Partial okay

New Delhi, Sept. 27: State- owned Oil and Natural Gas Corporation today gave conditional approval to the $6.5-billion Cairn India stake sale to London-listed Vedanta Resources.

The ONGC board said it would waive its right of first refusal and give Cairn a no-objection certificate (NOC) if “Cairn and Vedanta execute a formal agreement on royalty and cess” for the prolific oilfields in Rajasthan.

The mutual distrust has given rise to the need of a legal document which will make royalty payments cost-recoverable and where Cairn will give in writing its willingness to pay a cess of Rs 2,500 per tonne on its share of production from the Rajasthan oilfields.

An official said NOC could be given within a week if Cairn and Vedanta signed the agreement.

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

While considering Cairn’s request for NOC, the ONGC board said it evaluated its “option of exercising preemptive rights and carried out the valuation of the proposed transaction with the help of SBI Capital Markets”.

ONGC’s project appraisal committee had recommended to the board to consider giving NOC as Cairn had agreed to the twin clauses — the cost recovery of royalty and withdrawal of cess arbitration case.

In June, the Cabinet Committee on Economic Affairs had 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.

Sources said even after a formal agreement with ONGC for royalty and cess was executed, Cairn-Vedanta would have to get the home ministry’s approval again.

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

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