If there is one thing that was held up clearly in the 2G scam, it was the role audit plays in pointing out errors in executive action. The earlier an audit is deployed, the better it is for the polity. The performance audit on hydrocarbon production sharing contracts by CAG has, therefore, come at the right time. The government still has a lot of leeway that it can use vis-?-vis the firms involved in the exploration of oil and gas on shore and offshore. This is unlike the situation in the telecom sector where the audit report came way too late in the day to make any course correction possible. The government, for instance, is working out the awards for the eighth round of NELP and CAG?s observations should be incorporated in them. However, in the current climate where the interaction between the government and the corporate sector is coming under more and more scrutiny, it is worth investigating if just about any audit report qualifies as a scam.
A major thrust of this report is that the government had gold-plated not only the production sharing contracts but also their interpretations in favour of the contractors. This is a questionable interpretation, because if that was the case, global exploration companies would not have given the latest NELP so unequivocal a miss. Since these are essentially the same contracts, they too would have sensed an opportunity and come calling. The other point is the insistence on a comprehensive development plan as envisaged under the production sharing contract. It is difficult to see how such a plan can be submitted ex ante by an explorer, before any discovery is made. The nature of discovery in the sector is very variable despite all the seismic data made available, and strike rates are in any case few and far between. It is also not surprising that the CAG report has concentrated on the KG-D6 fields, the Rajasthan block and the Panna Tapti fields as these are the only significant commercial discoveries made in India on scales comparable with Bombay High. The report has, however, rightly pointed out that the royalty formula and petroleum profits need to be reworked in earnest, to ensure there is a balance between what the government earns and what the contractor does. There are significant issues to mull over in this debate, before we move to a conclusion.
