A Group of Ministers headed by Finance Minister Pranab Mukhejree is likely to meet on Monday to vet London-listed mining group Vedanta Resources' $ 9.6 billion acquisition of Cairn India.
"The first meeting of the GoM is tentatively scheduled for Monday second half," a top government functionary said.
The ministerial panel will deliberate on whether Vedanta with no experience in oil and gas sector, should be given unconditional approval for buying a company that owns the nation's largest onland oil fields or given clearance after attaching reasonable conditions.
The official said Reddy had listed two options. First was giving approval subject to state-owned ONGC being allowed to recover Rs 18,000 crore (Rs 180 billion) it is liable to pay in royalty on behalf of Cairn India.
Alternatively, he suggested that the government gives its consent to the deal without any pre-condition and take 'appropriate decision' to enforce ONGC's right.
Oil and Natural Gas Corp (ONGC) has 30 per cent stake in Cairn India's mainstay Rajasthan oilfields, but it is liable to pay royalty not just on its share but also on Cairn's 70 per cent share.
Royalty at the rate of 20 per cent of the crude price is payable to the state government and ONGC, a month before the Cairn-Vedanta deal was announced in August 2010, had cited provisions of field contract to demand its cost recovery.
The Oil Ministry is backing the ONGC demand that royalty payment be added to the project cost, which can be recovered from the sale of oil before profits are split between the partners and the government.
However, such a move is being opposed by Cairn Energy and Vedanta as it will lower Cairn India's profitability.
Solicitor General of India, the nation's second highest law officer, had opined that Vedanta must agree to cost recovery of royalty before the government nod.
Cabinet Committee on Economic Affairs (CCEA) had on April 6 and referred the issue of attaching pre-conditions to the GoM.
Vedanta, a mining company controlled by billionaire Anil Agarwal, with no experience of oil and gas business, agreed in August to buy at least 40 per cent and as much as 51 per cent in Cairn India from the Edinburgh-based Cairn Energy.