Difference between revisions of "Cairn India"

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'''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.<ref>Cairn Energy website [http://www.cairnenergy.com/about-cairn/ About Cairn] Accessed 3/8/11</ref> In July 2011 [[Cairn Energy]]'s 58 per cent majority share was sold to [[Vedanta Resources]] for $8.5 billion.  
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'''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.<ref>Cairn Energy website [http://www.cairnenergy.com/about-cairn/ About Cairn] Accessed 3/8/11</ref>.  
  
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==Cameron pushes Vedanta Cairn deal==
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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.<ref>Richard Wachman [http://www.guardian.co.uk/business/2011/jul/31/vedanta-resources-cairn-energy-india-deal Vedanta given green light for $8.5bn Cairn deal] The Observer, Sunday 31 July 2011. Accessed 3/8/11</ref>Labelled "the largest transaction ever to happen in India", the Cairn-Vedanta deal is now being challenged in the Indian Supreme Court.
  
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[[Vedanta]]'s takeover of [[Cairn India]] was delayed for many months prior to completion of the deal 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.<ref>Richard Wachman [http://www.guardian.co.uk/business/2011/jul/31/vedanta-resources-cairn-energy-india-deal Vedanta given green light for $8.5bn Cairn deal] The Observer, Sunday 31 July 2011. Accessed 3/8/11</ref><ref>Amy Kazmin, June 30th 2011, Financial Times. [http://www.ft.com/cms/s/0/117bf166-a327-11e0-a9a4-00144feabdc0.html#axzz1T72t416Z 'Delhi approves Vedanta Cairn deal']  Accessed 25/7/11</ref>
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==UK government pushes Vedanta Cairn deal==
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Several senior echelons of the British state became directly involved in [[Cairn India|Cairn India's]] takeover by [[Vedanta]], including PM [[David Cameron]] and Indian High Commissioner [[Dickie Stagg]].
  
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When the Indian government demanded an investigation into Vedanta's controversial track record before agreeing to the Cairn deal, the British government stepped in to urge the deal along and prevent 'unnecessary delays'.<ref>Amy Kazmin, June 30th 2011, Financial Times. [http://www.ft.com/cms/s/0/117bf166-a327-11e0-a9a4-00144feabdc0.html#axzz1T72t416Z 'Delhi approves Vedanta Cairn deal'] Accessed 25/7/11</ref> In February 2011 the British Prime Minister [[David Cameron]] even made a rare personal intervention with his Indian counterpart, [[Manmohan Singh]], to hasten a decision and break the deadlock over royalty payments threatening the sale. According to the FT newspaper,  
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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:
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:"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.<ref name="FOI_Cairn_Vedanta_10_10_08">Edward Oakden, UKTI, 'UK/INDIA: LUNCH WITH THE INDIAN MINISTER FOR PETROLEUM AND NATURAL GAS', 08 October 2010 11:07, emailed to undisclosed recipients, cc Margaret Porteous, The Scotland Office. Download the document [http://powerbase.info/index.php/File:FOI_Cairn_Vedanta_10_10_08.pdf here]</ref>"
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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.<ref>Richard Wachman [http://www.guardian.co.uk/business/2011/jul/31/vedanta-resources-cairn-energy-india-deal Vedanta given green light for $8.5bn Cairn deal] The Observer, Sunday 31 July 2011. Accessed 3/8/11</ref><ref>Amy Kazmin, June 30th 2011, Financial Times. [http://www.ft.com/cms/s/0/117bf166-a327-11e0-a9a4-00144feabdc0.html#axzz1T72t416Z 'Delhi approves Vedanta Cairn deal'] Accessed 25/7/11</ref>.
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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 [[Dickie Stagg|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.<ref>Unnamed author (UKTI IG), 'Cairn', 21 October 2011 20:12, emailed to Richard Stagg, cc: Andrew Cahn (UKTI), Edward Oakden (UKTI SG), and others unnamed. Download the document [http://powerbase.info/index.php/File:FOI_Cairn_Vedanta_10_10_21.pdf here]</ref>
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Two months later in February 2011 [[Richard "Dickie" Stagg|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:
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:"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."<ref>EI Finance. April 27, 2011. 'Vedanta Buys Smaller Cairn India Stake as Delays Continues'</ref>.
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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.
 
