar marketed by Eli Lilly and Co. Gemzar is prescribed for the treatment of ovarian cancer, breast cancer and non-small cell lung cancer. The US market for Gemcitabine is around $700 million as per March data. Strides Arcolab was up 1.75% and closed at Rs374.25 on the NSE.
Thermax has entered into an agreement with US-based Amonix, Inc to bring the new concentrated photovoltaic (CPV) technology for solar power generation to India. Through this partnership Amonix will offer high-performance solar power generation systems and the company will be the engineering, procurement and construction (EPC) partner to provide turnkey solutions to customers in India. Thermax declined 3.13% to Rs590.60 a share.
The Infosys founder’s entry to PHFI only strengthens the dominance of Big Business on the board of the organisation. This organisation which decides on public health policy, remains non-transparent and unaccountable, despite enlargement of government representation on the board
Big Business dominates the governing board of the Public Health Foundation of India (PHFI). As many as 10 of the 31 members of the PHFI governing board represent business groups. They include powerful names such as Mukesh Ambani, Shiv Nadar, Purnendu Chatterjee, Uday Khemka, Harpal Singh and now NR Narayana Murthy. In addition, there are board members who represent entities that have roots in business organisations, such as Ashok Alexander of the Bill and Melinda Gates Foundation.
Their fabulous wealth must have given them some special understanding of public health policy issues and qualified them to be on the board of an institution that will deal with such issues. But what does one say when the government ignores even obvious conflicts of interest, such as the presence on the PHFI board of Harpal Singh, whose Fortis Group is a private healthcare and medical education provider and has a direct interest in the shaping of the government's health policy.
Babus don't stand for transparency
After a recent recast of PHFI, there are as many as seven central government bureaucrats-serving or retired-on its governing board. They include some of the most powerful babus, including TKA Nair, principal secretary to the prime minister, and Dr Montek Singh Ahluwalia, deputy chairman of the Planning Commission.
These 'public servants', however, have shown no interest in making this publicly-funded, public-policy-influencing organisation RTI-compliant and open to scrutiny of the Comptroller and Auditor General, statutory regulators or parliament and legislators. On the contrary, in March this year, Dr Ahluwalia, in his capacity as the deputy chairman of the Planning Commission, reinforced the culture of secrecy and unaccountability by declining a request by Satyanand Mishra, the chief central information commissioner, to bring all public-private partnerships (PPPs) under the RTI Act 2005.
Thus, the organisation that NR Narayana Murthy, chairman emeritus of Infosys Ltd, now chairs, can function like a private club with none of the hassles of transparency and accountability, but large chunks of public-funding available to it.
Figuring out Mr Murthy's motivation
Will Mr Murthy end up lending his 'driven-by-values' reputation to a shadowy and non-transparent organisation?
That question occurred to me partly because I have personal knowledge of Mr Murthy's financial support to the cause of greater transparency in public life through annual RTI Awards organised by Public Cause Research Foundation (PCRF), an NGO that is managed by Arvind Kejriwal, who is currently the main coordinator of the Jan Lokpal movement. (I have worked with PCRF for a year.)
On 12th July, I sent an email to Mr Murthy, explaining the issues surrounding PHFI and underlining the contradiction between his public profile and his new job. I also urged him to use his good offices to do something to unravel the network of unaccountable, private interests behind PHFI, rather than lend his reputation to this deception.
Murthy's reply was prompt, but intriguing. "I have just accepted the position and have not yet met the president of PHFI. Therefore, I cannot comment on the issues you have raised. Please raise specific questions and I will take them up with the authorities and request them to provide answers," he wrote back.
That is curious, because many of the issues I had raised relate to PHFI's non-compliance with the RTI Act and non-disclosure of important information which is apparent from its website.
Here are some key questions about PHFI.
1. What statutory authority and public accountability does PHFI have to arrogate for itself the power to influence public health policy in India, either on its own or through membership of government committees?
2. Why are details of PHFI's constitution and registration not in the public domain?
3. How does PHFI propose to resolve conflict of interest situations arising out of the fact that Fortis Group, a private healthcare and medical education provider with direct interest in shaping public health policy, is represented on its board through Harpal Singh?
4. Since judicial determination of corporate liability in the Bhopal gas tragedy has left a deep sense of injustice, what in PHFI's view should be done in terms of holding polluting industries responsible for the consequences of their action and inaction, and for protecting public health? Does it recommend a new and stricter law?
5. What is PHFI's stand on the public health risks involved in expanding nuclear power generation? What would PHFI suggest in terms of policy?
(This is the second part of a series that began on Monday. To read the first part click, "Will PHFI be any different under Narayana Murthy?" In the third part tomorrow, Kapil Bajaj writes about the answers he received from Mr Murthy in response to the questions raised above. Kapil Bajaj is a Delhi-based freelance journalist and blogger. He has worked for the Press Trust of India, Business Today, and other organizations. His current interests are democracy and public policy.)