‘CAG did not seek RIL, Cairn comments for audit report’

‘CAG did not seek RIL, Cairn comments for audit report’

New Delhi: India’s top auditor, the CAG, did not seek comments from Reliance Industries and Cairn India before levying a series of allegations against the private firms, including that of getting undue favours, in its draft audit report, the oil ministry has said.

While the CAG all through the audit of Reliance’s KG-D6 gas field and Cairn’s Rajasthan oilfields last year avoided meeting the companies, the auditor did not mention its observations or seek comments in interactive meetings it had days before finalising its draft report.

“In the interactive meeting... 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," the oil ministry wrote to the CAG on 22 June.

“The operators were not given any draft report before this meeting so that they could have come prepared with some reply," it added.

The CAG, in its 8 June draft report, said that the ministry and its technical arm, the Directorate General of Hydrocarbons, favoured Reliance and Cairn by allowing them to retain their entire exploration acreage, turning a blind eye to increases in capital expenditure and giving additional area in violation of the Production Sharing Contracts (PSCs).

The oil ministry asked the Comptroller and Auditor General (CAG) to now give the private operators a chance to present their views, but the nation’s top auditor turned down the request.

“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 CAG," the ministry wrote on 22 June.

“Relevant extracts of the draft report have to be given to the concerned operators for a proper reply; ministry of petroleum and natural gas has initiated this process."

The CAG on the same day replied back saying its “audit mandate, scope and coverage" did not provide for seeking a response on its draft observations and the government can raise audit objections after it has finalised its report.

Within days of the early June meetings with Reliance and Cairn, the only formal interaction the CAG had with them, the auditor sent its draft report to the ministry for comments.

The ministry cited provisions of the Production Sharing Contract (PSC) signed with Reliance and Cairn 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.

“Thus, if the audit exceptions are not notified, any reversal of cost recovery/disallowance of any expenditure (based on audit exception) will not be feasible from the operator. This could also lead to disputes and the operator may choose to initiate an arbitration also,“ the Oil Ministry said.

The CAG took almost a year since completion of the audit in June last year to prepare the draft report. But now it is not giving the operators a few weeks to respond as per the principle of natural justice, sources said.

The CAG wants an exit conference with the ministry to be held in the first week of July to conclude its final report.

In the draft report, the CAG said rules were bent, enabling Reliance to retain the entire 7,645-square kilometre KG-DWN-98/3, or 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 blind eye to the company raising capital expenditure without having begun work on the previous one.

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.

The CAG stated that the oil ministry and DGH “irregularly allowed the operator (Reliance) to enter successive exploration phases without the stipulate relinquishment of area and then allowed the operator to declare the entire contract area as a ‘discovery area´, thus avoiding any relinquishment whatsoever."

On the Cairn India-operated Rajasthan oil fields, it said the grant of an additional area of 1,708.20 square kilometres beyond the contract area by the government was not in line with the provisions of the PSC, adversely affecting the sacrosanct nature of the contract area and its phased relinquishment.