CAG to audit oil ministry records

After a scathing attack on the performance of oil and gas companies for a five-year period, starting 2003, the Comptroller and Auditor General (CAG) will soon start the process of auditing the records of the ministry of petroleum and natural gas for 2008-09.

A senior official in CAG, who spoke on the condition of anonymity, said the audit agency was waiting for a status report from the ministry over the government’s action on the report that was tabled in Parliament on September 8. The official said on receiving the report from the ministry, CAG would begin a further audit of production-sharing contracts signed between the government and companies. “Once the ministry sends the status report, we will start the process of auditing the remaining production-sharing contracts as well,” a senior official in CAG said.

The Directorate General of Hydrocarbons (DGH), which works under the petroleum ministry, will come under the CAG scrutiny. Parliament’s Public Accounts Committee is currently examining the CAG report.

In its September report, CAG had accused Reliance Industries Limited (RIL) of hoarding the exploration acreage. It had said the operator submitted an initial development plan (IDP) in May 2004 with an estimated capex of $2.4 billion. The IDP was followed by an addendum (AIDP) in October 2006, with an estimated capex of $5.2 billion for the first phase and $3.6 billion for the second. “We found that most procurement activities were undertaken late in line with the schedules of the IDP of May 2004. By contrast, activities in respect of items in the AIDP were initiated even before the submission/approval of the AIDP,” CAG said in its September report.

On CAG charges, RIL had defended its action by stating that it remained “committed to complying with the PSC provisions and procedures including adopting Good International Petroleum Industry Practices”.

With respect to the RJ-ON-90/1 block, operated by Cairn India, CAG found that 13 fresh discoveries were made during or between the appraisal phase and in the development phase in areas already delineated as development areas. “Consequently, in our opinion, the declaration of fresh discoveries during the appraisal/development phases within delineated discovery/development areas amounted to irregular extension of exploration activities, which is not in consonance with the terms of the PSC”.

On the PMT fields, operated jointly by RIL, BG and ONGC, CAG said the government incurred a substantial loss (on account of royalty) by failing to finalise the norms for post-wellhead costs of gas, and consequentially, gas wellhead prices.

Even the norms for post well-head costs notified in August 2007 had significant deficiencies.

CAG criticised the government’s limited role in overseeing the functioning of PSCs that govern the operation of the oil and gas blocks during the entire period of contract. In its view, the operational control of E&P operations is largely with the private operators, and the government’s oversight role is restricted essentially to its representation in the management committee for the block. Further, it also observed that the oversight/control of government representatives on high-value procurement decisions is also very limited in scope.

CAG is of the view that to protect the financial interest of the government, it is necessary the review and approval of development plans should be considered, not just from a “technical perspective” but also from a financial perspective — specifically from the government’s point of view by the petroleum ministry and DGH.