ONGC hits Vedanta-Cairn deal,again

But,it has not yet been able to announce the open offer in absence of government nod for the transaction,sources in know of the development said.

As per market regulator SEBI’s regulation,an open offer requires 55-60 days to complete and Vedanta was expecting the nod by today so as to have a small buffer for any contingency.

But the approval is stuck as ONGC by virtue of its stake in 8 out of the 10 oil and gas properties held by Cairn India,claims pre-emption rights and wants the issue of excess royalty it has to pay on Cairn India’s mainstay Rajasthan block to be addressed before giving its no-objection.

Sources said oil ministry has made resolution of the royalty issue one of the 11 pre-conditions for giving an in-principal nod for the transaction.

Oil Secretary S Sundareshan had yesterday met chief executives of Vedanta and Cairn,who opposed three of the 11 conditions,they said.

Cairn/Vedanta is particularly opposed to ONGC’s demand for recovering the royalty before profits from sale of Rajasthan oil as it will lower Cairn India’s profitability and valuation.

The Rajasthan block,which gives Cairn India 90 per cent of its valuation,is a losing proposition for ONGC,as it has to pay 20 per cent royalty to the state government on the entire output from the field,even though its share from production is only 30 per cent.

Cairn India does not pay any royalty on the crude and has even contested the payment of Rs 2,500 per ton cess on its 70 per cent share.

Besides,Cairn/Vedanta are also not agreeable to the ministry condition that they will have to abide by its orders in case of past and future cases of operational disputes.

Vedanta,which has no prior experience in oil and gas sector,was agreeable to other conditions like giving financial and performance guarantees and maintaining technical capability of Cairn India.

Sources said the two sides stuck to their stand on the contentious issue of royalty at yesterday’s 90 minute meeting,the first time when Sundareshan met Cairn Energy head Bill Gammell,Cairn India CEO Rahul Dhir and Vedanta officials M S Mehta (Group CEO) and Tarun Jain (CFO) jointly.