The Directorate General of Hydrocarbons (DGH) was set up under a resolution of Government of India in 1993 as a regulatory body for monitoring the upstream oil and gas sector which includes exploration, development and production of oil and gas. Additionally, the directorate is supposed to play a significant advisory role to Ministry of Petroleum and Natural Gas (MoPNG) in technical matters pertaining to the upstream sector which includes monitoring of production sharing and other contracts. However, the credibility and transparency of both DGH and MoPNG have increasingly come under the scanner especially in light of the dispute between the Ambani brothers that began soon after their demerger. The recent string of allegations (made by RNRL) against DGH include favouring RIL by allowing them to pad the costs of exploration at KG-D6, and for receiving undue favours from RIL. These will probably be looked into. But the issue is bigger.
The upstream sector is capital intensive and fraught with risks and hence quite challenging in terms of monitoring. Thus, the sector essentially demands a mature statutory regulator, which should be independent and accountable to Parliament. However, DGH is effectively a technical wing of MoPNG and essentially an in house regulator. The crux of the problem lies there. In fact, the recent allegations regarding the conflict of interests in the evaluation of the inflated capital expenditure or investment have a lot to do with this in house status of DGH.
Interestingly, DGH claimed earlier that the approval of this investment has been validated by the CAG whereas the latter reportedly stated its delay in executing the auditing work due to limited access to data and information. It is quite understandable that RIL being a private company may not be inclined to hand over all its documents to a government auditor. So, questions are bound to be raised on the veracity of such validation. The only way to set to rest all these allegations was to disclose the CAG audit report. If all is well then there should not have been a problem with such disclosure. The question is whether MoPNG or DGH would actually be inclined to do so and come out clearly. Such a transparent move becomes all the more doubtful as MoPNG and DGH have already set enough precedents of acting in a non-transparent and untimely manner and a plethora of articles have already been written on the mess that they have created in the upstream sector, let alone the courtroom battle.
The most serious concerns have been raised about transparency of production sharing contracts (PSCs) under NELP. Neither the MoPNG nor the DGH has made public the model PSCs or bid evaluation criteria for the first NELP round. For the other rounds no official information is accessible about the winning bids and the final PSCs for any block. Beyond that, no clear information about actual discoveries of oil and gas or verified and validated reserves in various blocks as well as the expected rate of flow are made available either by DGH or MoPNG whereas DGH is supposed to come out periodically with such information. The way the MoPNG and DGH, which is also acting at the behest of MoPNG, are functioning and tweaking rules are bound to raise serious concerns about the prudency of capital expenditure or investment figures on blocks. Thus, the possibility of gold-plating an investment which leads to a higher return for the contractor and lower return for the government cannot simply be ruled out. In fact, it could very well imply a substantial delay in realisation of government?s share of ?profit gas? till the contractor has recovered all the incurred costs.
Given the complexities of the upstream oil and gas sector and the geopolitics surrounding it, the role that has been assigned to DGH is of national importance. The Web site of DGH categorically states that it is ?a body to promote the sound management of the Indian Petroleum and Natural Gas Resources having a balanced regard for the environment, safety, technological and economic aspects of the upstream petroleum activity?. Unfortunately, however, the upstream regulator along with its nurturer MoPNG have failed to live up to that standard and allowed the energy security of the nation to be drawn into a mess. After this entire hullabaloo it is high time to explore if DGH could be made an independent statutory body that is accountable to the parliament.
Alternatively, MoPNG and DGH along with the contractors under NELP should be made to follow some international benchmarks for accounting transparency by adapting them to the Indian context. This would also facilitate in assuring Indian citizens that their energy security are not taken for a royal ride.
The writer is a senior fellow at the Asian Institute of Transport Development, New Delhi
