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LATEST NEWS UPDATES | Stop fresh investments in KG-D6: CAG -Sanjay Dutta

Stop fresh investments in KG-D6: CAG -Sanjay Dutta

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published Published on Nov 17, 2012   modified Modified on Nov 17, 2012
-The Times of India

The Comptroller and Auditor General (CAG) has asked the oil ministry not to approve any more investments in Reliance Industries's KG-D6 oil and gas block till the company submits all records of its spending in the Andhra offshore field till 2011-12 for scrutiny. In a November 9 letter to the ministry, a top CAG functionary also suggested a similar action for the Panna-Mukta and Tapti (PMT) group of gas fields jointly owned by RIL, UK major BG (formerly British Gas) and state-run ONGC.

"It is well within the knowledge of the ministry that any increase in capital expenditure in these blocks is likely to have significant adverse impact of government's financial interests...," a top CAG functionary wrote four days after oil minister M Veerappa Moily on November 5 had said federal audit was part of RIL's contractual obligations and the company would abide by it. While Moily's statement gave the impression that the problems between the energy major and the auditor could shortly be resolved, it shed little light on the petroleum ministry's own take on the dueling positions of CAG and RIL over the company's contractual obligations.

The CAG letter, almost like a reminder to the ministry about RIL's intransigence on the issue, pointed out that the federal audit of both the KG-D6 and PMT fields "was at a standstill due to lack of access to the contractors' records". The ministry had on October 29 put off a meeting, scheduled for October 31 to discuss the audit roadmap, due to the RIL's divergent views on the scope and format of federal scrutiny.

 The company has locked horns with CAG over whether the federal auditor has the jurisdiction to scrutinize the performance of the field instead of merely examining the claimed capital expenditure in the biggest of the company's basket of blocks. While the company has said it is willing to cooperate fully with CAG for a financial audit of expenses in the field, it has argued that its contract with the government does not allow the federal auditor to evaluate its performance as it is a private company.

Significantly, CAG does not dispute the argument that its mandate does not extend to private operators. However, it has insisted on examining RIL's claims of expenditure on KG-D6 as part of a performance audit of the petroleum ministry: Something that falls very much within its remit. The accuracy of the expenditure RIL claims to have incurred on the development of KG basin blocks without a corresponding increase in gas yield determines government's share of proceeds from the field.

Moily's statement was in the backdrop of differences cropping up over the scope and format of a second round of federal audit. RIL had told the ministry that its contract envisaged only a financial audit of the field and there was no condition for a performance audit which would entail evaluation of technology and processes deployed by the company. The firm also interpreted its contract to set the condition that the financial audit report should be submitted to the ministry and not Parliament.

While the ministry wrote to RIL and CAG saying the audit would be done according to the terms of the contract, the federal auditor said it would not accept any condition for the audit and insisted on unfettered access to documents from the company. In an unusual assertion, it issued a statement saying that its position stemmed directly from the CAG (Duties, Powers and Conditions of Service) Act, 1971.

RIL responded to the CAG on Saturday claiming it had never contested the government's right to get spending on the flagging KG-D6 gas fields audited by CAG but added that the consent must not lead to a performance audit of a private firm.

The ministry had in 2007 ordered as a special case CAG audit of contracts for eight blocks, including that of RIL, in which the government shared revenue after allowing the operator to recover its costs. The audit was ordered after allegations of gold plating by RIL were leveled after the ministry approved a four-fold hike in the field's capital expenditure plan.

The report of that first CAG audit, submitted in August, 2011, after examining records for 2006-07 and 2007-08, criticized the government for being soft on RIL but did not say whether it caused any loss to the exchequer. Under existing norms, increased expenditure without proportionate rise in oil or gas output has an adverse impact on the government's take from a field.

The Times of India, 17 November, 2012, http://timesofindia.indiatimes.com/business/india-business/Stop-fresh-investments-in-KG-D6-CAG/articleshow/17248515.cms


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