Cairn-Vedanta deal: Now GoM to re-look into royalty,cess issues

The CCEA felt that such a decision should not be taken in a hurry

Following the Solicitor Generals opinion that equitable sharing of royalty in Rajasthan block be made a pre-condition to government approval for Cairn-Vedanta deal,the Cabinet Committee on Economic Affairs today played safe by referring it to a group of ministers for a re-look into royalty and cess issues before bringing the deal back for CCEA approval.

There are some complex issues. The CCEA felt that such a decision should not be taken in a hurry there were some nuanced differences on the reaction from various ministries. Therefore the GoM is being constituted to look into the issue, petroleum minister S Jaipal Reddy told reporters after the meeting.

Sources said that the issue was shifted to the GoM also because the finance ministry put a last-minute query seeking the law ministrys opinion on other pre-Nelp blocks Ravva and CB-OS/2 held by Cairn.

In a letter dated April 2,the department of economic affairs said that the petroleum ministry seek legal opinion on these two blocks to ensure that Vedanta is made fully accountable for all obligations arising out of their PSCs.

Solicitor General SG Gopal Subramaniums legal view,first reported by The Indian Express,was categorical that the transfer of Cairn India shares to Vedanta be allowed only if the latter agrees to treat the royalty paid by ONGC in Rajasthan block as a cost recoverable from its revenue.

The SG had made clear that the oil ministrys second option of giving consent and then following up recovery of royalty and cess for ONGC from Vedanta through legal means would involve an undesirable amount of time and resources to be spent and would be contrary to public interest.

The SG,in his letter dated March 24,had also criticised the finance ministry for suggesting that consent be given without insisting on government directives,and had written that such a view of promoting India as an investment friendly nation went against the national character. Strong institutions having a sense of national character are the bedrock of a successful democratic system grounded in the principles of mixed economy and welfare state. In taking this stand,would the ministry of finance not appear to be brittle before private investor? he queried.

Story continues below this ad

The SGs reasoned opinion was seconded by law minister M Veerappa Moily and was echoed in the Planning Commissions comments that ONGC,being a state-run firm,needed to be compensated for the burden which could be adjusted by treating royalty as a cost recoverable item. ONGC,which has a 30-percent holding in the Cairn-operated Rajasthan fields in western India,pays 100 percent of the royalties. The ministry of corporate affairs,now headed by former petroleum minister Murli Deora,in whose regime the deal was first diagnosed,had no objections to the deal as it did not attract any provisions of the Companies Act.

But the petroleum ministry pushed both options before the CCEA in deciding the 9.6 billion deal,leading to confusion over the second option,sources said.