Asserting that the present model of production sharing contracts (PSC) was fraught with the inherent risk of gold plating of expenditure by the contractor(s) with an incentive to inflate costs, the Comptroller and Auditor General, in a bid to remove ambiguity in future auctioning of oil and gas contracts, has asked the government to ‘specifically incorporate’ CAG’s right to audit contractor(s) books, accounts, records, documents and financial statements in PSCs.

In a recent communication to the Petroleum Secretary, the CAG’s Director General (Commercial) II, P. Sesh Kumar stated that future invitations of bids by the government for award of hydrocarbon blocks under New Exploration Licensing Policy (NELP) rounds and contracts to be signed with the successful bidders/contractors should also specifically state the right of CAG to carry out any audit under various conditions and situations.

The communication states that the amendment should state CAG’s right to conduct audit of the records/documents, accounting records, books of accounts, financials statements, etc. of the contractors(s) under the provisions of CAG’s Duties, Powers and Conditions Serves (DPC) Act, 1971.

The amendment should also include CAG to have access to the records/documents, books of accounts, financial statement etc. of the contractor(s) maintained by them in connection with the affairs of the blocks awarded to them and obligations of the contractors towards CAG to produce/ records/information etc. in accordance with the provisions of CAG’s (DPC) Act.

The CAG assertion comes close on the heels of the controversy over Mukesh Ambani- owned Reliance Industries Limited (RIL) seeking to create one obstacle after another in the CAG’s attempt to carry out audit of KG D6 block up to 2012 and the subsequent refusal of CAG to carry out an audit under the conditions laid down by the contractor.

Explaining further, the CAG has stated that the draft audit procedure acknowledges that (a) profit petroleum payable to the government under PSC is a receipt payable into Consolidated Fund of India; (b) cost recovery made by the contractors is a deemed expenditure on exploration which is not accounted for anywhere in the government accounts; (c) the present model of PSC is fraught with inherent risk of gold plating of expenditure by the contract (s) with an incentive for them for inflating the cost incurred and (d) this affects the share of the government in the profit petroleum. The draft procedure also acknowledges that all expenses from the government account should be made with utmost care by following the principles of financial propriety.

Apart from this, the proposed audit procedure has been attempted in the background of concerns for observance of principles of financial propriety and laid down procurement procedure by the contractors under the PSCs.

However, the proposed audit procedure restricts the scope of CAG audit only to supplementary audit of certification of accounts done by auditors appointed by the management committee (MC) which does not cover examination of transactions from propriety angle.