Information to this regard has come into notice when on 31st March British High Commissioner to India Richard Stagg and written to the Prime Minister's Office (PMO) saying that an approval subject to state-owned ONGC being allowed to recover Rs 14,000 crore royalty payable on behalf of Cairn India will render the transaction unviable.
It is to mention that Oil and Natural Gas Corp (ONGC) has 30 percent stake in Cairn India's mainstay Rajasthan oilfields, but it is liable to pay royalty on Cairn's 70 percent share as well.
Royalty at the rate of 20 percent of the crude price is payable to the state government and ONGC, a month before the Cairn-Vedanta deal was announced in August 2010, had cited provisions of field contract to demand its cost recovery.
The Indian Oil Ministry is backing the ONGC demand that royalty payment be added to the project cost, which can be recovered from the sale of oil before profits are split between the partners and the government.
However, such a move is being opposed by Cairn Energy and Vedanta as it will lower Cairn India's profitability.
"A decision to approve the transaction on the basis of such a pre-condition would fundamentally change the commercial basis upon which the transaction had been agreed as well as unfairly impact minority shareholders in Cairn India," Stagg wrote.
"It would therefore render the proposed transaction unviable," he added
Stagg mentioned that since CCEA was meeting on that day (March 31), he "thought it would be useful" for him to bring to PMO's attention the issue of pre-condition.
However, the sources said CCEA did not meet that day and Stagg's letter may have been triggered by media reports of a Cabinet meeting on that day.
The CCEA met on 6th April and referred the issue of attaching pre-conditions to a Group of Ministers (GoM), headed by Finance Minister Pranab Mukherjee. After the GoM decision, the issue will be sent to the cabinet.
"Whilst arguments may be made as to whether or not royalty may be cost recoverable under the provisions of the current Production Sharing Contracts, there are provisions in the contract to deal with any dispute over whether it is or it is not," Stagg wrote.
Vedanta, a mining company controlled by billionaire Anil Agarwal, with no experience of oil and gas business, agreed in August to buy at least 40 percent and as much as 51 percent in Cairn India from the London-listed Cairn Energy.
Dinesh Singh Rawat's View: This is not a UK government act but only the locally supported by The United Kingdom High Commissioner to India Richard Stagg for the best reasons known to him, as it does not has backing from UK government.
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