Oil Ministry wants CAG to quantify loss in KG-D6 contracts

Ministry says any loss to the govt will be deducted from the capital cost allowed for developing oil and gas fields

The Oil Ministry has asked CAG to quantify the loss to the government caused by Reliance Industries' awarding contracts worth $2.4 billion for developing oil and gas finds in the KG-D6 block on the basis of a single bid.

The ministry says any loss to the government will be deducted from the capital cost allowed for developing oil and gas fields in the eastern offshore KG-D6 block.

CAG had in its September 2011 report on the audit of RIL's expenses on the KG-D6 block asked the ministry to carefully review the award of 10 specific contracts, of which eight were to Aker Group companies, after other bidders were disqualified on technical grounds.

The ministry wrote to the Comptroller and Auditor General of India (CAG) saying audit exceptions should be concluded with the financial impact and "such conclusion can be brought out by the team of auditors who have carried out this exercise."

The value of 10 procurements constitutes $2.4 billion out of the total expenditure of $2.6 billion audited by CAG during the period (2006-07 and 2007-08).

"Audit is a specialised function that can be effectively done by auditors only...Government auditor may review these cases with more focus on the quantum of loss suffered in the procurement process.

"In case audit report is able to report any unfair practice causing specific loss to government, the loss will be reduced in the contract cost for computation of government take," it wrote.

Asked for comments, RIL said, "All procurement procedures have been approved by an MC (management committee) where the nominees of the Petroleum Ministry as well as the nominee of DGH (Director-General of Hydrocarbns) has/have veto powers."

Every decision on procurement was taken following due process enshrined in the production sharing contract and all requirements for procurement have been complied with, it said.

CAG faulted RIL for awarding a $1.1 billion contract to put up a production facility at its MA oilfield in the KG-D6 block to Aker on a single-bid basis.

"During our scrutiny of the operator's records, we have come across instances, where multiple vendors were pre-qualified. However, when technical bids were received, all vendors (except one) were rejected, and the contract was finally awarded on a single financial bid," it said.

CAG had said such disqualification on technical grounds, after a pre-qualification process and bidders' meeting for technical clarifications, limits the competitiveness, which was not in accordance with the PSC.

The ministry in the letter to CAG said auditors should carry out transaction-based audit, including corrective action required.

"It is requested that the government auditors may quantify the losses and recommend the same to the government so that a prompt corrective action may be taken," it added.