Cairn India

This article is part of the Mining and Metals project of Spinwatch

This article is part of the Climate project of Spinwatch.

Cairn India is a major subsidiary of Cairn Energy operating in South East Asia, with over 40 oil and gas discoveries and the development of major fields in India, Bangladesh and Sri Lanka..

In July 2011 the Indian government agreed an $8.5bn acquisition of Cairn India by Vedanta Resources, an Indian mining and metals giant much criticised by human rights and environmental groups. The deal made Vedanta a 58 per cent shareholder of Cairn Energy.Labelled "the largest transaction ever to happen in India", the Cairn-Vedanta deal is now being challenged in the Indian Supreme Court.

UK government pushes Vedanta Cairn deal

Several senior echelons of the British state became directly involved in Cairn India's takeover by Vedanta, including PM David Cameron and Indian High Commissioner Dickie Stagg.

Freedom of Information requests by Powerbase/SpinWatch researchers to the Department of Business and Industry reveal that Cairn India's CEO Rahul Dhir already had good relations with Dickie Stagg, the British High Commissioner in India, before the deal went ahead. At a lunch meeting on 7th October 2010 between the Managing Director of UK Trade and Industry's (UKTI) Sectors Group Edward Oakden, Indian Minister for Petroleum and Natural Gas Murali Deora, the then CEO of Cairn Bill Gammell, CEO of Cairn India Rahul Dhir, UK India Business Council (UKIBC) CEO Richard Herald, and "leaders of a number of Indian energy companies, Edward Oakden recalled a private conversation with Murali Deora in which:

"I said that while I understood that the issue was sensitive in India, providing India's normal regulatory requirements were respected, the deal should be allowed to proceed. The Minister agreed: he thought that it would go through. The Indian energy regulator, who also attended, said the same to me. I later passed this on to Bill Gammell and the CEO of Cairn India."

Following this initial optimism, Vedanta's takeover of Cairn India was stalled for many months due to investigations by the Indian government into Vedanta's environmental track record and ability to manage strategically important oilfields, plus disagreements over royalty rates between Vedanta and Rajahstani state owned company ONGC, a 30 per cent shareholder in Cairn's largest producing oilfield which is in Rajahstan..

During this process the UK government stepped in several times to speed up the deal presumably following considerable lobbying from Cairn and/or Vedanta. On October 21st 2010 an email was written to India High Commissioner Richard "Dickie" Stagg by a UKTI official (name redacted in FoI response) describing how a Cairn official (possibly Bill Gammell had told him/her over dinner that "Cairn basically want the Indian System gently nudged to unstick the deal". The email explains that "Bill G" (Bill Gammell, presumably) "seems to have got it into his head" that he needs a meeting with Downing St Permanent Secretary Jeremy Heywood to achieve this. Instead he suggested that this would be unnecessary and Cairn Energy could simply draft a letter to be polished by UKTI and sent to India. The correspondence was shared with UKTI CEO Andrew Cahn, UKTI Deputy CEO Susan Haird, Edward Oakden (UKTI) and others.

Two months later in February 2011 Richard Stagg, wrote to the Indian prime minister's office in outrage over the ONGC's demands to recoup its $3.1 billion royalty from the oil fields claiming that:

"A decision to approve the transaction on the basis of such a pre-condition would fundamentally change the commercial basis upon which the transaction had been agreed as well as unfairly impact minority shareholders in Cairn India. It would therefore render the proposed transaction unviable.".

A few days later the British Prime Minister David Cameron made a rare personal intervention with his Indian counterpart, Manmohan Singh, to hasten the decision and break the deadlock over royalty payments threatening the sale to prevent "unnecessary delays". According to the FT newspaper,

In his letter, Mr Cameron emphasised the importance of the deal to British investment in India. The UK prime minister has appealed to Mr Singh to see that a decision is made on Cairn’s sale of the oilfields to Vedanta as soon as possible.

The UK PM's team told the FT that his "decision to raise the Cairn deal with his Indian counterpart reflects his determination to bring a sharper commercial edge to British diplomacy in a bid to help overcome bureaucratic hurdles".

Cameron also highlighted in the same letter the need for greater transparency and predictability in India’s policy environment to enhance trade and investment between the two countries, and several other issues of concern including over the Indian government's pursuit of unpaid capital gains taxes from Vodafone.

Workers fear Vedanta takeover

Shortly after Vedanta's successful takeover, the Economic Times of India reported that Cairn India staff were afraid of changes in working conditions, pay and company structure under Vedanta's ownership. It quoted anonymous workers who said they feared a change to their renumeration policy which currently gives some of them 'generous stock options' and were also afraid that Vedanta has no experience in the risky business of oil. Cairn India Chief Executive Rahul Dhir has been meeting with employees to alleviate their fears, telling them that Vedanta will help Cairn India to grow as a company..