: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.
  
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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'<ref> James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, [http://www.ft.com/cms/s/0/38ab0a52-3b66-11e0-9970-00144feabdc0.html#axzz1U3dKdqY5 Cameron intervenes in Cairn sale], February 18 2011 </ref>.
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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"<ref> James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, [http://www.ft.com/cms/s/0/38ab0a52-3b66-11e0-9970-00144feabdc0.html#axzz1U3dKdqY5 Cameron intervenes in Cairn sale], February 18 2011 </ref>.
  
 
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]]. <ref> James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, [http://www.ft.com/cms/s/0/38ab0a52-3b66-11e0-9970-00144feabdc0.html#axzz1U3dKdqY5 Cameron intervenes in Cairn sale], February 18 2011 </ref>
 
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]]. <ref> James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, [http://www.ft.com/cms/s/0/38ab0a52-3b66-11e0-9970-00144feabdc0.html#axzz1U3dKdqY5 Cameron intervenes in Cairn sale], February 18 2011 </ref>
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==Workers fear Vedanta takeover==
 
==Workers fear Vedanta takeover==
  
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Shortly after [[Vedanta]]'s takeover was successful 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. They quote anonymous workers who say they fear a change to their renumeration policy which currently gives some of them 'generous stock options' and are 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<ref>Himangshu Watts, 12/8/11 [http://articles.economictimes.indiatimes.com/2011-08-12/news/29880510_1_vedanta-deal-vedanta-and-cairn-cairn-vedanta Cairn India staff keep fingers crossed on future in Vedanta] Economic Times of India. Accessed 15/8/11</ref>.
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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.<ref>Himangshu Watts, 12/8/11 [http://articles.economictimes.indiatimes.com/2011-08-12/news/29880510_1_vedanta-deal-vedanta-and-cairn-cairn-vedanta Cairn India staff keep fingers crossed on future in Vedanta] Economic Times of India. Accessed 15/8/11</ref>.
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=='The Vedanta effect'- boardroom drama over Cairn-Vedanta deal==
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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<ref>Times of India, August 24, 2011 [http://articles.timesofindia.indiatimes.com/2011-08-24/india-business/29921619_1_rajasthan-oilfields-royalty-and-cess-anil-agarwal-s-vedanta-resources Vedanta effect: Cairn India's CFO quits] Accessed 25/8/11</ref>. 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<ref>Asia Pulse, August 24, 2011 'CAIRN INDIA SHOULD ACCEPT ALL GOVT'S CONDITIONS: CAIRN ENERGY'</ref>. [[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:
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:"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,"<ref>Shuchi Srivastava & Nihar Gokhale, The Economic Times. August 19, 2011 [http://articles.economictimes.indiatimes.com/2011-08-19/news/29905414_1_cairn-india-cairn-energy-plc-cairn-vedanta Minority Shareholders concerned about government terms on Cairn-Vedanta deal] Accessed 25/8/11</ref>
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The Times of India claims that:
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: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. <ref>Robin Pagnamenta. Times of India, August 25, 2011. 'First blood on the boardroom carpet after oil producer's row over sale'. Accessed 25/8/11</ref>
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==Operations==
 
==Operations==
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===Sri Lanka===
 
