ONGC may give NOC for Cairn-Vedanta deal by Dec

Oil & Natural Gas Corporation Ltd. | Oil Exploration | Oil & Gas | BSE: 500312 | NSE: ONGC

23 Nov 2011 Evaluate

State-owned Oil and Natural Gas Corp islikely to give its 'no-objection certificate' to Cairn Energy Plc's stake salein its Indian unit to Vedanta Resources by the year-end. The company had inprinciple given the NOC (no-objection certificate) in September. The NOC will be givenafter Cairn Energy, its Indian arm Cairn India and the mining group signs alegally binding agreement accepting to share royalty and pay cess on the mostimportant Rajasthan oilfields. The need for a legaldocument has arisen because Cairn India insisted on ONGC giving a no-objectionto the Cairn- Vedanta deal before agreeing to twin conditions that thegovernment had set for clearing the $9-billion deal. The agreement is in thefinal leg and its hopeful the NOC will be given before end of December.

Cairn Energy, which holds a 52.1% stake inCairn India, plans to sell a 30% stake to Vedanta. The government had in June,approved the deal subject to consent from ONGC, which is a partner in itsmainstay Rajasthan block. ONGC, for whom the Rajasthan project had been alosing proposition because it paid royalty not just on its 30% share but alsoon Cairn India's 70% interest, has demanded an equitable sharing before thedeal was cleared. The mutual distrust has given rise to the need of a legaldocument where in Cairn will give in writing that it will pay Rs 2,500 pertonne cess on its share of production from the all-important Rajasthanoilfields and also makes royalty payments cost-recoverable. ONGC will agree to issueNOC. Cairn India does not pay any royalty on its 70% stake in the Rajasthanfields. Royalty, as per the contract, is paid by state-owned ONGC, which got a30% stake in the 6.5 billion-barrel-field for free.

However, even before the $9.6 billion Cairn-Vedantadeal was announced in August last year, ONGC had demanded that like all othertaxes, royalty should be added to the project costs, considering it as revenueearned from oil sales before profits were split between partners. Cairn hadopposed this as it would lower its profitability and had also initiatedarbitration against the government contesting its liability to pay oil cess onits share. It believed that cess, like royalty, was also the liability of ONGC.But Cairn Energy and Vedanta agreed to the conditions to get the deal cleared.

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