New setback: A group of ministers headed by Finance Minister Pranab Mukherjee will study the deal
RESOURCES giant Vedanta’s $9.6bn (£5.87bn) bid for the Indian unit of Britain’s Cairn Energy suffered a major setback yesterday when it was referred back to a ministerial panel for review.“The cabinet committee on economic affairs, which was scheduled to discuss the deal on Wednesday (April 6), has decided to refer the matter to a group of ministers,” oil minister Jaipal Reddy announced to reporters.Finance minister Pranab Mukherjee will head the group of ministers that will look at the deal, held up by a bitter row over royalty payments involving India’s biggest onshore oilfields.The decision to refer the sale to the ministerial panel came as a surprise as Indian media had reported the cabinet committee was likely to finally approve the deal.London-listed Vedanta, controlled by Indian-born billionaire Anil Agarwal, announced last August it would buy up to 60 per cent of Cairn India to add to its numerous India-focused mining assets.But the sale has been beset by difficulties caused by deep differences between Cairn and its Indian state-owned partner Oil and Natural Gas Corp (ONGC) over the payment of royalties.“The group of ministers will give its report shortly after it has examined the deal from all angles. We must understand there are several implications to this deal,” said Mukherjee.But he could give no date on when the panel would deliver its verdict.ONGC gets just 30 per cent of the output from Cairn’s oil fields.But it pays royalties on 100 per cent of the production under a “royalty holiday” scheme dating from the 1990s aimed at promoting private oil exploration in energy-hungry India.ONGC has been pushing for an equal sharing of the royalties before the government approves the sale.The cabinet is split over whether the royalty row should be settled before or after the sale goes through, Reddy said.“The group of ministers has been constituted to take a view,” Reddy said.The impasse comes at a bad time for India as foreign investment has plunged with investors worrying about a slew of corruption scandals that have shaken the government, including a suspected massive telecoms licensing fraud.Cairn Energy chief Bill Gammell has called the sale a litmus test for foreign investors mulling putting their money into India and keen to know they can get their funds out when they wish.The delay comes as time is running out on the deal.Cairn needs New Delhi’s nod soon to complete the sale by April 15, when Vedanta’s bid lapses.Without it, Cairn will have to seek new approval from shareholders - which Gammell insists he will not do, even though Cairn wants the money to develop oil fields in Greenland.The delay is “hurting investor sentiment with investors questioning whether the government is really committed to enabling investors to be able to encash the wealth they create,” Gokul Chaudhri, partner at consultancy BMR, told India’s CNBC network.
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