If Cairn Energy’s (CNE) interpretation of the scenario is correct, the Indian government will not pay $1.2bn (£870m) in damages awarded to the company by an arbitration panel last year, over the government’s back-dated tax bill and expropriation of Cairn’s assets. But the oil and gas company will still get its money. This will be through a new law to be passed and on condition of Cairn dropping its arbitration claim.
The company has won (in as much as spending years in court and millions on lawyers can be winning) but the government of India has still shown the power of a state against a company.
Even in an example where the money looks very likely to be returned, the saving of face has trumped a quick and easy solution. This happened to Barrick Gold (Can:ABX) in Tanzania, or its former subsidiary Acacia Mining, which challenged a $190bn bill for alleged unpaid taxes and associated penalties handed to the company in 2017. Barrick eventually paid the government $300m and took Acacia’s assets back into its portfolio in 2019. In that time production stopped or slowed, even when Tanzania’s claims of under-reporting of gold exports – leading to the astronomical tax adjustment – were clearly farcical.
Cairn did not have the backing of a giant such as Barrick, however, or even the leverage of a suspended project that could be paying millions of dollars in royalties if allowed to resume. It did, however, have the chutzpah to make life difficult for a very select group of Indian government employees: the Edinburgh-based company reportedly seized €20m-(£17m)-worth of property in Paris this year, including the residence of a consular official.
Keeping host governments sweet is about balance: mining and oil and gas companies make money by removing national resources from often developing countries and selling them for a profit and so should have to hand over much of that to the people. But a quick face-saving option in a dispute should always be in the back pocket.
