Centre may offer oilfield instead of paying USD 1.4 bn to Cairn: Sources

New Delhi

Cairn Energy gave India its biggest onland oil discovery but exited the country after it was slapped with a Rs 10,247-crore tax demand using a legislation that gave the government the powers to tax companies retrospectively. The firm has now won an international arbitration against the tax demand and the government has been ordered to return the value of shares of Cairn it had sold, dividends it had seized and tax refund it had withheld to recover the tax demand.

For a government struggling to find revenue to boost a COVID-19 battered economy, options of appeal against the arbitration award are limited and it may not have the financial bandwidth for such a payout, two sources with knowledge of the development said.

“One option is to give Cairn one or more of the oil and gas fields that the government now owns after they are surrendered by operators for various reasons,” one of them said. “The government could give the Ratna and R-Series oil and gas field in the Arabian Sea that taken away from Essar Oil-Premier Oil consortium in 2016 because contractual terms had changed.”

The Barmer oilfield in Rajasthan, which was originally discovered by Cairn Energy, could be another option. Vedanta Ltd, which now operates the field after it bought out Cairn’s Indian subsidiary a decade back, has so far not agreed to the government conditions for getting an extension of contract beyond its original end day of May 2020.

Under Vedanta, which continues to operate the field on monthly extensions till its legal challenge to government conditions is settled, Rajasthan oilfields have seen steady decline in output. “It’s a win-win - the government settles it liability without paying a single penny or upsetting investor sentiments by not honouring the arbitration award through endless legal challenges and at the same time getting back an established exploration and production (E&P) firm back,” another source said.