Petroleum Ministry, DGH “unduly favoured” RIL blocks in K-G basin

In a move that could spell trouble for the Mukesh Ambani-owned Reliance Industries Limited, the Central Bureau of Investigation has sought the Petroleum Ministry's comments on the Comptroller and Auditor-General's report on a hydrocarbon production sharing contract.

The CAG was critical of the Directorate-General of Hydrocarbons (DGH) as well as the Ministry for shelling out “undue benefits” to the RIL blocks in the Krishna-Godavari (KG) basin.

Highly-placed sources in the CBI on Monday said the CAG report was “very much on its radar” but it would wait for the Ministry's comments before taking a decision to proceed ahead on the basis of the national auditor's findings. Such cases were “very complicated” and the agency would proceed cautiously, the sources said.

The CAG report, tabled in Parliament earlier this month, was ‘highly critical' of the government oversight, particularly on high-value procurement decisions, and sought an ‘in-depth review' of the 10 contracts, including eight awarded to the Aker Group by RIL on a single-bid basis.

“In the case of the KG-DWN-98/3, the Ministry should review in-depth the award of 10 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.” The CAG said the contractor (RIL) was allowed to enter the second and third exploration phases of the blocks without its 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 RIL from proceeding with the next phase of production in the light of the earlier violation of the contract.

The CAG said the Ministry and the DGH were ill-equipped to oversee the production sharing contracts (PSCs) with private players, and 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 Ministry was headed by Murli Deora and 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 to the RIL KG basin case, the report said the Ministry and RIL ignored the PSC, and the company was allowed to hoard exploitation acreage. During April-May 2005, the DGH did a U-turn on its own rules to favour RIL.

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