The CAG today sought disallowance of USD 357.16 million (about Rs 2,179 crore) expenditure Reliance Industries incurred...
The CAG today sought disallowance of USD 357.16 million (about Rs 2,179 crore) expenditure Reliance Industries incurred on drilling of wells and payments to contractors in KG-D6 while it pulled up Oil Ministry for delays in approvals and inconsistent parameters.
In its second audit of RIL’s eastern offshore KG-D6 block, the CAG recommended disallowing the Mukesh Ambani-run company from recovering USD 279.8 million in cost of three wells as well as a part of expenditure the firm had incurred in area which was improperly declared discovery area.
The Comptroller and Auditor General of India (CAG) in its report tabled in Parliament, found irregular payment of USD 427.48 million to contractors, of which it sought disallowance of at least USD 77.36 million cost.
Under the Production Sharing Contract (PSC), RIL and its partners BP plc of UK and Canada’s Niko Resources are allowed to recover all capital and operating expenditure from sale of oil and gas before sharing profits with the government.
“Expenditure amounting to USD 160.81 million incurred on account of three appraisal wells was not eligible for cost recovery and had been disallowed by Petroleum Ministry. However, even after the Ministry communicated its decision, the Operator continued to claim the cost recovery, as seen in the final accounts for the year ended 2013,” it said.
The CAG recommended that the Ministry “ensure that the disallowed cost of three wells amounting to USD 160.81 million is recovered” from RIL and its partners.
It pulled up the Ministry for not approving annual expenditure and work budgets on time and also asked it to “develop consistent and uniform parameters for evaluating commerciality of discoveries.”
Also, the Ministry was asked to urgently take steps to resolve the differing views of the contractor (RIL) and upstream regulator DGH on the reserve estimates of KG-D6 and take appropriate action to increase production.
Listing instances of irregular payments, the CAG said RIL paid Allseas Marine Contractors (AMC) Euro 200 million more for construction of offshore facilities.
It wanted cost recovery of USD 77.36 million paid for a floating oil production system to be disallowed. Besides, it found fault with payment of USD 12.48 million start-up and production bonuses to employees, USD 88.77 million in hiring of deepsea drilling rig and over USD 16 million in bonus to contractors.
Finding fault with the Ministry in declaring the entire 7,645 square kilometre KG-D6 block area as discovery area, CAG said, “Normally the entire amount of USD 427.03 million would requirement to be disallowed for cost recovery since these activities were not in line with PSC provisions.”
Keeping in mind, however, the fact that the exploration resulted in a commercial discovery (D34), it said recommended disallowing USD 118.99 million expenditure.
“At this stage, keeping in mind the national interest and energy security, Audit recommends that Ministry should accept sharing of exploration cost of only those of the above mentioned wells which resulted in a commercial discovery and disallow the cost recovery of USD 118.99 million already effected by the operator on the remaining wells,” CAG said.
In respect of D29, D30 and D31 discoveries, CAG said the Ministry should disallow their cost in case they are found to be commercial unviable.
It said pricing mechanism for crude oil and condensate from MA field in the KG-D6 block has not been finalised even after six years of production.
“The PSC provisions relating to pricing and sale of crude oil and condensate may be followed and decision on pricing and sale of crude oil and condensate may be taken at the earliest,” the report said.
According to CAG, the total expenditure incurred in Block KG-DWN-98/3 or KG-D6, till March 2013 was USD 10.441 billion out of which USD 9.929 billion has been cost recovered.
“Out of the profit petroleum of USD 1.03 billion till March 2013, the contractor has got USD 929.32 million and Government has got USD 103.26 million,” the report added.