ONGC, which had appointed SBI Caps to do an independent valuation of Cairn India, has interpreted the valuation report to conclude that Cairn India is worth much less than the Rs355 a share price that London-listed mining group Vedanta is paying
New Delhi: State-owned exploration major Oil and Natural Gas Corporation (ONGC) is unlikely to exercise its pre-emption rights to acquire Cairn India as it finds the reduced price of Rs355 a share that Vedanta Resources is paying for the company still too high, reports PTI.
ONGC had appointed SBI Caps to do an independent valuation of Cairn India and a few weeks back, it got the draft valuation report, sources privy to the development said.
The report outlines Cairn India's valuation under different scenarios of production and crude oil prices. ONGC, they said, has interpreted the valuation report to conclude that Cairn India is worth much less than the Rs355 a share price that London-listed mining group Vedanta is paying.
This is despite the fact that UK's Cairn Energy, which is selling most of its 52.11% stake in its Indian unit to Vedanta, has agreed to share royalty and pay oil cess on the company's lucrative Rajasthan block, making Cairn India an attractive acquisition target for the state explorer.
Cairn agreeing to make the royalty that the state-owned firm pays on its 30% share as well as Cairn India's 70% share of production from the Rajasthan field cost-recoverable will help ONGC get back two-thirds of the payout it shouldered on its partner's behalf earlier, which had made the Rajasthan fields a losing proposition for it.
Also, Cairn has agreed to absolve ONGC from the payment of a Rs2,500 per tonne cess on its 70% share of production from the Rajasthan block, which will add to ONGC's profitability.
Sources said despite these two positives and also Vedanta lowering the acquisition price from Rs405 per share when the $9.6 billion deal was announced in August last year to Rs355 apiece, ONGC does not find Cairn India attractive enough to acquire.
ONGC, they said, is likely to take the SBI Caps report and its interpretation of it to the company board on 27th September. Once the board-which also includes officials of the oil ministry that are now eager to see the Cairn-Vedanta deal conclude soon-decides to let the pre-emption right lapse, ONGC will formally give a no-objection to the deal.
ONGC, which holds a stake in eight out of the 10 oil and gas properties Cairn India has in the country, holds pre-emption, or the right of first refusal, over its partner's participating interest in the fields.
Sources said Cairn Energy has already informed ONGC that it is accepting the government conditions on royalty and cess and will make its Indian unit agree to it through a shareholders' vote by 14th September.
Thereafter, it will formally write to ONGC for a no-objection certificate.
Till recently, Cairn Energy had denied the existence of any ONGC pre-emption rights over the deal and that its deal to sell a 40% stake in Cairn India triggered such rights.
However, the government approval for the $9 billion deal was subject to the condition that Cairn obtained a no-objection certificate from ONGC.
Cairn Energy managing director and CFO Jann Brown had on 16th August written to ONGC, asking it to begin the process of deciding on its consent so that the NOC could be granted by 21st September.
At present, Cairn India does not pay any royalty on its 70% interest in the Rajasthan fields. Royalty, as per the contract, is paid by ONGC, which got a 30% stake in the 6.5 billion barrel field for free.
However, the royalty like other project costs and taxes is recoverable from revenues earned from the sale of oil.
Sources said ONGC had paid about Rs2,000 crore in royalty on its share and that of Cairn India up to 31 March 2011.
Once royalty is made cost recoverable, two-thirds of it will come back to ONGC.
"I feel that the existing monetary policy of reigning in inflation may not have to be extended... If the monetary policy is extended, there will be an overall impact on the growth scenario," finance minister Pranab Mukherjee said
Kolkata: Finance minister Pranab Mukherjee on Sunday expressed hope that the Reserve Bank of India (RBI) may not continue with its tight monetary policy as it may have implications on economic growth, reports PTI.
"I feel that the existing monetary policy of reigning in inflation may not have to be extended... If the monetary policy is extended, there will be an overall impact on the growth scenario. I am optimistic that the present monetary stance will not have to be extended," Mr Mukherjee said at a CII event here.
