Cairn rejects Indian royalty changes

Published on Thursday 10 February 2011 14:18

Cairn India yesterday vowed to reject any change in royalty payment terms on its oil fields in Rajasthan that could hurt its value and in turn jeopardise Vedanta Resources' £5.4 billion acquisition bid for a majority stake.

In its third-quarter update, the Cairn India's board said that "any condition tied to the approval of the transaction, which can negatively impact the value of the company cannot be accepted".

Earlier this week, oil minister Jaipal Reddy insisted that Cairn Energy's plan to sell a stake in Cairn India to Vedanta would not go ahead until a dispute over royalties with the Oil & Natural Gas Commission (ONGC) was settled. Government-owned ONGC wants to rewrite a deal that could see Cairn India pay an estimated $3bn (1.9bn) in royalties over the life of the fields.

ONGC owns a 30 per cent stake in some of the assets up for sale but pays 100 per cent of the royalties on those assets to the government, an arrangement which was initially designed to attract companies to invest in the country. It is thought ONGC has paid about 1.8bn on behalf of the firm.

In August, Edinburgh-based Cairn Energy agreed to sell up to 51 per cent of its stake in Cairn India to Vedanta. But the deal has been delayed by months as the government has continued to withhold its approval.

Cairn India reported a big increase in profits in the third quarter to December of $448 million, while revenues soared to $691m from $106m a year earlier.