CAG drills holes in Panna/Mukta and Tapti audit

Preliminary findings of the Comptroller and Auditor General (CAG) show discrepancies in the award of contracts related to the Panna/Mukta and Tapti oil and gas fields by a consortium-led by the UK's BG Group.

The audit and accounts department of CAG had sent its preliminary findings to the petroleum ministry last month and also asked the consortium of BG Group, Reliance Industries and Oil and Natural Gas Corp (ONGC) to reply on the audit observations, sources in know of the development said.

Once the BG-Reliance-ONGC consortium replies to audit objections, CAG will prepare a proper report and send it to the petroleum ministry for comments. Upon receipt of coments from the petroleum ministry, CAG will finalise its report.

A spokesperson for BG Group responsible for contracting in the three-way consortium, declined to comment.

BG and Reliance have 30 per cent interest each in the Panna/Mukta oil and gas fields and Tapti gas fields lying in the western offshore. The remaining 40 per cent is held by ONGC.

Sources said CAG, in its preliminary observations, found the joint venture awarded 17 contracts for drilling services without openly advertising for pre-qualification of companies during 2003-04/2004-05 and through 2008-09.

It is mandatory for oil companies to publish/advertise invitation for parties to pre-qualify for any contract worth over $3 million.

The joint venture awarded third-party drilling services contracts to companies such as BJ Services (a Baker Hughes subsidiary), Weatherford, MI Overseas and Schlumberger without following this procedure, sources said, quoting CAG's observations.

Also, the consortium procured more inventory than necessary for operations of the fields, by not accounting for reusable items in the inventory stock.

CAG also stated that BG-Reliance-ONGC had blindly agreed to pay higher rates to rig and drilling service contracts after expiry of original contracts. The joint venture did not determine competive market rates, which were actually lower than these contracts, when extending these contracts.

Sources said CAG found serious lapses in the execution of the New Revised Plan of Development project to maintain the plateau of South Tapti and development of Mid-Tapti gas fields. The joint venture incurred an extra expenditure of $28.41 million after it failed to award a contract to the lowest bidder, J Ray McDermott on a turnkey basis, they said.

Panna/Mukta and Tapti were one of the three private sector oil and gas fields for which the petroleum ministry had sought special audit. The other fields being audited are Cairn India's Rajasthan oil fields and Reliance's eastern offshore KG-D6 gas fields.