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Ministry exempts RIL from CAG's performance audit

Clears KG-D6 investment plan RIL also allowed to declare commerciality of certain wells in NEC 25, KG-D6

BS Reporter  |  New Delhi 

The face-off between the government and Reliance Industries Ltd (RIL) is nearing an end, with the petroleum ministry agreeing to exempt the country’s largest private sector petroleum company from a performance audit. Simultaneously, the pending approvals for RIL’s KG-D6 block have also been granted.

In a letter sent to RIL yesterday, the ministry has said an audit under section 1.9 of accounting procedure in the production sharing contract (PSC) would be conducted. The company was informed that government nominees on the management committee (which acts as an oversight body) have also approved all the development proposals made by RIL. “The proposed audit would be under Section 1.9 of the Accounting Procedure of the Production Sharing Contract, and not a performance audit of the operator (RIL),” the ministry wrote in the letter.

The ministry has also told the Principal Director of Audit (Economic & Service Ministries) that “subject to certain conditions, RIL has agreed for a CAG audit under Sector 1.9” and will “cooperate with such an audit without prejudice to any of their rights and contentions”. The CAG has called a kick-off meeting, called the entry conference, with RIL on October 31.

The ministry had withheld approvals to RIL’s investment plans, saying the company must first agree to the CAG doing a second round of audit of the KG-D6 field for 2008-09 to 2011-12. In a meeting on July 13 with petroleum minister Jaipal Reddy, RIL executive director P M S Prasad and BP country head Sashi Mukundan were asked to make all the records and accounts of the KG-D6 block available to the Comptroller and Auditor General as provided for in the production sharing contract. The two partners had sought speedy clearances in four of the blocks (NEC 25, KG-D6 and two in the Cauvery basin) being operated by them.

The company has now been allowed the declaration of commerciality of certain wells in NEC 25 and KG-D6.

After the ministry action, RIL can now implement remedial measures at KG-D6, where output has dipped by more than 55 per cent in the past two years to about 26 million standard cubic metres per day. A senior RIL executive had, however, told Business Standard that though the company was awaiting government approval for arresting the declining production from the KG-D6 block, its partners BP and Niko might not be agreeable to putting in fresh investment if the gas price was not revised.

In its last report, the CAG had raised objections to the operator not drilling the required number of wells. RIL, which allowed the CAG access to all information for 2006-07 and 2007-08 after protesting, is reluctant about giving information for subsequent years. It had maintained that nothing in the PSC permitted an audit of operational, commercial and technical decisions of the operator. In its report submitted last year, the CAG had maintained its scrutiny was consistent with the PSC and was not “merely limited to an arithmetical totalling of charges”.

First Published: Thu, October 25 2012. 02:05 IST