New Delhi: Finding itself admist a raging controversy over comments against it in a draft CAG report, the oil ministry has said it will never allow Reliance Industries or any other operator to overbill the government and cause loss to the exchequer.
The ministry is in the process of preparing a response to the draft report of the Comptroller and Auditor General of India (CAG), which slammed the oil ministry and its technical arm, Directorate General of Hydrocarbons (DGH), for allegedly showing favours to private operators.
“We have very stringent regulations. A operator, say Reliance, is allowed to recover only that part of the investment which it has spend on ground and which has been established through an audit done by government auditors.
So no matter what an operator may put in his budget for a gas field development cost, only that amount is permissible which is actually spent,” a ministry official said.
Operators like Reliance are allowed to recover all capital cost incurred on developing a field from revenues earned from the sale of oil or gas before profits are split between the stakeholders, including the government.
The CAG conducted the audit of the accounts of Reliance after allegations of ‘gold-plating´, or artificially inflating the cost of development of Dhirubhai-1 and 3 gas fields, two of the 18 discoveries in its KG-D6 block, leading to reduction in government take from the eastern offshore block.
CAG in its draft report did not say if the increase in development cost of D1 and D3 fields was unjustified. “We will never allow Reliance to dupe the government,” he said.
The nation’s top auditor in the draft report stated that it is “unable to comment on the reasonableness, or otherwise of the increase in (Phase-1) cost (from $2.39 billion proposed in May 2004 to $5.196 billion in 2006), both overall and in respect of individual line items”.
The official said oil & gas exploration and production is unlike a normal factor where economies of scale apply. In a gas field, the first gas is cheapest to produce as it targets the main reservior. Gas outside the reservior cost more.
“Reliance put a total expenditure (in two phases) for D1 and D3 at $8.8 billion. The output envisaged was 80 million cubic meters per day from 40 mmscmd projected in the initial development plan,” he said.
“Compare this with $1.8 billion that Gujarat government company GSPC is putting in to produce 6-7 mmscmd from the Deendayal find in the same KG basin.”
Reliance’s initial development plan (IDP) prepared in 2003 had estimated a capex of $2.4 billion for 5.3 trillion cubic feet (tcf) of recoverable reserves at a plateau output of 40 mmscmd. Subsequently, more reserves were discovered and capex revised to recover 11.3 Tcf of reserves at plateau output of 80 mmscmd.