The Russian oil giant Rosneft, which today completed a $12.9 billion takeover of Essar Oil along with a consortium of investors, said the transaction involves a non-compete clause that prevents Essar Group from re-entering oil refining and retailing forever, a claim strongly refuted by the Ruias.
Earlier in the day, while addressing the media, Essar Oil's new non-executive director, Jonathan Kollek, said, "They (Essar Oil) cannot build a refinery, they cannot build petrol stations. There is a non-compete, forever."
However, in the evening, Essar Group, in a statement, denied the longevity of the non-compete clause and said the clause is for three years only.
"The non-compete clause is only for a limited period of three years, after which this clause is no more applicable," Essar spokesperson clarified.
The Ruais will continue to run their refinery in Britain, wherein they have 9 million tonnes of facility at Stanlow and also their coal bed methane blocks in the country.
Kollek said that Rosneft will pay a royalty to Essar Group for using the brand name of Essar Oil at the over 3,500 petrol pumps, which are also part of the deal.
However, the new management, which includes appointees from the new owners --Russian oil major OAO Rosneft, and a consortium of Russian private equity fund UCP and Swiss commodity company Trafigura -- did not divulge the fees paid.
"That (fee) is part of the commercial terms. There is a payment as you would expect in normal course of business for having access to license and brand. That is part of the overall valuation," Tony Fountain, the newly-appointed chairman of Essar Oil, told reporters earlier in the day.
He said only commercial considerations were the sole driving factor behind the $12.9 billion acquisition of Essar Oil.
"The core of the deal the way it ended up is based on commercial valuation...they (new owners) are looking to make commercial returns, they want this to be commercially successful," Fountain said.
The $12.9 billion deal, the largest FDI inflow into the country as also the largest investment out of Russia, was announced first by Prime Minister Narendra Modi and Russian President Vladmir Putin during the annual BRICS Summit in Goa last October and got concluded today.
Fountain today said Ruias will continue to hold 1 per cent in Essar Oil even after the deal, through a 2 per cent holding in the consortia of Trafigura and UCP.
"I don't want to speak about their intention of how long they intend to hold that, but we are certainly assuming that they will be with us with that investment," he said.
Fountain said the new owners' intention is to run the company with highest standards of corporate governance followed all over the world.
The company said it feels the Essar brand is "very strong" and will be retaining the same at the petrol pumps. It will also be continuing with an ongoing plan to ramp up the number of fuel stations to 6,000 from the present 3,500 in the "near term".
The company has part-paid a few loans and will take $5 billion of loans into its book, including $4 billion in term loans and working capital facilities of $1 billion.
When asked about the over $2.4 billion owed to Iranian companies for crude sourcing, Fountain said it is a part of the overall deal consideration of $12.9 billion but is not included in the $5 billion debt that it is taking.
The liability will be extinguished soon, he added.
He said Essar Oil will honour every contract on products and crude side, replying to a question whether it will continue to source crude from Iran and Venezuela as per earlier agreements or go for Russian crude.
It can be noted that in 2015 Essar Oil had entered into one-year contract with Rosneft to purchase crude form them. Russia has the largest crude reserves in the world and Rosneft is the largest publicly traded oil and gas company in the world in terms of production as well as reserves.
Fountain, however, was quick to add that for new contracts, maximising the returns will be the only priority.
EOL today announced the name of Trafigura's chief financial officer B Anand as the new chief executive, replacing Lalit Gupta, who will continue to be associated with the company as a senior advisor.
Fountain said the new board has asked the management to come up with an asset development plan which may include strategies on inorganic growth and also verticals to be entered into like engineering, procurement and construction.
When asked about state-run LIC continuing to have a representation on the board (its executive director R Sudarsan is on the board), Fountain said once LIC is paid their dues, the board representation will be cancelled.
On the fate of the minority shareholders, who will continue to hold over 1.7 per cent of the company, he said a plan will be drawn in to understand what to do with this lot.