Vedanta shares in news as Anil Agarwal firm wins arbitration against govt in $1.1 billion case

Shares of Vedanta, which have fallen 16 per cent in the last one month, will be in focus on Monday after The Anil Agarwal-led company won an arbitration award against a demand for a higher payout from its Rajasthan oil and gas fields after a disallowance worth $1.16 billion or Rs 9,545 crore in certain costs. The stock would also be in news amid a Reuters report that suggested Vedanta was considering listing all or some of its businesses, which range from metals and mining to oil & gas and potentially chipmaking.

The stock is down 23 per cent year-to-date. The average target price on the stock at Rs 303, as per publicly available Trendlyne data, suggests 30 per cent potential upside ahead. On Friday, Vedanta shares closed at Rs 233.35 apiece on BSE

In the arbitration case, the government had sought additional profit petroleum (or its share from the oil and gas fields) after it reallocated certain costs between the fields in the block and disallowed a portion of the cost incurred on laying a pipeline to evacuate oil produced from the Rajasthan block.

As per a PTI report, companies can recover all costs incurred before splitting profit with the government in a pre-determined ratio. If the government disallows a certain portion of the cost, it will get higher profits and shares. Vedanta challenged this demand before an arbitration tribunal, PTI reported citing a company statement.

"The company has received an arbitration award dated August 23, 2023... upholding the contention of the company that additional profit petroleum, on account of Director General of Hydrocarbon (DGH) audit exceptions in relation to allocation of common development costs across Development Areas and certain other matters, is not payable as per terms of the Production Sharing Contract for Rajasthan Block," Vedanta said.

Vedanta has, however, not made the details of the arbitration award public. The company said in its statement that the company is in the process of reviewing the award in detail and evaluating its financial impact. The mining major put the number at Rs 9,545 crore in its latest annual report released last month.

"DGH, in September 2022, has trued up the earlier demand raised till 31 March 2018 up to 14 May 2020 for Government's additional share of profit oil based on its computation of disallowance of cost incurred over retrospective re-allocation of certain common costs between Development Areas (DAs) of Rajasthan Block and certain other matters aggregating to Rs 9,545 crore applicable interest thereon representing share of the company and its subsidiary," it said.

The mining major said it has disputed the demand and the other audit exceptions since it believed these were not in keeping with the production sharing contract (PSC) and were unsustainable. Vedanta Group’s annual report stated that it commenced arbitration proceedings in accordance with the terms of the PSC. It further said that the final hearing and arguments were concluded in September 2022. It added that both parties filed their briefs after the hearing and an award is awaited.

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