In January 2014, Cairn received notice from the Indian Income Tax Department (IITD) requesting information relating to the Group reorganisation in 2006. The IITD attached the 10% shareholding in Cairn India Limited, then valued at approximately US$1 billion. Cairn received a draft assessment order from the IITD in March 2015 and subsequently filed a Notice of Dispute under the UK-India Bilateral Investment Treaty in order to protect its legal position and shareholder interests.
Cairn commenced international arbitration proceedings against India in 2015 following the retrospective taxation actions undertaken by the IITD in 2014. Final merits hearings for the arbitration concluded during 2018.
The Arbitral Tribunal has indicated that it expects to be in a position to issue an Award in the summer of this year relating to the arbitration claim brought against the Government of India. Cairn continues to have a high level of confidence in the merits of its claims in the arbitration and is seeking full restitution for losses of more than US$1.4 billion resulting from: the expropriation of its investments in India in 2014; continued attempts to enforce retrospective tax measures; and the failure to treat the Company and its investments fairly and equitably.
The Treaty affords strong provisions to enforce a successful award and the decision of the Tribunal is binding on both parties.
Cairn in India
Cairn Energy first invested in India in the 1990s when it became one of the first international companies to participate in the country’s oil and gas industry. Cairn’s investment in India saw the company transform the Ravva oil and gas field, which was producing at c.3,000 barrels of oil per day (bopd) when Cairn took over operatorship in the mid 1990s. Within 18 months, Cairn had increased production to 50,000 bopd. Ravva is still in production more than two decades later, having produced more than 365 million barrels of oil equivalent (boe), significantly higher than the original estimates, while production is now expected to extend into a fourth decade.
Cairn subsequently transformed India’s oil and gas industry with the discovery of the Mangala oil field in Rajasthan in January 2004. It was one of the biggest ever hydrocarbon discoveries in India and was quickly followed by the additional Bhagyam and Aishwarya oil discoveries nearby. Today, Mangala, Bhagyam and Aishwarya fields together have gross reserves of ~ 2.2 billion boe.
The company ultimately made more than forty discoveries in the area. Cairn constructed the world’s longest heated pipeline (c.600km) to take the crude from the Mangala Processing Terminal to the coast, with production commencing in August 2009. A decade later, the terminal still provides more than a third of India’s entire crude oil production.
The fields have had a significant economic impact on the local economy. As well as directly creating thousands of skilled jobs, they have stimulated growth in other sectors, meaning that the Barmer district of Rajasthan (home to Mangala, Bhagyam and Aishwarya fields) now boasts an average income 40% higher than the national average and is the second largest contributor to Rajasthan’s GDP. In the last decade, Cairn’s discoveries have generated revenues of more than US$20 billion for the state and national government.
The issue is an unfortunate conclusion to a 20-year investment in India where Cairn has been a model corporate citizen and created a legacy asset which is seen as an example of what can be achieved through partnerships and foreign direct investment