The postponement conveyed by Petroleum Ministry to CAG on October 29

Only days after the change of guard in the Petroleum and Natural Gas Ministry, the “Entry Conference” by the Comptroller and Auditor General (CAG) with the Petroleum Ministry officials and representatives of Mukesh Ambani-owned Reliance Industries Limited (RIL) to discuss details of the financial audit of KG D6 accounts has been postponed indefinitely.

Sources in the Ministry said that after the new Petroleum and Natural Gas Minister, Veerappa Moily, assumed office, the Ministry wrote to the CAG on October 29 that the meeting needed to be postponed to sort out certain differences over the issue of audit of the KG D6 accounts of RIL. The CAG had called the Entry Conference for October 31 to begin its second round of audit that is to cover RIL’s spending on KG-D6 gasfields during 2008-09 to 2011-12. But the Ministry informed the CAG that the meeting was postponed without citing major reasons, the sources said.

Soon after it was known that Jaipal Reddy was on his way out of the Ministry, RIL, it is understood, raised various issues pertaining to the CAG audit. It is understood that RIL has sought a written assurance that the CAG scrutiny would be an audit of accounting books and records as provided under the Production Sharing Contract (PSC) and that the company would not be required to provide documents, information or any clarification of matters which go beyond the scope of audit under Section 1.9 of the Accounting Procedure of the PSC. The documents and books would not be taken out of the premises of the company to the CAG offices by the CAG officials, it stated.

RIL, in its communication to the Ministry, stated that the audit should be done on its premises and the report submitted to the Ministry, as provided under the PSC, and not to Parliament. The Ministry, however, rejected the contention of RIL and wants it to give the CAG unfettered access to account books and, pending that, it has not approved the company’s investment proposals, including the annual budget for the past three years.

On October 23, the Ministry wrote to RIL stating that the CAG would not do a performance audit of the company and that all government nominees on the KG-D6 block oversight panel had already approved all development proposals made by RIL. However, the resolution approving annual capital expenditure on the KG-D6 block for 2010-11, 2011-12 and 2012-13 fiscal has not been signed yet.

While the Management Committee of the KG-D6 block approved on August 7 annual capex plans pending for the past three years, the resolution had not been signed. These capex included those on well interventions to reverse the trend of falling gas output. Pending signature is the MC-approved revised field development plan for MA oil and gasfield in the same block. KG-D6 is now producing around 26 mmscmd (Million Metric Standard Cubic Metre Per Day) after including output from the MA field. The Ministry wrote to the Principal Director of Audit (Economic & Service Ministries), CAG, on October 23 stating that, subject to certain conditions, RIL agreed to an audit under Sector 1.9 of the Accounting Procedure to the PSC by the CAG and to cooperate with the audit without prejudice to any of its rights and contentions.

The CAG had, in its first round of audit, questioned the reasonableness of costs incurred in gasfield development and said the government should revisit the profit sharing mechanism.

More In: Companies | Business