Monday, June 13, 2011

“Undue benefit to Reliance is huge but can't be quantified”

  •  The Petroleum Ministry and Director General Hydrocarbons irregularly allowed Reliance Industries Ltd to enter successive exploration phases in the Krishna Godavari basin without the stipulated relinquishment of area and was allowed to declare the entire contract areas as “discovery area,'' thus avoiding any relinquishment whatsoever, the Comptroller and Auditor General has concluded in its draft report on production sharing contracts in the KG basin. “In our opinion, this is irregular and incorrect, since drilling of wells and consequential discoveries, which is the primary requirement for discovery and discovery area, had not taken place in the major portion of the contract area. The undue benefit grant to the contractor (RIL) is huge, but cannot be quantified,'' the CAG said.
  • Revenues were lost because the surrendered acreage would have eventually been put up to other bidders with better exploring technology who might be tempted to enter once the overall value of the KG structure is clear.
  • The Petroleum Ministry at that time was led by Murli Deora and the Management Committee on KG-D6 included the then DGH, V.K. Sibal and Joint Secretary (Exploration), Anil Jain. “The role of DGH and Government of India representative on the Management Committee may be closely scrutinised to see why the operator was allowed to violate the provisions of Production Sharing Contract (PSC) and not adhere strictly to the terms of the approved initial development plan,'' the CAG has recommended. “We recommend that the government should re-examine delineation of the entire contract area as ‘discovery area' and take immediate steps for relinquishment of excess area in line with provisions of the PSC, as also fix accountability for those responsible for this decision.''
  • The CAG also found a ‘similar irregular determination of the entire contract area' as ‘discovery area' in the case of another block operated by Reliance, dubbed KG-OSN-2001/2.
  • The CAG, despite being faced with continued non-cooperation from the operator as well as the Petroleum Ministry into the audit, has accused RIL of having no intention of developing the KG-D6 gas fields as per the initial cost estimates as it did not initiate tendering for equipment as per the original plan. “Most procurement activities were undertaken late, in line with the schedules of the IDP of May, 2004, clearly evidencing that the operator had no intention of complying with these timelines,'' the draft report states.
  • However, in sharp contrast, the CAG said, activities in respect of items in the AIDP were initiated even before the submission/approval of the AIDP. “The submission of an addendum to the initial development plan (IDP) instead of a revised comprehensive development plan, as well as lack of adequate details with regard to the Phase-II development cost of $3.3 billion, made it virtually certain that the operator will submit more addendums. The DGH also approved the AIDP, without questioning why the operator did not take action in-line with the already approved IDP,'' the CAG said.
Private operators created hurdles in audit: CAG

  •  In an indication that all is not well within the Petroleum and Natural Gas Ministry and the functioning of the private operators, the Comptroller and Auditor General (CAG) has stated that its audit faced interruptions, non-cooperation and difficulties in obtaining the records of the operators for scrutiny.
  • Making detailed comments on the hurdles created in its path for a smooth audit, the CAG stated that despite repeated efforts, the Panna Mukta Tapti Joint Venture (PMT JV – joint operators BGEPIL, RIL and ONGC) did not provide “important and relevant” records on the ground that scrutiny of these records did not fall within the audit scope of the CAG, which they said was limited to accounting records in terms of the PSC (Production Sharing Contract) provisions.
  • “The PMT JV did not respond to the majority of our preliminary observation memos, on the ground that the issues therein were outside the scope of audit rights envisaged in the PSC,” the draft report has stated.
  • “We do not agree at all with the ‘misleading interpretation' of both the PSC provisions and our audit scope by the PMT JV. Further, we believe these records were essential to meet the audit objectives, notably verifying whether GoI's financial interests were adequately protected. In the absence of these records, we are unable to vouchsafe the reliability of the expenditure stated to have been incurred by the PMT JV during 2006-07 and 2007-08. Consequently, the impact on government take (current/future), if any, could not be quantified,” it stated.
  • Interestingly, going further, the CAG has recommended that keeping in view the nature of the (investment multiplier) IM-based profit sharing formula, and the severely adverse implications on GoI's financial interests of any incremental capital expenditure, that pending complete submission of all supporting records relating to expenditure for 2006-07 and 2007-08 and comprehensive and detailed scrutiny thereof to verify that GoI's financial interests have not been adversely affected in any way, the Government closely and carefully consider the desirability of any further approvals of capital expenditure through the Annual Work Programme and Budget, Development Plans or otherwise, except on an emergent nature.
  • The CAG has also listed the records that were not provided to it. The premier audit agency has also listed the delays and interruptions in a chronological manner indicating the hurdles created by private operators and Ministry officials at various levels.

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