Cairn founder to step down as chairman

Cairn Energy founder Sir Bill Gammell is to step down as chairman after 26 years at the oil company at a time when it appears the tax dispute with the Indian authorities could be challenging to resolve, even for a new government.

Sir Bill will leave the post in May and be replaced by Ian Tyler, former chief executive of Balfour Beatty, who has been on the board of the Edinburgh-based firm since last year.

Cairn initially focused on Greenland where it exhausted $1.2 billion without finding oil. Its big successes have been oil finds in India and off the coast of Britain.

The ride for Sir Bill has not always been smooth. In January 2012 shareholder groups forced the withdrawal of a proposal to grant him £3.5 million of special payments which was to have been a reward for negotiating a £980 million inital public offering (IPO) of the company's Rajasthan, India, subsidiary.

It was this sale that is now the subject of an unresolved tax dispute with the Indian authorities. The company has been forbidden by the authorities from selling the residual 10% stake until the investigation into how much tax it should pay is completed.

Cairn believes it has met all of its liabilities in full, but the Indian authorities are using a change in the law in the 2012 Indian Finance Act, which allows them to tax prior-year transactions, to reassess the company's tax position for 2007, particularly in respect of capital gains Cairn is said to have made on the transfer of assets from subsidiaries in Jersey to the Indian business.

Cairn points out that the reorganisation of Indian entities ahead of the IPO was internal with no change of beneficial owner and that therefore no capital gains tax is warranted.

Relationships were also strained by a protracted year of negotiations with ministers in India before the company won approval for the sale of some of its operations in the country to Vedanta Resources, for £3.3 billion.

At the weekend BJP leader Arun Jaitley said that if his party won the election, they might try to reverse the UPA government's unpopular legislation on retroactive tax but he said it would be challenging and perhaps impossible to resolve. His comments will also interest Vodafone and Royal Dutch Shell, who have also received demands for additional tax in India.

In February Cairn reassured investors it will be able to continue with a programme that includes a £245 million exploration drilling campaign, in spite of becoming embroiled in the potentially costly dispute. The company had $1.25 billion cash in the bank at 31 December.

The shares fell 2.26% to 194.39p by 11am.