In its bid to tame inflation, RBI has hiked policy rates 11 times since March 2010. The overall inflation, which crossed 9% mark in December stood at 9.22% in July.
However, with higher cost of borrowing and slowing project investments, gross domestic product (GDP) growth for the April-June quarter (Q1) slipped to an 18-month low of 7.8%. In the corresponding period last year, it was 8.8%.
Referring to slowing of GDP growth in the April-June quarter, the finance minister said, "It is disappointing but not totally unexpected... If the monsoon is good, then GDP will be better."
Mr Mukherjee further said that good monsoon would help bring down food inflation to 6%-7% by March end. After a gap of over five months food inflation jumped to double digits. It was at 10.05% for the week ended 20th August as onion, fruits, vegetables and protein-based items turned more expensive.
"I hope good monsoon and elimination of seasonal factors will bring down food inflation to single digit. By the end of the year, it should be around 6% to 7%," Mr Mukherjee added.
Further, Mr Mukherjee said that the Indian economy should come back to the path of fiscal consolidation, after expansionary policy stance of the fiscals 2008-09 and 2009-10.
He also sought cooperation of opposition for passage of the several financial sector reform bills pending in Parliament. Several important bills like increasing foreign direct investment (FDI) cap in insurance sector and Goods and Service Tax (GST), are pending in Parliament.
"Other political parties will have to cooperate so that the legislations are passed. Legislation concerning economic reforms could not be passed in Parliament as it did not function," the finance minister said.
Trying to allay fears about high fiscal deficit (FD) in the first quarter, he said it was nothing unnatural.
"While FD in the first quarter was 55%, it was around 58% on average for the last five years in the similar period. It always happens. For the current year, FD would be 4.6% of GDP," he said.
The finance minister said that there had been considerable buoyancy in direct tax and indirect tax collections during the first four months. "It is quite satisfactory".
"I have fixed a target of 10% more resource mobilisation for the current year," he said.
The finance minister said that the department had taken a decision to refund I-T refunds upfront. "This has lead to some cash management problems, but we'll be able to tackle it and in the later part we will have nothing to pay," Mr Mukherjee said.
On the expenditure side, the finance minister said that expenditure pattern of key ministries would be monitored on a quarterly basis. "I am telling the ministries to go on making expenditure but not to park resources somewhere and claim that expenditure has been made."
In order to boost urea output, the government has decided to revive the closed units of Fertiliser Corporation of India and Hindustan Fertiliser Corporation, minister of state for chemicals and fertilisers Srikant Jena informed the Rajya Sabha last week
New Delhi: Production of urea, a key fertiliser, is expected to increase by 4.2 lakh tonnes to 223 lakh tonnes this fiscal, reports PTI.
India produced 218.80 lakh tonnes of urea in 2010-11, minister of state for chemicals and fertilisers Srikant Jena informed the Rajya Sabha last week.
Consequently, imports of the essential crop nutrient are estimated to decline by 4.1 lakh tonnes to 62 lakh tonnes in the 2011-12 financial year compared to 66.10 lakh tonnes in the last fiscal.
"In the financial year 2011-12, the projected demand and indigenous production of urea is 285 lakh tonnes and 223 lakh tonnes, respectively. The gap is met through imports," Mr Jena said.
In order to boost urea output, the government has decided to revive the closed units of Fertiliser Corporation of India (FCIL) and Hindustan Fertiliser Corporation (HCIL).
The government has decided to revive the Sindri, Gorakhpur, Talcher and Ramagundam units of FCIL as well as the Barauni and Durgapur units of HCIL. All the units were shut down in 2002 by the government.
The Cabinet Committee on Economic Affairs (CCEA), in its meeting held on 4 August 2011, decided to revive the four units of FCIL and two of HCIL, Mr Jena informed the House.
The minister added that the list also included two non-commissioned fertiliser units at Korba and Haldia, which were set up by FCIL and HFCL, respectively.
Urea is the only fertiliser subject to partial movement, distribution and statutory price controls. It is imported for direct use on the government account to bridge the demand-supply gap.
A proposal for a Nutrient-Based Subsidy (NBS) for urea is under the government's consideration.