An Indian ministerial panel wants conditions attached to a proposed $9.6-billion sale of Cairn Energy's Indian oilfields to Vedanta, sources said on Saturday, which could derail the deal. Cairn Energy has called the government's final decision on the sale - which would be one of the biggest take-overs in Indian corporate history - a litmus test for the country as it seeks to woo foreign investors.
The ministerial panel met Friday to decide its recommendation to another federal cabinet body on the deal, in which Scotland-based Cairn Energy plans to sell Vedanta control of its Indian unit, which produces oil in Rajasthan state. The panel did not disclose its stand, but a source familiar with the transaction told AFP the ministers want the sale's approval to be conditional on Cairn India agreeing to take on a share of the oil royalty payments currently made by its state-run partner Oil and Natural Gas Corp (ONGC).
ONGC owns a 30 percent stake in the Cairn-operated block but pays royalties on 100 percent of the output under a "royalty holiday" scheme dating from the 1990s aimed at promoting private oil exploration in energy-hungry India. The two firms are locked in a bitter dispute over the issue, with ONGC pushing for the royalty burden to be shared along ownership percentages before the government approves the sale.
"The ministers have chosen to support ONGC's position," the source said. A Cairn spokesman would not comment on the matter except to say it continued to work with London-listed Vedanta Resources "to secure the necessary consents" from the Indian government. Vedanta had no comment. But Cairn has previously said the original royalty arrangements must be upheld, warning changing them would affect the valuation of the deal by hurting Cairn's profitability and could jeopardise the transaction.
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