UK's Cairn Energy Plc may apply this week for government nod to sell its majority stake in the Indian unit to Vedanta Resources, but is unlikely to concede pre-emption rights to partner Oil and Natural Gas Corp (ONGC).
The Edinburgh-based firm's current application, seeking the nod for sale of 40 to 51 per cent in Cairn India for up to $8.48 billion, has left out three producing properties, including the giant Rajasthan oilfields.
"The government has in no uncertain terms told Cairn that it will have to apply for approval to transfer control in each of 10 properties," a source with direct knowledge of the transaction said. "Cairn is left with no choice but to apply and is likely to do the same this week."
In its August 16 announcement of the deal, Cairn Energy did not say that the sale of its majority stake in Cairn India to London-listed Vedanta was conditional on government approvals.
However, on being shown the relevant provisions of the contracts for exploration it has with the government, Cairn Energy, about a month later, made an application for permission that left out all of its three producing properties including its mainstay 6.5 billion barrels Rajasthan block.
"This position was not acceptable to the oil ministry who sought law ministry views on the issue. The Law Ministry opined that Cairn was contractually bound to apply for approvals in all the properties," the source said.
Earlier this month, the Oil Ministry wrote to Cairn Energy citing the law ministry views, after which the UK-based firm has had a change of heart.
Cairn has so far maintained it is not contractually bound to seek approval for sale of shareholding in the Indian unit in the Rajasthan block, the Cambay basin gas field and the eastern offshore Ravva oil and gas fields.
Though the company looks set to concede the ground on requirement of prior government consent, Cairn is unlikely to yield pre-emption rights to state-owned ONGC, which partners its Indian unit in most of its properties including the Rajasthan block.
"It remains to be seen how the government will react to the continued defiance of Cairn on pre-emption rights," the source said.
The pre-emption is a natural extension of the requirement of government consent and the same has been upheld by Law Ministry and the Solicitor General of India, the nation's second highest law officer, in their separate opinions on the Cairn-Vedanta deal.
The Law Ministry, in an opinion sent late last month, had held that the share sale is nothing but transfer of control (in all of the 10 properties of Cairn India), necessitating government nod in all of them and triggering ONGC's pre-emption rights.