In a move that could spell more trouble for Mukesh Ambani-owned Reliance Industries Limited (RIL), the Comptroller and Auditor General (CAG) has once again raised the “red flag” asking the Petroleum and Natural Gas Ministry to allow RIL to recover expenditure on its Eastern offshore KG-D6 oil and gas fields only after it has been audited.

In a letter to the Petroleum Ministry, the CAG said the attempt was to flag the critical issues so as to facilitate adequate precautionary action.

The letter, written by Deputy Comptroller and Auditor General (CAG) Rekha Gupta, asked the Ministry to review the decision to allow RIL to retain entire 7,645 sq. km. KG-DWN-98/3 (KG-D6) block in the Bay of Bengal after the giant Dhirubhai-1 and 3 gas finds were made in 2001 besides seeking review of 10 contracts, including the eight awarded to Aker Group for the MA oilfield in the same block, on a single-bid basis.

“The Ministry of Petroleum and Natural Gas may like to take precautions to ensure that the audit of expenditure prior to adjustment to the account of this operator be effectively done to ensure that only admitted items are approved,” she wrote in an October 3 letter.

CAG had audited expenses RIL incurred during 2006-07 and 2007-08, and spending incurred from 2008-09 onwards is to be covered in future audits. As a practice, operators are allowed to recover from the sale of hydrocarbons only that part of investment which has been audited. Even in the case of RIL's KG-D6 block, $5.26 billion out of $5.69 billion invested till March 31 was allowed to be cost-recovered only after audit. The CAG audit of KG-D6 was the second audit and expenses had previously been audited by a government-appointed auditor.