High time Cairn-Vedanta deal was cleared

The group of ministers (GoM) has finally asked the Cabinet Committee on Economic Affairs (CCEA) to take a final decision on the $ 9.6 billion Cairn Energy-Vedanta transaction. There is nothing wrong if the government wants to look at different aspects of a deal. However, there has to be some respect given to the time that goes by and for those involved in the transaction. Slow decision making can create an element of uncertainty that can give a knock-out blow to investor confidence.

[caption id=“attachment_16880” align=“alignleft” width=“380” caption=“Slow decision making by regulators could put off investors looking to invest into the Indian energy sector.Reuters”]  [/caption]

Media reports and sector analysts speculated that it would go into several rounds of ministerial meetings before being sent to the CCEA.

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“Now the CCEA will take up the deal keeping the GoM’s recommendations in mind and is likely to take a decision within the next two weeks,” Jaipal Reddy told reporters in New Delhi on Friday.

The surprisingly quick decision of the GoM should please the market. It is even better that Reddy said that the decision will be taken in the next two weeks. The street hates any kind of uncertainty.

The importance of this deal cannot be understated. Slow decision making by regulators could put off investors looking to invest into the Indian energy sector.

The cost-recoverability of royalty at Barmer, and the Cess arbitration issue, dominated the debate in the meeting. Reddy said that the oil ministry supports ONGC’s view on the matter but it need not be the GoM’s view. Analysts estimate that if the decision with regards to recovering royalty goes against Cairn, it will shave off at least 20% from the company’s market value.

Cairn Energy shares rose 1% on Friday but the decision by the GoM was announced after market hours. Cairn Energy shares rose 21% in the last one year while the BSE Oil & Gas index fell 3% during the same period. This shows that the market is positive about the deal announced 10 months ago.