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| Cairn Vedanta Deal |
When this formula was worked out, ONGC did accept the formula and it worked for many years. Now ONGC is suddenly turning around and saying that this is not acceptable to them simply because there is a change in shareholder. Does not that sort of send some sort of a confusing signal out to investors?
Absolutely, these are two separate issues. One is actually between two shareholders and the other is actually a change in the equity of the company. They should not be linked and should be taken separately. If ONGC has some issues with Cairn separately on royalty sharing or cess, that is something which which can be reconciled through normal channels. These are two separate issues which needs to be resolved differently because if one was to acquire the shareholding, you do not necessarily need address all issues relating to legal issues between two shareholders at the same time.
But one would ponder as to how did this issue even spark out. Would not ONGC have to sort of bow down to whatever the government policy says. How does the issue of them even asking for a share come about?
It has been something which has been brewing and at some point of time they may have agreed to it as well but subsequently there may have been a change in thinking that may be this is something which we should not be paying and therefore if they have this change of thought, whether it should be applied retrospectively is a question which can be disputed and that is probably one of the issues which Cairn may be raising in that sense.
If they genuinely feel that they want to renegotiate some terms, it is something which should be taken separately rather than trying to hold up a deal which is a foreign investment.
But do you believe the easy approach the government may ultimately take is ask ONGC to take the matter to court and sort it out. Do you believe that is the right approach to take?
Yes, they should. I think the cess issue is already been raised and similarly if they feel the royalty is something which they should not be paying and something which should be separately addressed, these should not be really be linked.
And as a shareholder should one assume that if ONGC does actually lose the case in court that the government will compensate it. Is that a fair expectation for ONGC to have?
Yes, well that it is a question that depends on what sort of agreement is there as per the original contract. Whether ONGC would be compensated, one needs to look into the details of that to understand whether the government should compensate or not. But what one has read seems to indicate that the government could compensate.
Sources: http://economictimes.indiatimes.com