===Sri Lanka===
  
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[[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<ref>Colombo Page newspaper. Tue, Aug 16, 2011 [http://www.colombopage.com/archive_11A/Aug16_1313500183CH.php Russian oil giant holds talks with government minister on oil exploration in Sri Lanka] Accessed 16/8/11</ref>). Block SL-2007-01-001 is about 3000 sq km with a depth of 50m to 1800m 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<ref>Vinod Moonesinghe [http://www.sarid.net/sarid-archives/03/031219-bar-reef-management.htm The Bar Reef Special Management Area Plan] SARID, December 19, 2003. Accessed 16/8/11</ref><ref>INITIAL ENVIRONMENTAL EXAMINATION REPORT [www.prds-srilanka.com/pdfs/Sri_Lanka_Seismic_EIA_Final_Report.pdf Three Dimensional Seismic Survey for Oil Exploration in Block SL-2007-01-001 in Gulf of Mannar-Sri Lanka] CAIRN LANKA PVT. LIMITED. October 2009. Report prepared by: National Aquatic Resources Research and Development Agency. Accessed 16/8/11</ref>
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[[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<ref>Colombo Page newspaper. Tue, Aug 16, 2011 [http://www.colombopage.com/archive_11A/Aug16_1313500183CH.php Russian oil giant holds talks with government minister on oil exploration in Sri Lanka] Accessed 16/8/11</ref>). 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<ref>Arijit Barman, Business Standard, Mumbai, August 17, 2011 [http://www.business-standard.com/india/news/a-year-on-cairn-drills-into-sri-lankan-waters/446064/ A year on, Cairn drills into Sri Lankan waters] Accessed 17/8/11</ref><ref>Vinod Moonesinghe [http://www.sarid.net/sarid-archives/03/031219-bar-reef-management.htm The Bar Reef Special Management Area Plan] SARID, December 19, 2003. Accessed 16/8/11</ref><ref>INITIAL ENVIRONMENTAL EXAMINATION REPORT [www.prds-srilanka.com/pdfs/Sri_Lanka_Seismic_EIA_Final_Report.pdf Three Dimensional Seismic Survey for Oil Exploration in Block SL-2007-01-001 in Gulf of Mannar-Sri Lanka] CAIRN LANKA PVT. LIMITED. October 2009. Report prepared by: National Aquatic Resources Research and Development Agency. Accessed 16/8/11</ref>
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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<ref>Arijit Barman, Business Standard, Mumbai, August 17, 2011 [http://www.business-standard.com/india/news/a-year-on-cairn-drills-into-sri-lankan-waters/446064/ A year on, Cairn drills into Sri Lankan waters] Accessed 17/8/11</ref><ref>JAMSTEC website [http://www.jamstec.go.jp/chikyu/eng/CHIKYU/status.html Where is DV Chikyu?] Accessed 16/8/11</ref><ref>Cairn India website [http://www.cairnindia.com/Operations/Pages/Srilanka.aspx?UIDV=50. Operations, Sri Lanka] Accessed 16/8/11</ref><ref>Colombo Page newspaper. Tue, Aug 16, 2011 [http://www.colombopage.com/archive_11A/Aug16_1313500183CH.php Russian oil giant holds talks with government minister on oil exploration in Sri Lanka] Accessed 16/8/11</ref><ref>Energy-pedia website [http://www.energy-pedia.com/article.aspx?articleid=143018. Sri Lanka: Japan Drilling Company signs contract to drill for Cairn offshore Sri Lanka] 16 Nov 2010. Accessed 16/8/11</ref>. 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.
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[[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<ref>Daily Mirror (Sri Lanka). August 13, 2011 [http://print.dailymirror.lk/opinion1/53012.html Lifting emergency: The talk of the House] Accessed 16/8/11</ref>. Mr. Dissanayake also alleged that the government not followed standard tendering procedures before signing the deal with Cairn<ref>Daily Mirror (Sri Lanka). August 11, 2011 Thursday [http://www.e-to-china.com/tariff_changes/global_tariff_changes/2011/0811/96259.html Cairn Lanka exempted from taxes and import duties] Accessed 16/8/11</ref>
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===Rajasthan===
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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<ref>Arijit Barman, Business Standard, Mumbai, August 17, 2011 [http://www.business-standard.com/india/news/a-year-on-cairn-drills-into-sri-lankan-waters/446064/ A year on, Cairn drills into Sri Lankan waters] Accessed 17/8/11</ref><ref>Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.[http://articles.economictimes.indiatimes.com/2011-06-13/news/29653290_1_cairn-vedanta-deal-cairn-and-vedanta-barmer-oilfields PM assures support to Rajasthan in setting up refinery at Barmer Oilfields] Accessed 17/8/11</ref>. 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;
  
