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ONGC board meeting on Thursday ON Cairn course  

ONGC meeting to chart Cairn course


New Delhi, Aug. 24: The board of Oil and Natural Gas Corporation, meeting on Thursday, may decide to ask Vedanta Resources to pay Cairn India’s full share of cess and royalty for producing crude in Rajasthan.

“Vedanta Resources’ acquisition move is not on the agenda of the board meeting. However, it will surely come up for discussion,” a senior ONGC official said.

London-listed mining firm Vedanta Resources has struck a deal with the promoters of Cairn India to buy 51-60 per cent of the company for $8.5 billion to $9.6 billion. Cairn India’s Rajasthan blocks are India’s largest onland oil fields.

Officials said the ONGC board could either negotiate with Vedanta-Cairn to share the cess and royalty or join hands with other PSU firms and place a counter offer for Cairn India. ONGC has the first right of refusal to many Cairn India’s properties and its approval is mandatory for any change in ownership.

Cairn’s three producing oil and gas assets, including the Rajasthan fields, and seven exploration blocks either have explicit provisions for prior approval before transfer of interest or give the right of first refusal to partners such as ONGC. Cairn India holds a 70 per cent interest in an oil block in Rajasthan, while ONGC holds the rest.

“It’s not that ONGC and other state companies cannot raise $10 billion for a counter-bid, but the main issue is if they invest this amount on new overseas assets that will create much more value,” said Jagannadham Thunuguntla, equity head at SMC Capital.

Deepak Pareek, analyst with Angel Broking, said, “From the energy security point of view, this (counter bid) does not help India much as the money would rather be invested in overseas acquisitions.”

ONGC is planning to bid with Petro Vietnam for BP’s Vietnam assets, so analysts feel it will be prudent for the explorer not to go in for a counter offer.

Analysts said this was the opportune time for ONGC to negotiate cess and royalty for the Rajasthan blocks it owned with Cairn. ONGC has 30 per cent interest in the Rajasthan fields but has to pay cess and royalty on the entire production, thereby giving negative returns on its investments.

Analysts said the government, ONGC, Vedanta and Cairn India might work out a deal under which Cairn India agreed to pay cess and royalties for its 70 per cent share in the block.

ONGC has said earlier that it wants the government to reimburse it for royalties it will have to pay beyond its 30 per cent interest.

According to an estimate, ONGC will have to pay a royalty of over Rs 18,000 crore in 10 years.

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