Cabinet Committee on Economic Affairs (CCEA) Gave Conditional Clearance to Vedanta

On 30 June 2011 the Cabinet Committee on Economic Affairs (CCEA) gave clearance to Anil Agarwal’s Vedanta Resources plc proposal to buy Indian assets of Britain's Cairn Energy. It attached a condition that it would share the royalty burden of oil fields in Rajasthan, where ONGC holds 30 per cent stake. Royalty would be treated as a cost recoverable item and ongoing arbitrations on cess were to be withdrawn. In 2010 Cairn Energy agreed to sell a majority stake in Cairn India to Vedanta in a deal valued at up to $9.6 billion. But the deal was delayed due to disagreement over royalty payments.

Vedanta would have to provide performance and financial guarantees as required, besides obtaining necessary approvals as required from regulatory bodies such as Securities and Exchange Board of India (SEBI) and in respect of pre-NELP block in Rajasthan. Similarly, Cairn or its successor is conditioned to bear a portion of the royalty payable in Rajasthan oil fields and also accepts its liability to pay tax on the crude oil produced from the fields.

ONGC is Cairn India’s partner in a joint venture that runs the Cain India’s main oil asset block RJ-ON-90/1 in Rajasthan. ONGC wanted to be compensated for royalty payments it has been making on the oil produced at this field. ONGC expected the royalty to be $2 billion (Rs.8,940 crore) over the life of the field. Cairn had earlier declined to make these payments. Similarly, Cairn has challenged its cess dues and is paying these under protest. The cabinet's decision made it clear that royalty from now on have to be computed as a cost that would be shared by both the developers Cairn India and ONGC.