Cairn Energy has provided an update on its ongoing arbitration with the Government of India under the UK-India Bilateral Investment Treaty. All of the written submissions by Cairn and the Government of India have now been made, and the final arbitration hearings are scheduled for two weeks commencing on 20 August 2018 in The Hague. These hearings will involve testimony by expert and fact witnesses and will address Cairn's claims under the Treaty, India's defences and issues of jurisdiction.
As previously announced, the Indian Income Tax Department (IITD) has continued to enforce its retrospective tax claim against Cairn whilst the Treaty arbitration has been ongoing. To date the IITD has seized dividends due to Cairn from its shareholding in Vedanta Limited (VL) totalling approx. US$155 million (m) and it has offset a tax rebate of US$234m due to Cairn as a result of overpayment of capital gains tax on a separate matter. Cairn has now been notified by the IITD that it has sold part of Cairn's shareholding in VL, realising and seizing proceeds of US$216m. Following this sale, Cairn's retained holding in VL is now approximately 3%. It is possible that the IITD may make further sales.
All of these enforcement measures by the IITD are addressed in Cairn's claim in the arbitration. The reparation sought by Cairn in the arbitration is the monetary value required to restore Cairn to the position it would have enjoyed in 2014 but for the Government of India's actions in breach of the Treaty. Accordingly, the status of Cairn's assets seized in India does not affect the merits of Cairn's claims, the amount of relief sought, or the enforceability of the arbitral award.
After the disposal of part of this shareholding in VL and seizure of proceeds by the IITD, Cairn will write down the carrying value of its investment in VL which will result in an impairment charge at the half year equal to the value of the total shares notified as having been sold by the IITD at that time.
Following the hearing the Arbitral Tribunal will issue a binding and internationally-enforceable award. The drafting and issuance of such an award typically takes several months. In this case, taking into account the delays already suffered by Cairn, the Tribunal has stated that it will endeavour to issue its award as expeditiously as possible.
Cairn continues to have a high level of confidence in the merits of its claims in the arbitration. Cairn is seeking full restitution for losses totalling approx. US$1.3 billion (bn) resulting from India's expropriation of its investments in India in 2014, and India's unfair and inequitable treatment of those investments, due to the imposition of retrospective tax measures.