India gives conditional approval to Cairn-Vedanta deal

June 30th, 2011 - 10:19 pm ICT by IANS  

Pranab Mukherjee New Delhi, June 30 (IANS) In a major relief to the Anil Aggarwal-led Vedanta Resources, the Indian government Thursday conditionally approved the company’s plan to buy majority stake in oil explorer Cairn India.

“This will create an appropriate sentiment in the market,” Finance Minister Pranab Mukherjee told reporters after a meeting of the Cabinet Committee on Economic Affairs (CCEA).

The long-awaited approval of the Cairn-Vedanta deal comes 10 months after it was mooted. It is likely to send a positive signal to the foreign investors.

Petroleum Minister Jaipal Reddy said the cabinet has accepted most of the recommendations made by the Group of Ministers (GoM), headed by the finance minister.

“I would like to invite foreign investors in oil and gas sector,” Reddy said while talking to reporters here.

The government has given its nod to the deal with the conditions that include royalty being cost recoverable for Barmer field in Rajasthan. Under the deal, Cairn will be required to pay 20 percent royalty.

Reddy said the government has given its conditional nod and now it was up to the companies to decide on the deal. “Now the ball is in Cairn and Vedanta court. They have to take further decisions,” he said.

Cairn Energy in August 2010 agreed to sell its majority stake to Vedanta in a deal that is valued at $9.6 billion. The deal was held up due to protests from the state-owned ONGC, which has a 30 percent stake in Cairn India’s oilfields in Rajasthan - the biggest onshore finds in the country in two decades.

Although it owns less than a third of stake in the oilfields, ONGC has to pay royalty for the entire output of crude from the fields. The state-owned explorer has asked the government to correct this anomaly.

Vedanta has already completed the mandatory 20 percent open offer for Cairn India through its Indian subsidiary Sesa Goa. It managed to buy 8.1 percent of the shares through this offer.

It also bought a 10.4 percent stake from Malaysian energy major Petronas. With these two transactions, Vedanta now owns 18.5 percent stake in Cairn India.

On May 19, Cairn Energy said it has extended the closing date for the sale of 40 percent stake in its Indian subsidiary, though it had not given a new date to wrap up the deal.

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