Mumbai: India’s apex auditor will submit the report on its inquiry into the expenses that Reliance Industries Ltd (RIL) incurred in exploring the country’s largest gas find by next month, an official told Mint.
The two-year probe by the Comptroller and Auditor General, or CAG, examined whether there was any overstatement of costs involved in the work undertaken by the company on the D6 block in the Krishna-Godavari (KG) basin. The ambit of the audit—ordered after allegations on RIL’s expenses made by rival Reliance Natural Resources Ltd, or RNRL—was expanded to other big contractors whose fields, onshore or offshore, have begun producing.
The probe of two other producing blocks—Cairn India Ltd’s Rajasthan block and British Gas Exploration and Production India Ltd (BG)-operated Panna/Mukta and Tapti fields—will take some more time, the CAG official said on condition of anonymity.
Key asset: An RIL platform in the KG basin. From October to December, the KG basin contributed Rs3,530 cr to RIL’s net revenues.
“We have received all the documents and requisite information on KG D6. The process is under way and the audit will be completed in two months,” the official said. CAG had complained previously that it had been denied access to documents needed to audit the accounts.
“We have also just started the audit on BG’s block. We are still waiting to receive some information on Cairn’s block,” the official added.
Questions sent to an RIL spokesperson were not answered, and Mint could not reach a BG spokesperson despite repeated attempts.
A Cairn India spokesperson said the company had no objections to government audits, which anyway took place on an annual basis under all production sharing contracts.
“However, we understand GoI (government of India) has requested a special audit by CAG for two specific years only, and we have agreed to this. We look forward to cooperating with CAG on this matter,” the spokesperson wrote in an emailed response.
RIL, an oil-to-yarn conglomerate, is owned by Mukesh Ambani, while RNRL is owned by his estranged brother Anil Ambani.
In a three-year dispute that is awaiting a Supreme Court verdict, RNRL has laid claim to 28 million standard cu. m a day (mscmd) of gas for 17 years, at a price that is 44% cheaper than the government-specified price, in line with the terms of a 2005 Ambani family de-merger pact.
RNRL has also alleged that RIL “gold-plated” exploration costs in KG D6 by almost four times—from $2.47 billion in 2003 to $8.83 billion now—to undermine its demand for cheaper gas.
The CAG audit covers the production-sharing contract between the government and RIL, and some other deals.
In a 5 January letter to the ministry of petroleum and natural gas, the auditor had complained it was being denied access to account books.
CAG said it needed complete records on “exploration work progress and budget”, “annual audited accounts”, “scope of audit”, “statement of cost, expenditure and receipts” and “cost recovery statements”.
“Keeping in view that the audit is to be completed in a definite time frame... We would request that the records or copies thereof, be made available to our office positively by 15 January 2010, failing which it will be presumed that these records have either not been maintained or not produced to audit,” the government audit body said.
The ministry’s upstream regulator, the Directorate General of Hydrocarbons (DGH), replied on 15 January that “the balance records/clarifications furnished vide our letter dated 29th December 2009 were complete. These records were also collected by the CAG team during their earlier visit from November 2007 to November 2008.” The DGH letter added that “all the records have been requested for the period from the year 2000-01 though audit was scheduled for the years 2006-07 and 2007-08”.
CAG had also complained it was not made privy to some monthly and quarterly status reports submitted by RIL for the block, and records on further audit remarks were not accessible.
In its reply, DGH said these reports were provided by the joint venture (JV) partner, Niko Resources Ltd. “Copies of readily available reports have been furnished. Any left out reports may kindly be verified at JV’s premises,” it said.
Sector experts are waiting for CAG’s report to authenticate the costs incurred in developing and running an asset that will remain a cash cow for RIL for many years.
From October to December, the KG basin contributed Rs3,530 crore to RIL’s net revenues of Rs56,856 crore. It will contribute still more as it touches its peak production capacity of 80 mscmd of gas.