New Delhi, July 26: Cairn India shareholders will vote on the conditions imposed by the Indian government for a majority stake sale in the company to Anil Agarwal’s Vedanta Resources.
Cairn would organise a postal ballot among all its shareholders even as it warned of falling profits if royalty was made cost recoverable, which was one of the government conditions.
“It (conditions) would lead to a decline in the revenues and profit after tax for the current quarter by Rs 1,291 crore,” Cairn India said. The company reported an 869 per cent jump in first-quarter net profit at Rs 2,726.6 crore.
The Cabinet Committee on Economic Affairs (CCEA) had on June 30 approved Cairn Energy’s deal with Vedanta, subject to conditions such as the sharing of royalty and the payment of oil cess on the mainstay Rajasthan oilfields by the new owner.
Earlier today, the oil ministry sent formal letters to the Edinburgh-based firm stating the government’s conditions. Besides, the approval will be subject to ONGC, which has a stake in all the three oil and gas producing properties and five out of seven exploration assets of Cairn India, waiving its pre-emption rights, which the CCEA termed as the partner’s no-objection certificate. The deal will also need security clearance.
According to estimates, Cairn India’s profit is expected to dip by $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. The government’s royalty clause could lower Cairn India’s profit over the field’s approved life till 2020 from $7.43 billion to $5.75 billion, sources said. The lower profits have been calculated at approved peak output of 175,000 barrels a day and considering a crude price of $70 per barrel.
The Mangala oilfield started production in August 2009, and ONGC has paid Rs 1,289 crore royalty for the crude produced from the Rajasthan field in 2010-11 and Rs 84.47 crore in 2009-10.
The acquisition of Cairn India by London-listed Vedanta faced problems 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 a 30 per cent interest in it.
According to estimates, the government share of profit petroleum will fall to $3,601.21 million from $5,188 million from the cost recoverable clause.