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: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.<ref>Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.[http://articles.economictimes.indiatimes.com/2011-06-13/news/29653290_1_cairn-vedanta-deal-cairn-and-vedanta-barmer-oilfields PM assures support to Rajasthan in setting up refinery at Barmer Oilfields] Accessed 17/8/11</ref>
  
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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<ref>JAMSTEC website [http://www.jamstec.go.jp/chikyu/eng/CHIKYU/status.html Where is DV Chikyu?] Accessed 16/8/11</ref><ref>Cairn India website [http://www.cairnindia.com/Operations/Pages/Srilanka.aspx?UIDV=50. Operations, Sri Lanka] Accessed 16/8/11</ref><ref>Colombo Page newspaper. Tue, Aug 16, 2011 [http://www.colombopage.com/archive_11A/Aug16_1313500183CH.php Russian oil giant holds talks with government minister on oil exploration in Sri Lanka] Accessed 16/8/11</ref><ref>Energy-pedia website [http://www.energy-pedia.com/article.aspx?articleid=143018. Sri Lanka: Japan Drilling Company signs contract to drill for Cairn offshore Sri Lanka] 16 Nov 2010. Accessed 16/8/11</ref>.
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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<ref>Arijit Barman, Business Standard, Mumbai, August 17, 2011 [http://www.business-standard.com/india/news/a-year-on-cairn-drills-into-sri-lankan-waters/446064/ A year on, Cairn drills into Sri Lankan waters] Accessed 17/8/11</ref><ref>Economic Times of India. Jan 31, 2011 [http://articles.economictimes.indiatimes.com/2011-01-31/news/28424773_1_cairn-vedanta-deal-issue-of-excess-royalty-rajasthan-block Resolve royalty row before approving Cairn-Vedanta deal: ONGC tells govt] Accessed 17/8/11</ref>
  
 
==People==
 
==People==
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[[Category:Transnational Corporations]]
 
[[Category:Transnational Corporations]]
 
[[Category:Oil Industry]]
 
[[Category:Oil Industry]]
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[[Category:India]]

Latest revision as of 15:35, 2 May 2015

Mining-alcans-60px.jpg This article is part of the Mining and Metals project of Spinwatch
Global warming.jpg 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.[1].

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.[2]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.[3]"

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.[4][5].

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.[6]

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."[7].

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"[8].

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. [9]

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.[10].

'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[11]. 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[12]. 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,"[13]

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. [14]


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[15]). 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[16][17][18]

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[19][20][21][22][23]. 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[24]. Mr. Dissanayake also alleged that the government not followed standard tendering procedures before signing the deal with Cairn[25]

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[26][27]. 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.[28]

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[29][30]

People

Board of Directors as of July 2011:

Contact

Cairn India
3rd & 4th Floor, Vipul Plaza, Suncity, Sector 54
Gurgaon – 122 002
India
Telephone: +91 124 4593000 / 2703000
Fax: +91 124 2889320

