You are here: Home » Companies » News
Business Standard

RIL's KG-D6 spend exceeds approved limit: CAG audit

The govt auditor also indicts DGH and management committee of D1 and D3 fields

Shine Jacob  |  New Delhi 

The Mukesh Ambani-controlled Reliance Industries Ltd (RIL) could have exceeded the approved spending limit at its KG-D6 block and under-utilised the facilities, the Comptroller and Auditor General (CAG) of India is learnt to have found in its audit of the company's books.

In the performance audit report, the management committee (MC) of the D1 and D3 fields in the KG-D6 block and the Directorate General of Hydrocarbons (DGH) have faced CAG heat for "not effectively regulating" the deficiencies on the part of the operator.

The management committee works as an oversight body and has representation from the petroleum & natural gas ministry and DGH, besides the that hold equity in the block. CAG also believes that the facilities in the block, set up at a huge cost, have been under-utilised due to a declining trend in production and non-drilling of wells. RIL has also been indicted by the auditor for moving directly from the discovery to the commercial production stage at the D1 and D3 fields, without conducting the appraisal programmes required under the production-sharing contract (PSC).

According to a ministry source, in an audit memo given last month, the auditor has said: "Till March 2012, RIL has incurred expenditure of $5.76 billion on development of D1 and D3, against the MC-approved cost of $5.20 billion for Phase-I. MC and DGH are responsible for ensuring that cost calculations are reasonable and realistic, but there is no evidence that they verified it. There also were deficiencies in the existing PSC, as it did not provide for DGH/government to effectively regulate the deficiencies on the operator's part."

When contacted, an RIL official refused to comment on the issue.

CAG has also said in the report that the operator drilled only 18 wells, against 22 required under the initial development plan. It has added that the operator had not started Phase-II development works until December 2013. "It (the operator) had stated the production would be closed by 2015-16, if revised field development plan was not approved. It would, thus, appear that the operator has decided not to drill remaining wells, leaving the government with a fate-accompli situation."

Following a request from the oil ministry, CAG has been auditing the KG-D6 spending from 2008-09 to 2011-12. The auditor's report is to be tabled in Parliament. DGH, too, has faced the heat over lack of appraisal plan. "It is not clear how DGH had assured itself of reliability of the development plan, as well as the associated estimates of reservoir reserves, production rates, development and production costs, etc… in the absence of an appraisal programme," the auditor has opined.

Looking into the financial aspect, the auditor has said on-shore terminal (OT) was constructed at $827.68 million, against an estimated cost of $550.87 million. And, due to lower production, 50 per cent of these facilities remained unutilised. About half the total subsea-manifold facilities, installed at a cost of $80.19 million, against an estimated $70.81 million, were also unutilised, an official added.

Also, the three pipelines, set up at a cost of $1,019.43 million, compared with the $906.92 million estimated (one was set up with an investment of $182.73 million) are lying idle. CAG has also alleged that different figures of gas reserves were reconciled by DGH.

The total shortfall in production from the KG-D6 block during four years to 2013-14 stood at 154 million standard cubic metre a day (mscmd). Compared with targets approved earlier, the production shortfall was five mscmd in 2010-11, 28 mscmd in 2011-12, 55 mscmd in 2012-13 and 66 mscmd in 2013-14.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, February 03 2014. 00:59 IST