Cairn-Vedanta Deal Mired by Indian Government Concerns , Focus Reports
Release Date: 2010-10-14
October 14th: The sale of a majority stake in Cairn Energy’s India division, to U.K.-based Vedanta Industries, is hindered by the trepidations of the Indian government. The sale requires the approval of national regulatory bodies, as the government has production-sharing contracts with Cairn India through state-owned energy giant ONGC—Indian officials are seeking assurance that the deal will not be a detriment to energy security in the country.The government is generally weary of Vedanta’s inexperience in the exploration and production of oil, as the company has traditionally been a mining and metals operation. Speaking of its foray into energy, Vedanta founder Anil Agarwal stated that Vedanta seeks to create a interdisciplinary “Indian natural resources champion.” Vedanta and Cairn will have to convince regulators of the practicability of these ambitions.
Officials have expressed concern, specifically, over the handling of an oil field in the state of Rajasthan, the largest field in the country. They have asked that Cairn satisfactorily resolve tax, royalty, and management issues in the block before pushing the sale, ensuring an unencumbered transition of ownership. The Rajasthan asset represents 85-90% of the $9.6 billion Cairn-Vedanta deal, and currently produces 1,25,000 barrels of crude oil per day. Projections hold that production is set to double in years to come.
Investors world-wide are scrutinizing the proceedings. Cairn chairman Bill Gammell emphasized the importance of a “smooth transaction, from an investment point of view.” Gammell added, "people will be watching very carefully as to how it takes place." If the government unnecessarily delays Cairn’s plans to sell, foreign investors will take notice, and affirm international views of India as a nation marred by overlong decision-making processes.
Vedanta plans to purchase a controlling 40-51% interest in Cairn India, and another 20% from minority stakeholders in the open market. The government is to issue a final decision by December.
| Type: | NORMAL |
| Company: | Focus Reports |
| Country: | 瑞士 |