Recommendations would have facilitated the intense scrutiny of the gas prices and profits made by the contractors.
The UPA government has been proactive in responding to demands by Reliance Industries Limited (RIL) for a raise in natural gas prices, but has shown little urgency in implementing the Comptroller and Auditor General’s (CAGs) recommendations made in 2009 on the audit of oil and gas contractors such as RIL.
The CAG recommendation would have facilitated the intense scrutiny of the prices and profits made by the contractors.
The Petroleum Ministry’s failure to act on these recommendations has led to the present round of confrontation between the CAG and RIL over the audit of records, financial statements and expenditure in KG D6 block up to 2012.
In 2009, the CAG had asked for suitable changes in future contracts that would make audits by the CAG mandatory, and address any ambiguity and dispute that may crop up. At that time, the CAG had run into a roadblock while getting access to the records of contractors. The CAG, Vinod Rai, had written to the then Petroleum and Natural Gas Minister, Murli Deora suggesting that suitable amendments should be made in the contracts from the New Exploration Licensing Policy (NELP-VIII) onwards.
However, there has been little movement or effort by the Petroleum Ministry to incorporate the required clauses in the policy. The ministry and the Prime Minister’s Office (PMO), instead, have been fast tracking the revision of prices despite the deadline for the revision being a year away – April 2014.
The Mukesh Ambani-owned RIL and its partner BP have been lobbying intensely for the revision.
In his letter to the then Petroleum Minister, Mr. Rai had stated that the CAG was facing difficulty in getting access to the records of private contractors, and despite repeated reminders and personal interaction, the position had not changed and the audit remained incomplete.
Mr. Rai had written recommending that under the existing Production Sharing Contracts (PSC), using which the government had appointed its auditors for specific years, the government can negotiate with the hydrocarbon operators to provide free and unfettered access to their records for a CAG audit.
For future PSCs, Mr. Rai wrote that a suitable clause may be added in the contract providing for audit by the CAG, at his discretion, of the accounting records maintained by the contractor in addition to the existing audit provisions.
“We believe this enabling provision for CAG’s audit is necessary in view of the huge government stake involved (particularly in terms of current and future profits).”
Mr. Rai had also pointed out that arrangements for the office of the Directorate General of Hydrocarbons (DGH) are somewhat anomalous. Instead of funding this regulatory office directly from the Ministry’s budget, the DGH’s expenses were being met from grants sanctioned by the Oil Industry Development Board (OIDB). Since there was no parliamentary control over the OIDB funds, the arrangement does not “promote accountability and limits audit scope significantly.’’