Govt wants its share in Cairn deal

The government appears to be exploring options to extract its pound of flesh for allowing a smooth passage for London-listed Vedanta Resources to acquire control of Cairn Indiafor about $10 billion. It appears that the government is considering to get Vedanta to pay its share of royalty and cess on crude produced from the Barmer acreage in Rajasthan, the biggest onland oil find in recent times, once it takes control of the field. ONGC, which has a 30% stake in Barmer, pays all taxes and royalty on the entire production, including Cairn`s share of such liabilities. This is a legacy of the policies of 1990s which aimed at attracting foreign investment in exploration. According to the norms, ONGC, as the original licensee, will pay all taxes in acreages where oil or gas is found by a foreign company. In the present scenario wherein acreages are auctioned and domestic crude is linked to international pricing, the special dispensation makes ONGC`s partnership in Barmer an economic peril. The company may have to pay more money in taxes than it earns from its share of the oil produced.
ONGC has sought SG`s opinion on whether it will still be liable to pay royalty on Cairn`s crude from Rajasthan after takeover. ONGC argued that royalty exemptions were given to compensate foreign companies for the risk for exploration.