Ready to flow

New Delhi, Sept. 14: The stake sale of Cairn India to London-listed Vedanta Resources moved a step forward with the shareholders of the energy firm approving the government’s conditions on royalty and cess.

The Cairn India board’s resolution will now go to the joint venture partner ONGC, which will decide in its board meeting on September 27 whether it wants to waive its right of first refusal and give Cairn a no-objection certificate to conclude the $6-billion deal.

The shareholders of Cairn India approved the riders placed by the government for the stake sale with “an overwhelming majority vote of 97.29 per cent,” the firm said.

“The majority of the shareholders other than the promoters and the Vedanta Group have also voted in favour of the resolution,” Cairn India said. The votes included the postal ballot of 5,613 received by the firm.

Cairn Energy, which owns a 52.11 per cent stake in Cairn India, has voted to accept the two government conditions. Vedanta, which has already bought a 10 per cent stake in the company from Cairn Energy and another 18.5 per cent from Petronas of Malaysia and other minority shareholders, has also voted to accept the conditions.

The Cairn India board had in February opposed changes in the Rajasthan contract making it liable to pay royalty and cess (Rs 2,500 a tonne) as this would affect the profitability of the firm.

The Cabinet Committee on Economic Affairs in June placed riders that the royalty would be cost recoverable with retrospective effect and Cairn should pay cess after withdrawing the ongoing cess arbitration in London.

According to estimates, Cairn India’s profits are expected to dip $1.68 billion because of the royalty clause set by the government. ONGC is likely to get $721 million over the lifetime of the country’s largest onland field in Rajasthan, making it a profitable venture.

ONGC owns a 30 per cent stake in the country’s largest onshore oil find in Rajasthan, where Cairn India is the operator with a 70 per cent holding.

The government’s condition would lower Cairn India’s profit over the life of the field lasting till 2020 from $7.43 billion to $5.75 billion.

The lower profits have been calculated at approved peak output of 175,000 barrels a day and considering a crude oil price of $70 per barrel.

The acquisition of Cairn India by London-listed Vedanta Resources faced headwinds when the government moved to protect ONGC, which, as the original licensee, was paying royalty on the entire production from the Barmer oilfield despite holding only 30 per cent interest in it.

ONGC is liable to pay royalty not just on its share but also on Cairn’s 70 per cent share of crude oil from the field.