The Comptroller and Auditor-General of India (CAG) has charged the Petroleum and Natural Gas Ministry and the Directorate-General of Hydrocarbons (DGH) of shelling out ‘undue benefits' to Mukesh Ambani owned Reliance Industries Ltd. (RIL) for its blocks in KG basin.

The CAG was ‘highly critical' of government oversight, particularly on high value procurement decisions, and sought an ‘in-depth review' of the ten contracts, including eight awarded to the Aker Group by RIL on a single-bid basis. “We recommend that in the case of the KG-DWN-98/3, the Ministry should review in depth the award of ten specific contracts on the basis of a single financial bid. We are not even remotely suggesting that the operator should follow government procurement procedures, yet any commercially prudent private acquisition would also attempt to generate competition and thereby obtain the most competitive price. Such concern for a cost effective acquisition is not perceptible in the aforementioned process,'' it noted in the report placed in Parliament on the concluding day of the Monsoon session on Thursday.

The CAG said the contractor (RIL) was allowed to enter the second and third exploration phases of the blocks without giving up 25 per cent of the contract area in each, by treating the entire area as a discovery area. Coming down heavily on the DGH, the watchdog for oil and gas exploration, the CAG said it should have stopped the RIL from proceeding on the next phase of production in the light of earlier violation of the contract. “We recommended that the Ministry of Petroleum and Natural Gas should review the determination of the entire contract area as ‘discovery area' strictly in terms of the Production Sharing Contract (PSC) provisions. Further it should delineate the stipulated 25 per cent relinquishment area at the time of the conclusion of the first and second exploratory phases, and then correctly delineate the ‘discovery area' strictly based on the PSC definition, lined to well or wells drilled in that part, without considering any subsequent discoveries [which would be invalid on account of non-compliance with the PSC provisions].

DGH favoured RIL

The CAG said the Petroleum Ministry and the DGH were ill-equipped to oversee the PSCs with private players and was of the view that the DGH should have stopped RIL from proceeding with Phase-II. This block consists of 7,645 sq. km. in the Bay of Bengal after the giant Dhirubhai-1 and 3 gas finds were made in 2001. Interestingly, during this period the Petroleum Ministry was headed by Murli Deora, the DGH by V. K. Sibal, who is already facing a CBI inquiry. The CAG questioned the ‘reasonableness of costs incurred' in the 2007-08 procurement activity in the area and said there was enough ground to revisit the profit sharing mechanism. Pointing the RIL KG basin case, the CAG report states that the Petroleum Ministry and RIL ignored the PSC, allowing the company to hoard exploitation acreage. The CAG found that during April-May 2005, the DGH did a U-turn away from its own rules to favour RIL in this regard.

Two other fields — Barmer Oil fields in Rajasthan operated by Cairn India and the Panna-Mukta and Tapti (PMT) fields, where the Oil and Natural Gas Corporation (ONGC) is the majority-stake holder — have also been studied by the CAG. Without quantifying losses, the report says the government suffered substantial royalty losses from the PMT fields. ONGC holds 40 per cent in the PMT fields, while BG India and RIL hold 30 per cent each.

However, the CAG did not specify if the capital expenditure for the KG-D6 being raised from $2.4 billion proposed in 2004 to $8.8 billion in 2006 was unjustified or inflated. It said the approval of estimates does not constitute acceptance of the cost projects.

More In: Companies | Business