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| Vedanta deal not against India's interest: Cairn Energy |
| Press Trust of India / New Delhi Aug 27, 2010, 18:56 IST |
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Seeking to placate the Oil Ministry's concerns on its deal with Vedanta Resources, the UK's Cairn Energy today said it will comply with all contractual obligations in sale of its majority stake in Cairn India to the world's fifth largest miner.
With signs of discomfort at a non-oil firm taking control of a company whose main property is the Barmer district oilfields in Rajasthan, Cairn Energy said Vedanta has promised to keep Cairn India independent and meet all obligations.
Cairn Energy Chief Executive Bill Gammell yesterday wrote to Oil Secretary S Sundareshan saying Vedanta, besides having a successful experience in executing and operating complex large scale industrial projects, has a culture of empowering management as evident in its previous acquisitions.
London-listed Vedanta is buying 40 to 51 per cent in Cairn India from Cairn Energy and up to 20 per cent from open market, in a deal worth $9.6 billion.
Cairn Energy said the proposed sale of majority stake "will not adversely affect the performance or obligations under the various Production Sharing Contracts (signed by Cairn India) nor be contrary to the interests of India."
Also, Vedanta has promised continuity in operations at Cairn India, which will remain independent, Cairn Energy said adding it along with Vedanta was willing to company with any reasonable condition of the government to ensure performance of Cairn India's contractual liabilities.
"We can confirm that there are no planned changes in the Cairn India organisation, standards, policies and systems and that the transaction will have no effect upon Cairn India's knowledge and experience as a contractor, operating to accepted international petroleum industry practice," he wrote.
Cairn India, which has existed as an independently managed entity since 2007, holds 70 per cent in the Rajasthan block that holds 6.5 billion barrels of oil reserves besides two other producing properties and seven exploration areas. For all of these, it has signed PSCs with the government.
"Some of these PSCs have specific provisions requiring the consent of the Government of India in the event of a change of control. Cairn India is committed to complying with all such contractual obligations," Gammell wrote.
Gammell, who had previously written to the oil ministry on August 16 on the deal with Vedanta, annexed details of the share sale, Cairn India's assets in the country, Vedanta Group's credentials and benefits Cairn India will accrue.
Vedanta Resources, he said, had the wherewithal to takeover the parent company guarantees that Cairn Energy had given for performance of obligations under PSCs. Vedanta had 10 times better financial capabilities than Cairn Energy Plc.
"Both Cairn Energy Plc and Vedanta Resources Plc are willing to comply with any reasonable conditions of the Government of India/Ministry of Petroleum and Natural Gas as may be necessary in the circumstances to ensure performance by Cairn India of its obligations under the PSCs," Gammell said.
The proposed sale, he said, "will not adversely affect the performance or obligations under the various PSCs nor be contrary to the interests of India."
"We sincerely believe the proposed sale and Vedanta's rationale and strategy for Cairn India will bring additional benefits to both Cairn India and India as a whole," he wrote.
Cairn Energy, which holds 62.37 per cent in Cairn India, does not propose to undertake any transaction which would be contrary to its contractual obligations, he said.
"Vedanta's major operations are in India and the group has invested over $20 billion in India over the last five years. Vedanta has created significant value for the Government of India by acquiring controlling stakes in Hindustan Zinc and Balco which it has grown significantly," Gammell wrote.
Uncomfortable with a non-oil company taking over Cairn India, the Oil Ministry had on August 19 written to Cairn Energy Plc stating that certain PSCs have parent company guarantees and some PSCs have explicit provision of prior government consent in case of change of ownership.
Cairn India holds 70 per cent operator interest in the 6.5 billion barrels Rajasthan block where state-owned Oil and Natural Gas Corp (ONGC) has the remaining 30 per cent.
The PSC for the Rajasthan block provides for explicit government approval only in case of a party selling its interest in the block, but does not make the nod mandatory in case of change of ownership at corporate level like in the Cairn-Vedanta deal.
Similar is the case with its other producing properties - the Cambay basin block and eastern offshore Ravva oil and gas fields. But the seven exploration blocks it won in NELP rounds have provision for seeking prior government approval before ownership of a participating company is changed.
ONGC believes that by virtue of its 30 per cent stake in Rajasthan block, it has the pre-emption or right of first refusal to buy Cairn India in case the company's ownership changed.
But, the Joint Operating Agreement, between Cairn India and ONGC, gives partners pre-emption rights in case of sale of interest by either parties in the block but not in case of corporate ownership change, they added.
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