New Delhi: Reliance Industries has sought “suitable opportunity” to respond to a CAG report that indicts it on receiving undue favours from the oil ministry, saying the official auditor had not discussed many of the findings mentioned in the draft report.
Reliance executive director P M S Prasad on 29 June wrote to oil secretary G C Chaturvedi protesting that his firm has not received the full copy of the draft CAG report and was never consulted on many issues pointed in the reports.
“...the subject matter of many of the observations being reported does not seem to have constituted the substance of any of the audit memos we had received from the CAG team during the audit of KG-DWN-98/3 (or KG-D6) block at our premises between December 2009 to September 2010.
“Needless to say neither were any of these issues raised by CAG during our brief conference with the CAG team on 4 June,” he said in the letter.
A spokesperson of CAG could not be reached for comments.
CAG’s 7 June draft report said the oil ministry and its technical arm, the directorate general of Hydrocarbons, favoured Reliance by turning a blind eye to the Mukesh Ambani firm increasing capital expenditure on its flagship KG-D6 gas fields and allowed it to retain entire exploration acreage in violation of the Production Sharing Contracts (PSCs).
“All observations that are of material consequence to us as a contractor, and affect our rights as well as obligations under the PSC, need to be responded to by us in the interest of fair play and natural justice, particularly in relation to those observations in respect of which no memo was received by us during audit, seeking our comments,” Prasad wrote.
Oil Ministry too had in a 22 June letter to CAG raised the issue of CAG not seeking comments from private firms like Reliance and Cairn India before levying a series of allegations.
“In the interactive meeting (CAG had with firms before submitting the draft report) one of the operators gave a presentation on how the project was executed and no audit observations were discussed. In the other meeting, only one observation was discussed with the operator,” it wrote.
“The operators were not given any draft report before this meeting so that they could have come prepared with some reply,” the ministry wrote.
Prasad in the 29 June letter stressed that the process of giving contractors an opportunity to respond to any audit objection before preparation of the draft report was not followed.
The oil ministry asked the comptroller and auditor general (CAG) to now give the private operators a chance to present their views.
“The contractors have seen and replied to the audit requisitions and memos only. They have not been given the draft report, which has the response to audit queries and observation of the CAG,” the ministry wrote.
The ministry cited provisions of the PSC signed with firms like Reliance to state that seeking comments on audit observations was a must.
“Any audit exception shall (have to) be made available by the government in writing to the contractor within 120 days following completion of the audit in question and thereafter, the contractor shall answer within 120 days of receipt of such notice,” it wrote.
Prasad said it “would be against the rules of natural justice if observations on issues on which we have not been heard are retained in the report without giving us sufficient opportunity to present the facts of the case.”
Reliance sought “suitable opportunity” of being heard on the issues and till such time “references to issues on which we have not been accorded an opportunity of being heard may kindly be withheld.”
In the draft report, the CAG said rules were bent, enabling Reliance to retain the entire 7,645-square kilometre KG-D6 block in the Krishna-Godavari Basin, off the East Coast.
Also, the development plan Reliance submitted for Dhirubhai-1 and 3, two of the 18 gas discoveries in the KG-D6 block, was not in compliance with the PSC and the ministry and the DGH turned a blind eye to the company raising capital expenditure without having begun work on the previous plan.
Reliance had in May, 2004, proposed an investment of $2.4 billion for producing 40 million standard cubic metres per day of gas from the D1 and D3 fields and later, in October, 2006, moved an addendum to this saying $5.2 billion would be required in Phase-1 to produce 80 mmscmd of gas and another $3.3 billion to sustain the peak output for a longer duration.
The CAG, however, did not say Reliance overbilled the government or caused a loss to the exchequer with the increase in development cost.
“The increase in cost from Initial Development Plan (IDP) to Addendum to IDP is likely to have significant adverse impact on government of India’s financial take. However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise, of the increase in cost from IDP to AIDP, both overall and in respect of individual line items,” it said.