Cairn-Vedanta deal: Another scam in the making?

With the possibility of Indian government considering the Cairn-Vedanta deal for approval in the weeks to come, Canary Trap brings you exclusive details of the deal that needs urgent public scrutiny.

Below is a letter written by Arun Agrawal to the Prime Minister Manmohan Singh and all concerned Ministers regarding this matter.

To
The Prime Minister of India
The Minister of Petroleum and Gas
The Finance Minister
The Minister for Commerce and Industry
The Minister for Law and Justice
The Chief Vigilance Commissioner (Acting)
The Director of Central Bureau of Investigation

Subject: First option of ONGC on Cairn-Vedanta deal, loss of hundreds of billion dollars

Respected Sirs,

The deal between Cairns and Vedanta relating to valuable oil fields with vast oil reserves, which were  handed over to Cairns in a joint venture with ONGC, needs public scrutiny. ONGC has a right of first refusal according to the ex-Chairman of ONGC which was also confirmed by the Solicitor General.

The estimated reserves is said to be in the region of 6 billion barrels from the Barmer oil field alone. This translates into a revenue of $600 billion. It therefore does not stand to reason as to why the oil reserves should be allowed by the government to be transferred for around $7 billion to Vedanta when it has the right of first option of purchase.

There are pending disputes relating to payment of royalty and cess presently paid by ONGC and neither paid nor  recovered as cost from Cairn. The excess liability (to be paid by Cairn) of ONGC on royalty alone is to the tune of Rs 12,000 crores on one oil field. The deal also becomes cheaper to the extent that ONGC has to pay excess royalty.

Somehow the original deal got structured in a manner by which the entire liability of royalty and cess devolved on ONGC and not on Cairn. The matter needs to be investigated and responsibility fixed..

It also needs to be pointed out that Vedanta is leveraging on the iron ore mineral assets of Sesa Goa in which it has a controlling stake to raise loans to finance the Cairn deal. The iron ore reserves of Sesa Goa are worth Rs 200,000 crores and  ironically is owned by people of the country.

The company is leveraging on one natural asset, the ownership of which is with the people of the country, to buy another asset also owned by the people. Viva la crony capitalism!

Under the circumstances, it is the collective responsibility of all the Ministers to whom the letter is addressed, including the CVC and the CBI, that there is complete pre-deal signing transparency  so that allegations of crony capitalism/bribery/sellout/economic blunder are not leveled later on after the government approves the deal. The recent financial scams have taught us that collective decision is no guarantee against corruption or loot of public assets. Natural resources are covered by the doctrine of public trust as held by the Supreme Court in RIL vs RNRL.

It may be noted that the deal is not a policy matter but involves arithmetic calculations to determine as to whether it is profitable for the ONGC to exercise the right of first refusal. The valuation report, oil reserves, price of oil, number of oil fields, and the loss on royalty and cess on the existing deal are quantities that have to be factored in. It is hoped that the size of reserves and the price of oil will not be manipulated as was done at the time of handing over discovered oil fields to Reliance.

Hence, it is requested that the following should be disclosed to the nation in public interest for the decision makers to establish their credibility that the deal is a bonafide one.

• The government should place in public domain all the documents relating to the deal with Cairn-ONGC and the deal between Vedanta and Cairn.

• The government should state as to whether ONGC has pre-emptive rights on the deal.

• The government should state why it cannot buy the equity by matching the bid even if it does not have pre-emptive rights?

• The government should disclose all the calculation as stated above relating to the deal. The government should disclose the estimated reserves, the cost of extraction etc from each of the field proposed to be sold.

• The government should show as to why ONGC is not exercising the right of option.

• It should also disclose the clause by which ONGC is paying all the royalty and cess and those involved in the negotiation of the deal. Was the clause inserted deliberately to benefit Cairn? If so then have those who conferred the largesse been investigated?

• The government should not clear the deal merely because Cairn has a deadline and the British Government has lobbied for it. The Hutch-Vodafone deal was cleared in a hurry under similar dubious circumstances to suit the need of the seller and the tax of Rs 12,000 crores was not collected and the violation of foreign investment cap norms deliberately overlooked.

• If on economic consideration the deal is allowed to go through then is the capital gains going to be taxed? If yes, then when?

• It should be disclosed if the Vedanta group is borrowing money from Indian/foreign bank based on the natural resources like iron ore, bauxite which belong to the people of the country? How much money are the Indian banks giving and the amount of security/guarantee provided by the banks?

• The confirmation that the Vedanta group was not among the suspects of having paid bribes to Koda for signing MoU for minerals.

The letter has been deliberately addressed to all the authorities/Ministers  involved in clearing the deal so that ignorance cannot be claimed later on, if the deal is found to be tainted by grant of illegal largesse under section 13(1) of the PCA. It has also been addressed to the CVC and he CBI  for obvious reasons. The  trend of the past of fixing accountability and doing post-mortem has to be changed to prevent scams.

Unlike the 2G scam, the loot of natural resources worth billions of dollars has yet to capture the popular imagination. And unlike the 2G scam there is nothing notional about these losses. The losses are for real. They are ongoing, recurrent and not one time losses.

The largest loot of natural resources (like the  blood diamonds of African states) is taking place in the oil and the iron ore (bauxite and manganese are also important) sector. These highly profitable (NMDC has a gross profit of 80 percent) natural resources owned by people of India have been gifted to corporates for a song. It is crony capitalism at its worst and both the principle political parties are guilty of the betrayal of public trust for political and personal gains.

The letter is being endorsed to  the President, Vice President and the Chief Justice of India, to keep them informed about the pending decision of the decision makers involving hundreds of billions of dollars worth of natural resources belonging to the people of the country.

Yours faithfully
A K Agrawal

(Arun Agrawal is the author of the book Reliance: The Real Natwar)