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Saving face key in company-government disputes

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. 

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