right decision

Adv P & H High Court Chandigarh

After the big failure over its Niyamgiri mining licence, Vedanta may finally get some respite. Oil and Natural Gas Corporation (ONGC) protested against the sale of Cairn India's shares to the Vedanta Group, probably at the government's behest, but finally appears to have backed down. Its chairman RS Sharma is on record saying his company took a conscious decision not to make a counter-bid for Cairn. After the news of the deal first came, the government's view was that, as Cairn's partner, ONGC had the right of first refusal as it were.


In addition, the government had argued that it was an Indian asset that was being sold and this was against the production sharing contract that the company had signed. This didn't fly since the operating company, Cairn Energy India Pty, wasn't changing hands, so the production sharing contract hadn't been violated.


The story may not, though, be fully over yet since there is still the issue of royalties on the fields. Right now, estimates are ONGC will have to pay Rs 12,000 crore of royalty on behalf of Cairn until 2020—this will rise further if, as is likely, oil prices stay beyond $60. The official argument is that there is no reason why ONGC should continue to pay Cairn's royalties since the company has been sold for a huge profit. If the government does attempt to shift some of the royalty payments to Cairn-Vedanta, that will be unfortunate. For one, it's not as if ONGC is paying the royalty just like that—ONGC got its stake in Cairn as a result of a government promise that it would pay the royalty and cesses on the finds. Second, if ONGC is to be relieved of the responsibility of paying the royalty and cesses, while benefiting from the appreciation of its share in Cairn, a similar treatment would have to be given to other oil/gas fields—many Indian firms also have ONGC/OIL as partners and they pay the royalty/cess. Now that the government has done the right thing by getting ONGC to back down on the counter-offer, the sensible thing would be to go all the way and to not disturb the royalty agreement either.




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