Resources

Notes

  1. ↑ Cairn Energy website About Cairn Accessed 3/8/11
  2. ↑ Richard Wachman Vedanta given green light for $8.5bn Cairn deal The Observer, Sunday 31 July 2011. Accessed 3/8/11
  3. ↑ Edward Oakden, UKTI, 'UK/INDIA: LUNCH WITH THE INDIAN MINISTER FOR PETROLEUM AND NATURAL GAS', 08 October 2010 11:07, emailed to undisclosed recipients, cc Margaret Porteous, The Scotland Office. Download the document here
  4. ↑ Richard Wachman Vedanta given green light for $8.5bn Cairn deal The Observer, Sunday 31 July 2011. Accessed 3/8/11
  5. ↑ Amy Kazmin, June 30th 2011, Financial Times. 'Delhi approves Vedanta Cairn deal' Accessed 25/7/11
  6. ↑ Unnamed author (UKTI IG), 'Cairn', 21 October 2011 20:12, emailed to Richard Stagg, cc: Andrew Cahn (UKTI), Edward Oakden (UKTI SG), and others unnamed. Download the document here
  7. ↑ EI Finance. April 27, 2011. 'Vedanta Buys Smaller Cairn India Stake as Delays Continues'
  8. ↑ James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, Cameron intervenes in Cairn sale, February 18 2011
  9. ↑ James Lamont and Amy Kazmin in New Delhi, and Alex Barker in London, Cameron intervenes in Cairn sale, February 18 2011
  10. ↑ Himangshu Watts, 12/8/11 Cairn India staff keep fingers crossed on future in Vedanta Economic Times of India. Accessed 15/8/11
  11. ↑ Times of India, August 24, 2011 Vedanta effect: Cairn India's CFO quits Accessed 25/8/11
  12. ↑ Asia Pulse, August 24, 2011 'CAIRN INDIA SHOULD ACCEPT ALL GOVT'S CONDITIONS: CAIRN ENERGY'
  13. ↑ Shuchi Srivastava & Nihar Gokhale, The Economic Times. August 19, 2011 Minority Shareholders concerned about government terms on Cairn-Vedanta deal Accessed 25/8/11
  14. ↑ Robin Pagnamenta. Times of India, August 25, 2011. 'First blood on the boardroom carpet after oil producer's row over sale'. Accessed 25/8/11
  15. ↑ Colombo Page newspaper. Tue, Aug 16, 2011 Russian oil giant holds talks with government minister on oil exploration in Sri Lanka Accessed 16/8/11
  16. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  17. ↑ Vinod Moonesinghe The Bar Reef Special Management Area Plan SARID, December 19, 2003. Accessed 16/8/11
  18. ↑ INITIAL ENVIRONMENTAL EXAMINATION REPORT [www.prds-srilanka.com/pdfs/Sri_Lanka_Seismic_EIA_Final_Report.pdf Three Dimensional Seismic Survey for Oil Exploration in Block SL-2007-01-001 in Gulf of Mannar-Sri Lanka] CAIRN LANKA PVT. LIMITED. October 2009. Report prepared by: National Aquatic Resources Research and Development Agency. Accessed 16/8/11
  19. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  20. ↑ JAMSTEC website Where is DV Chikyu? Accessed 16/8/11
  21. ↑ Cairn India website Operations, Sri Lanka Accessed 16/8/11
  22. ↑ Colombo Page newspaper. Tue, Aug 16, 2011 Russian oil giant holds talks with government minister on oil exploration in Sri Lanka Accessed 16/8/11
  23. ↑ Energy-pedia website Sri Lanka: Japan Drilling Company signs contract to drill for Cairn offshore Sri Lanka 16 Nov 2010. Accessed 16/8/11
  24. ↑ Daily Mirror (Sri Lanka). August 13, 2011 Lifting emergency: The talk of the House Accessed 16/8/11
  25. ↑ Daily Mirror (Sri Lanka). August 11, 2011 Thursday Cairn Lanka exempted from taxes and import duties Accessed 16/8/11
  26. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  27. ↑ Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.PM assures support to Rajasthan in setting up refinery at Barmer Oilfields Accessed 17/8/11
  28. ↑ Rajeev Jayaswal, Economic Times of India. Jun 13, 2011.PM assures support to Rajasthan in setting up refinery at Barmer Oilfields Accessed 17/8/11
  29. ↑ Arijit Barman, Business Standard, Mumbai, August 17, 2011 A year on, Cairn drills into Sri Lankan waters Accessed 17/8/11
  30. ↑ Economic Times of India. Jan 31, 2011 Resolve royalty row before approving Cairn-Vedanta deal: ONGC tells govt Accessed 17/8/11
  31. ↑ Cairn India Website About Us, Board of Directors] Accessed 3/8/11
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