After months of intense stand-off, the Oil Ministry has given nod to Reliance Industries’ plans to raise natural gas output from the flagging KG-D6, and agreed that CAG cannot do a performance audit of the company.
The Ministry, on Tuesday, sent a letter to RIL stating that “all the government nominees” on the KG-D6 block oversight committee have “already approved” to all the development proposals made by RIL, sources said.
Also, it relented and agreed to RIL stand that an audit by the Comptroller and Auditor General of India (CAG) of its spending on KG-D6 block has to be a financial audit and not a performance audit.
“...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.
On the same day, the ministry also wrote to Principal Director of Audit (Economic & Service Ministries), CAG, stating that “subject to certain conditions, RIL has agreed for an audit under Section 1.9 of Accounting Procedure to the PSC by CAG and to co-operate with such audit without prejudice to any of their rights and contentions.”
Oil Ministry had been withholding approvals to RIL’s investment plans saying the company must first agree to CAG doing a second round of audit of KG-D6 field for the 2008-09 to 2011-12 period.
RIL had stated that it was ready for a CAG audit if done under the PSC which provides for checking of the contractor’s accounts in order to verify the charges and credits but not questioning efficacies of processes or technology used in the complex deep-sea operations.
The Ministry finally agreed to RIL position.
Sources said the ministry wrote to RIL “to take necessary actions” on the items approved by the Management Committee (MC).
While the Management Committee (MC) of KG-D6 block in August approved annual capex plans pending for past three years, the resolution had not been signed. These capex included those on well interventions to reverse the trend of falling gas output.
Also, at least three discoveries RIL has made in the block had not been declared commercial, a step necessary to begin production from them.
Besides, the MC had approved the revised field development plan for MA oil and gas field in the same block in August but formal orders had not been issued. All these investments, RIL says, are necessary to reverse drop in output at the fields.
After the ministry action, RIL can now implement urgent remedial measures at KG-D6 where output has dipped by more than 55 per cent in past two years to about 26 million metric standard cubic meters per day.
The CAG has called a kick-off meeting, called the Entry Conference, with RIL on October 31 to begin the second round of audit, sources said.
RIL had, last month, stated that CAG’s 2009 audit, which it had agreed to as a one-time exception, turned out to be a ‘performance’ audit which was contrary to the provisions of the PSC.
The CAG had, in its first round of audit, questioned the ‘reasonableness’ of costs incurred in the gas field development and said the government should revisit the profit-sharing mechanism.
