Cairn frets over India deal delay

Published on Tuesday 8 February 2011 21:19

DELAYS last night continued to plague the £5 billion-plus sale of a majority stake in Cairn India to Vedanta Resources after India's state oil minister refused to give the green light on the deal until concerns over royalty payments are settled.

The announcement puts Jaipal Reddy, the new minister for petroleum and natural gas, at odds with prime minister Manmohan Singh, who was reported to have set a deadline of the end of January to rule on the deal.

Edinburgh-based Cairn Energy agreed in August to sell up to 51 per cent of its India offshoot to Vedanta, but the deal has been delayed for months while the government deliberates over its support.

On Tuesday, following a meeting with Cairn Energy's chief executive, Sir Bill Gammell, Reddy insisted his office was "determined" that an agreement over royalties be reached.

At stake is an estimated $3bn worth of payments that the state-owned Oil & Natural Gas Commission (ONGC) - a partner in the Rajasthan oil fields - currently pays on behalf of Cairn India.

Under initial agreements, Cairn India was exempt from paying certain royalties, but ONGC wants to scrap the pre-1999 deal.

Sources close to Cairn Energy played the issue down, arguing that ONGC would need to make a legal claim to amend the existing production agreement, and if it was going to do this the Edinburgh firm "would have heard of it by now".

However, it is understood Singh has asked India's law and justice ministry to offer its opinion on the legality of changing the agreement.

In a statement, Cairn Energy insisted that it was continuing to work with the government to "secure the necessary consents and approvals to complete the proposed transaction before April 15".

The group originally hoped to complete the deal by 31 December.