Auditor faults Reliance's marketing margins in dollars

India's official auditor has faulted the petroleum ministry for causing excess subsidy on urea of over Rs.200 crore by permitting Reliance Industries to charge a marketing margin on its Krishna-Godavari gas in dollars and not in rupees.

"The production sharing contract for KG-D6 block did not provide for marketing margin component," the Comptroller and Auditor General of India said in a report tabled in parliament on Tuesday.

"The contractor (Reliance), however, has been charging marketing margin based on the energy equivalent of gas supplied -- i.e. $0.135 per mBtu (million British thermal units)," the report said.

"Marketing margin for GAIL (the state-run company) was fixed in Indian rupee, whereas the contractor (Reliance) was charging this in terms of US dollar," said the report, referring to the margin, which is fixed over the government-approved sale price for domestic gas.

The report said the ministry had in May 2010 fixed a marketing margin of Rs.200 per thousand cubic metres. But charging it in dollars instead of rupees for a commodity produced, marketed and consumed domestically "is incongruous with Indian market", it added.

Exchange rate fluctuations meant the margin, which was Rs.244.31 per unit in 2010-11 increased to Rs.325.51 per unit in 2013-14, the report said.

On 15 million standard cubic meters per day of the gas that is supplied to fertiliser units, on an average, the excess amount works out to Rs.201.40 crore, if one takes into account what is paid to GAIL, it said.

It also said the government must ensure that the same terms of charging the marketing margin in Indian rupee is applied for natural gas from domestic sources, especially when it is used in areas where the state bears the subsidy burden.

The auditor said in December 2011, the oil ministry had asked the Petroleum and Natural Gas Regulatory Board to determine the margin based on actual costs. Two years later, it asked the watchdog to fix the margin for gas sold to urea units and cooking gas producers.

In reply, the regulator said it wanted some more time since it had then decided to retain a consultant in this task, as it involved collection and analysis of data from multiple sources.