Oil Ministry says no to joint CAG audit with Reliance Industries, Cairn India

New Delhi | Updated: Oct 13 2014, 14:46pm hrs
RelianceRIL has an array of natural gas discoveries in the Krishna Godavari basin KG-D6 block as well as NEC-25 area off the Odisha coast. (Reuters)
Having faced regulatory fire in the last CAG audit, the petroleum ministry does not want its performance or that of its upstream regulator Directorate General of Hydrocarbons to be jointly inspected with petroleum operations of Reliance Industries (RIL) and Cairn India Ltd in a fresh scrutiny of the four oil and gas blocks for fiscal 2012-13.

Principal Director of Audit (PDA) may be requested to take up the audit of four blocks / fields. Audit of Ministry of Petroleum & Natural Gas and Directorate General of Hydrocarbons may be taken up separately by PDA, it wrote to the Comptroller and Auditor General of India (CAG) last month.

The objection comes three months after the CAG informed its plan to conduct performance audit of the ministry, DGH and other agencies under the government while examining the propriety of the expenditure vis--vis the provision of the relevant production sharing contract in the four blocks.

This would provide the CAG access to books and accounts and records of the ministry, the DGH, other government agencies as well as that of the contractors and operators of KG-DWN-98/3, RJ-ON-90/1, Panna-Mukta and Mid & South Tapti fields.

RIL is the contractor for KG-DWN-98/3 and operator of Panna-Mukta and Mid & South Tapti fields while Cairn India operates the RJ-ON-90/1 block.

The objection to the ministrys inclusion in the fresh 2012-13 audit was first raised by DGH, which suggested that in case the CAG decided to audit the DGH and the ministry, the government auditor be requested that the audit reports thereon be segregated and issued separately from those pertaining to the contractor.

It reminded that the ministrys request to CAG in January 2014 for a scrutiny of 2012-13 accounts was to conduct the audit of four blocks / fields only.

Their reluctance to be dragged into the new audit is obvious considering the CAG slammed both the ministry and the DGH for not exercising enough control and vigil over RILs KG-DWN-98/3 block which led to losses of several hundred millions of dollars to the exchequer.

From not approving budgets for the year at the beginning of the year and monitoring expenditure according to the approved plan, the two were castigated for allowing costs of unapproved drilling programme and allowing RIL to retain area without any discovery.

It said there was scope for strengthening the production sharing contract (PSC) regime to ensure that the interest of government as owner of the natural resources was adequately protected.

Former CAG Vinod Rai in his book said the management committee for these blocks had no voice in the operational control of the exploration and production operations and therefore the government could not influence capital or any expenditure patterns.

Every time the operator made claims, it was acceded to by the management committee, DGH or MoPNG. Each time it was acceded to, the action was detrimental to government interest, Rai wrote in his book Not Just an Accountant: The Diary of the Nations Conscience Keeper.

The CAG, however, wants access to online SAP accounting systems that keeps track of all financial transactions and provides timely financial, operating and analytical reporting. As contractors in these PSCs maintain accounts in SAP system, CAG may deploy competent officers who are technically proficient to extract desired data from SAP, it wrote on June 10.

RIL, last July, told CAG that it had separated the exploration and production business in SAP from other fields and therefore full access will be provided in future.

It has been reluctant to allow the CAG to access to all its records and an Entry Conference scheduled in October 2012 to begin second round of CAG audit of spending in KG-DWN-98/3 block during 2008-2012 was postponed due to differences over the nature and scope of the audit.

RIL has accused the CAG of exceeding its brief while auditing spending on KG-DWN-98/3 block by questioning operational decisions taken eight years back. This time, the CAG has assured that such performance audit of the functioning of the contractors to the PSCs would not be conducted.

By Amitav Ranjan