'The Vedanta effect'- boardroom drama over Cairn-Vedanta deal

The prolonged negotiations over the terms of the takeover deal cost Cairn India their CFO in August 2011, in what the Times of India first called the 'Vedanta effect' and later 'blood on the boardroom floor'. Indrajit Banerjee, CFO since 2007 left the company amid uproar from minority shareholders and Cairn India board members that parent company Cairn Energy was forcing Cairn India to accept the Indian Government's conditions for the deal, which reduce the deal size to $6.2 billion from 46.84 billion due to enforced royalty payments on the Rajastahni oil fields. Earlier in August Cairn Energy was booed at the Cairn India AGM for going back on it's commitment to rather drop the Vedanta deal than capitulate to the Indian Government's demands. Naresh Chandra, board member of both Cairn India and Vedanta seemed angry at the government's pre-conditions, quoted in the Economic Times after the AGM:

"What do you expect? Of course the mood of most shareholders at the AGM was low! we had already decided and told them the details of the entire voting pattern including how many promoter shareholder votes and how many minority shareholder votes will be submitted for everyone to see on September 14. We cannot express our view on the government's pre-conditions as we are on the company board,"

The Times of India claims that:

The delays and uncertainty have triggered a string of senior departures from Cairn, amid criticism that Vedanta lacks expertise in the oil industry and has a mixed safety record.

Operations

Sri Lanka

Cairn Lanka Pvt, a wholly owned subsidiary of Cairn India has signed an exploration and production agreement with the Government of Sri Lanka for one of eight frontier oil blocks in the Mannar basin (two others have been reserved for the Indian and Chinese governments, and the Russian oil giant Gazprom are in talks with the Sri Lankan government for another). Block SL-2007-01-001 is about 3000 sq km with a depth of 400m to 1900m and is located directly beside the Bar Reef Marine Sanctuary, a pristine coral reef which is thought to be the most biodiverse area off India's coasts

Following seismic surveys carried out in 2009 and January 2010, Cairn Lanka contracted Japan Drilling Company (JDC) to begin exploratory drilling of three wells in August 2011 using the Chikyu Hakken, a fifth generation Japanese drilling ship which was damaged in the Sendai tsunami and will be fixed after this drilling operation. Following Vedanta's takeover of Cairn India there are increased fears that this deep drilling operation in a sensitive marine area, carried out with an old and damaged drill ship could be risky.

Cairn Lanka secured a deal with the Sri Lankan Economic Development Minister Basil Rajapaksa to be totally exempt from tax and import duty for equipment, machinery and materials used in their Mannar Basin exploration. This leaves Sri Lanka with only 10% of the profit share from the wells, which Anura Kumara Dissanayake, leader of the DNA party attacked in August 2011 as potentially inadequate. Mr. Dissanayake also alleged that the government not followed standard tendering procedures before signing the deal with Cairn

Rajasthan

Cairn India's Rajasthan operations include 150 wells with 25 discoveries to date, carried out with a 70% participating interest from Cairn and 30% participating interest from it's partner ONGC (the state oil company). Cairn plans to increase total production in Rajasthan from 240,000 to 300,000 barrels per day, and also to set up a 4.5-6 million tonne well-head refinery in the Barmer oil fields. Issues relating to the Rajasthani block were an important part of the year long negotiations over the Cairn-Vedanta deal. Vedanta seemed to be pushing for the Barmer refinery, supported by Indian Prime Minister Manmohan Singh and Rajasthan chief minister Ashok Gehlot along with as a range of fiscal concessions from the state. According to the Economic Times of India Gehlot encouraged Vedanta to participate in the equity for the project which would sweeten the Cairn Vedanta deal in the state's eyes. He allegedly added that;

technically, approval to the Cairn-Vedanta deal and construction of refinery in Rajasthan were two different things but it could be discussed at the Cabinet Committee in Economic Affairs (CCEA) meeting.

Earlier, a row between state oil company ONGC had delayed the project when ONGC had asked that the royalties they paid on their 30% share in the Rajasthani oil fields and also on Cairn India's 70% share should be deducted from the profit from Rajasthani crude oil sales. Sharing this royalty burden will cost Cairn almost $2 billion

People

Board of Directors as of July 2011:

• Sir Bill Gammell Chairman
• Rahul Dhir Managing Director & Chief Executive Officer
• Indrajit Banerjee Executive Director & Chief Financial Officer
• Jann Brown Non-Executive Director
• Edward Story Non-Executive and Independent Director
• Naresh Chandra Non-Executive and Independent Director
• Aman Mehta Non-Executive and Independent Director
• Dr. Omkar Goswami Non-Executive and Independent Director .

Contact

Cairn India

3rd & 4th Floor, Vipul Plaza, Suncity, Sector 54

Gurgaon – 122 002

India

Telephone: +91 124 4593000 / 2703000

Fax: +91 124 2889320