CAG may start audit of RIL's KG-D6 by month-end

CAG will begin second audit of Reliance Industries' spending on KG-D6 gas fields by this month end after the Oil Ministry gave the company a written assurance that the audit will be strictly in accordance with contractual provisions and not a performance audit.

The Comptroller and Auditor General of India (CAG) has called a so-called kick-off meeting on October 31 to begin the second round of audit, sources privy to the development said.

This follows Oil Ministry telling RIL in writing that CAG audit will be strictly in accordance with the provisions of the Production Sharing Contract (PSC) and that there will be no performance audit.

This follows RIL opposing CAG doing a 'performance' audit wherein efficacies of process or technology used in the complex deepsea operations are called in for questioning by a non-technical authority.

RIL had stated that it was open to financial audit of its spending on the field, which has seen production drop by over 55% to 26 million cubic metres per day instead of rising to planned 80 mmcmd, but not performance audit.

CAG in the second round would audit of KG-D6 field spendings in 2008-09 to 2011-12.

Sources said the ministry wrote to RIL saying CAG would conduct its audit in terms of Section 1.9 of the Accounting Procedure of the PSC.

The PSC provides for the Oil ministry appointing a representative to carry audit the contractor's accounts in order to verify the charges and credits.

The CAG in the first round conducted a 'performance' audit which is contrary to the provisions of the PSC, RIL had claimed.

Stating that it had as a one-time exception agreed to a CAG audit in 2009, RIL had last month written to the ministry that in case the government insists on CAG doing further audit, the same should be done with an assurance that the report will be given only to the ministry (and not to the Parliament as is required under the CAG Act).

Also, "all information submitted by contractor (RIL) during the course of the audit be kept and considered confidential and not disclosed to any third party," it added.

The CAG had in its first round of audit questioned the 'reasonableness of costs incurred in the gas field development and said the government should revisit the profit sharing mechanism.