After Posco, Cairn? PDF Print E-mail
Monday, 09 May 2011 00:00
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Things could be picking up on India’s investment front. A few days after Posco got a final clearance from the environment ministry, the Solicitor General has come up with a revised opinion that paves the way for a quick solution to the Cairn-Vedanta deal, held up for many months now. While the SG’s earlier opinion was in favour of the ONGC position—that Cairn accept ONGC’s position that the royalty payments would be expensed—the fresh one is a bit more nuanced. FE reported last week that the SG has now opined that the deal be allowed to go through as is—presumably, the argument is that if ONGC has a dispute with Cairn, this should be resolved through arbitration or in a court of law. Given that this is also the finance ministry’s view, a quick solution should be possible when the Group of Ministers meets to resolve the issue.


The SG’s opinion is especially welcome since, as FE has pointed out earlier, India has a Bilateral Investment Treaty (BIT) with the UK and if Cairn was to file a case under the BIT, arguing the government was being unfair to it, this would be difficult to defend—after all, when ONGC can fight its battle with Cairn through arbitration, why should the government intercede on its behalf? Since the dispute is really about whether the main provision of the Production Sharing Contract (that ONGC has to pay the royalty) is superior to the clause in the annexure of the PSC (that all costs can be recovered by the contractor), this is something arbitration is more likely to resolve than government intervention.

Two questions remain, however. One, why hasn’t ONGC gone in for arbitration all this while? Two, if ONGC was to lose the case in arbitration, will the government compensate the company and its shareholders? After all, when ONGC signed this flawed deal with Cairn, it wasn’t even a company, it was still the Oil and Natural Gas Commission, under the direct control of the government.


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