RIL finds CAG approach 'erroneous'

Reliance Industries Ltd (RIL), under scrutiny of the Comptroller and Auditor General (CAG), has sent a point-by-point reply to a draft CAG report on its D6 field.

In a voluminous reply comprising more than 230 pages, the country’s largest private sector company is critical of the CAG approach, terming it “erroneous” in concluding that an expense incurred by it is not warranted.

“To leap to an opinion that an expense considered unwise is, for that reason, dishonest or that a practice which is considered unsatisfactory is necessarily dishonest is clearly erroneous,” an RIL letter to the government and the auditor said.

In its draft report last month, CAG said RIL was shown undue favour by the Ministry of Petroleum and Natural Gas and the Directorate General of Hydrocarbons (DGH) in its Krishna-Godavari basin D6 block, causing big loss to the exchequer.

Top executives from Reliance Industries Ltd (RIL) will be holding consultations with the Comptroller and Auditor General (CAG) tomorrow in the presence of officials from the petroleum ministry and DGH.

In its draft report, the government auditor said the estimated increase in D6 capital expenditure from $2.4 billion to $8.7 billion between May 2004 and October 2006 is likely to have a ‘significant adverse impact on government’s financial take’. CAG also claimed that instead of a comprehensive development plan that is mandated under the production-sharing contract, RIL submitted an initial development plan (IDP) in May 2004 and followed it up with an addendum to it.

Defending the increase in cost estimates, the RIL reply said during 2005 and 2008, deepwater oil and gas development costs rose very sharply. “CAG seems to have no regard to conditions in the market and how that affected the procurement process including, the bargaining power which it conferred on bidders,” RIL said.

The company has also maintained that there was no malafide intent on the part of the operator in making any economic, commercial or operation decisions. “Reasonableness of cost incurred cannot be established on the basis of hindsight,” it said.