Indian State-run Oil Firms Not to Offer Counter-bid for ‘Cairn India’


Article first published as Indian State-run Oil Firms Not to Offer Counter-bid for ‘Cairn India’ on Technorati.

Much touted counter-bid for ‘Cairn India’ by state run oil firms seem to run into troubled waters. Vedanta Resources has made an agreement with Britain based company Cairn Energy’s India wing ‘Cairn India’ to purchase its majority stake in India for $9.6 billion a week ago. State run energy firm ONGC (Oil and Natural Gas Corporation) owns 30% shares in Cairn India. It has been on the news that ONGC may not agree to the bid as it wants to exercise its right to ‘first reject’ and may offer a counter bid.

Yesterday Commerce Minister Anand Sharma also told the media while announcing annual Foreign Trade Policy (FTP) that the natural resources were strategic assets for the country and foreign companies might not be allowed to own India’s resources, as if they didn’t allow foreign private companies so far to own up any other natural resource in India. He also said ONGC should have a say on acquisition deal. Actually, the government has sanctioned several SEZs (supposed to be foreign territories on Indian soil as per SEZ act) throughout India and several more are waiting for approval.

It was also informed that ONGC, along with other state run energy firms GAIL India and Oil India may place counter-offer for Cairn India. Cairn India owns a large oil block in Rajasthan state in which ONGC has 30% stake. As Cairn Energy’s parent company has needed to finance its operations at some other region it has offered to

sell its India operations. U.K. based and India-focused Vedanta Resources immediately stepped in to own it up and the two parties have reached an agreement by which Vedanta would pay Rs. 405 a share for 40% to 51% stake. It was also agreed to pay another Rs. 50 a share so that Cairn Energy may not compete against Vedanta in oil exploration in India.

Due to production sharing contracts for oil and gas exploration blocks between the Indian government and Cairn India any ownership change must obtain approval from federal government. Without such approval Vedanta cannot proceed with the acquisition. Several news items have been aired that ONGC is going to reject the deal to place joint counter-bid along with GAIL India and OIL India. Some expressed doubts about counter-bid as Vedanta has already valuated the bid at high level. But some oil ministry’s official was quoted as saying all options were kept open. Indian media reported that the three state-run firms had held informal talks on joint bid.

Unexpectedly on Wednesday a senior official in India’s oil ministry is quoted by Reuters as saying “There is no chance for a counter bid by Indian firms as the valuation done by Vedanta for Cairn India is already very high.” Vedanta’s owner Anil Agarwal is said to have close dealings among Indian political circles. A Mumbai-born and who started his career as scrap-iron dealer now becoming a billionaire means there can be no doubt about it. Maybe Agarwal’s political and business friends might have helped him to persuade oil ministry people who are supposed to protect the natural resources of the nation for future generations.

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