CAG critical of Reliance Industries, Oil Ministry on KG D-6 contract

The Comptroller & Auditor General (CAG) in its final report on Hydrocarbons Production sharing contract (PSC), has accused Reliance Industries Limited (RIL) of violating the PSC in D6 block by declaring the whole exploration area as the discovery area. According to CAG, RIL did not relinquish 25% of the exploration area before starting the second phase.

The national auditor has levelled charges against the Petroleum Ministry and the Directorate General of Hydrocarbons for not checking RIL from flouting norms of the PSC.

The CAG report was tabled in the parliament on Thursday, while its draft report was leaked to media three months ago. Interestingly, the draft report had focused on serious charges of “gold-plating” the capital expenditure on developing the field. However the final report seems to be soft on that issue, and focuses on only the flouting of the PSC.

Barmer Oilfields in Rajasthan operated by Cairn India and the Panna-Mukta and Tapti (PMT) fields, where ONGC is the majority stake holder, have also come under criticism by CAG. Without quantifying losses, the CAG in its report has said that the government suffered substantial royalty losses from the PMT fields. ONGC holds 40% in the field while British Gas and RIL hold 30% each.

Doubting the intention of RIL while submitting its Initial development plan (IDP) with estimated capital expenditure of $2.4 billion, the CAG has said that the company delayed the procurement of equipment. However, the company then submitted addendum to IDP with an increased capital expenditure of $5.2 billion and $3.6 billion for phase 1 and 2 respectively. The company had initiated procurement of equipment as per the IDAP even before getting approval from the government. “Clearly, the development activities of the operator were guided by AIDP, rather than IDP,” says the report.

The CAG was critical of the absence of competition while procuring the equipment by RIL. The contracts were awarded with only one financial bid, at hand as the only one company was allowed to reach the final round of bidding. The CAG has sought an “in-depth review” of 10 contracts, including eight awarded to Aker Group.