Says capex and other estimates for KG-D6 seem inflated, undue concessions given; ministry preparing response
The Comptroller and Auditor General’s criticism of the petroleum ministry for allegedly showing undue favour to more than one private company does not quantify the impact of such irregularities on the central government’s finances.
The report is an interim one, given to the ministry last week for its comments. It had rapped the ministry and its technical regulatory arm, the Directorate General of Hydrocarbons (DGH).
It named Reliance Industries’ D6 block in the Krishna-Godavari (KG) basin, Cairn India’s Barmer field, and a joint venture of Reliance, BG and Oil and Natural Gas Corporation (ONGC) on the Panna-Mukta and Tapti gas fields.
In respect of Reliance Industries’ KG-D6 block, the government auditor said the increase in estimated capital expenditure from $2.4 billion to $8.5 bn between May 2004 and October 2006 was likely to have ‘significant adverse impact on government’s financial take’. “However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise, of the increase…This aspect would be a key focus area in future audits covering the operator’s records from 2008-09 onwards,” said the report.
A ministry official said it was preparing its response. “The increase,” he said, “has taken place on account of various factors, including increase in reserves by over 2-1/2 times, production facilities by three times, peak production by two times, increase in number of wells, field life and inflation in equipment and services industry.”
He added $8.5 bn was just an estimate and cost recovery would depend on actual audited expenditure figures. According to the ministry’s calculation, the government will realise Rs 84,000 crore from the D6 block under various heads.
Questions
The auditor also blamed the ministry and DGH for irregularly allowing the operator (RIL) of D6 to enter successive phases of exploration without the stipulated relinquishment of the area. Later on, the operator was allowed to declare the entire contract area as discovery area and relinquishment was avoided. “The undue benefit granted to the contractor is huge, but cannot be quantified,” it said. And, suggested immediate steps be taken for relinquishment of excess area in line with the production sharing contract (PSC).
The auditor also claimed that instead of a comprehensive development plan mandated under the PSC, RIL gave an initial development plan (IDP) in May 2004 and followed it with an addendum.
The addendum and lack of adequate detail for the second phase of project (at a cost of $3.3 bn) make it certain that RIL will present more such addendums. CAG has also questioned the reasonableness of costs incurred by RIL on various high value procurement activities during 2006-07 and 2007-08.
It also pulled up the ministry for grant of an additional area of 1,708 sq km beyond the contract area in respect of the Rajasthan block operated by Cairn India. It has also pointed to non-compliance with the PSC on the appraisal programme and field development plans.’
On the PMT fields operated jointly by RIL, BG and ONGC, the CAG said the operators had not met key work commitments, while the cost recovery limit has been exceeded. CAG has also noticed several instances of excess expenditure and deficiencies in procurement in the PMT fields.
