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Ourview | An incomplete audit story

Ourview | An incomplete audit story
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First Published: Tue, Sep 13 2011. 09 33 PM IST

By Jayachandran/Mint
By Jayachandran/Mint
Updated: Tue, Sep 13 2011. 09 33 PM IST
The recently released final report of the Comptroller and Auditor General (CAG) on a few oil and gas exploration contracts provides an elaborate narrative of the transgressions committed by the explorers. It has also sought to retrieve lost ground.
In the case of Cairn Energy, it has disallowed costs of around $200 million that would otherwise dent the rent earned by the government. The petroleum ministry has concurred. But that hardly completes the story. And the lead is given by none other than the petroleum ministry itself: It says its technical arm, the Directorate General of Hydrocarbons (DGH), had recommended against allowing costs that were incurred in exploring parts of the block that had been relinquished to the government.
So, then, who allowed it? And, has the responsible official been penalized? For only such an action would effectively deter officials from squandering away public money.
By Jayachandran/Mint
In the case of Reliance Industries Ltd (RIL), the stakes are far higher. In the production-sharing contract framework, the only way a contractor holds on to the entire block is by proving that it is a single large contiguous discovery.
RIL argued that it was so, citing seismic “photos”. DGH, citing the contract, said nothing doing—physical verification of hydrocarbon presence is essential; this requires expensive wells to be drilled (each costing over $50 million). Not an easy task since the block extends over 7,000 sq. km; RIL had drilled wells in a radius of a mere 350 sq.?km.
That opinion, however, changed as soon as there was a change of guard at DGH. The issue was tossed up to the petroleum ministry in two conflicting DGH opinions. The ministry set up a committee to decide on the issue, headed by a senior civil servant at the ministry.
Rather than seeking the legal department’s view on an issue bearing immense financial implications or for that matter an independent technical view, the officer went along with the second DGH report that favoured RIL.
If RIL had lost the battle and wanted to explore the entire block, it would have had to bid out aggressively to secure the relinquished area in the reauction. For everyone knows the heightened prospects of finding oil and gas in the area around RIL’s wells. CAG has sought to correct this straying by the petroleum ministry, seeking to redraw the boundaries.
Did DGH fulfil its regulatory function? Tell us at views@livemint.com
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First Published: Tue, Sep 13 2011. 09 33 PM IST
More Topics: Ourviews | CAG | Audit | Explorer | RIL |