In a blow to Mukesh Ambani and Manmohan Singh — whose government stands accused of providing “huge” and “undue benefit” to Reliance Industries Ltd. — the Comptroller and Auditor General has indicted the Petroleum and Natural Gas Ministry for allowing “irregularities and bending rules” to “oblige” RIL in the Krishna Godavari basin gas fields, leading to a massive and as yet “unquantifiable” loss to the national exchequer.

Though his name does not figure directly in the CAG report, Murli Deora was the minister during whose tenure these irregularities occurred. Mr. Deora ran the PNG ministry from January 2006 till January 2011, when he was moved to Corporate Affairs.

In its 193-page Draft Report on production sharing contracts (PSCs) in the oil and gas field — a copy of which is with The Hindu — the CAG exposes the “close nexus” between RIL and the “bureaucrats” working in the Petroleum Ministry as well as its Directorate General of Hydrocarbons (DGH). This allowed Reliance to retain its entire offshore acreage, rather than surrendering those areas where it had not found oil or gas so that the government could invite fresh bids from other companies. Also, RIL was uncritically allowed to hike the capital expenditure for developing Dhirubhai-1 and 3, the largest of 18 gas finds in the KG-DWN-98/3, popularly known as the KG-D6 block, by a whopping 117 per cent though this meant a revenue loss for the exchequer.

This unvalidated cost inflation allows RIL to get away with paying less royalty to the government, the CAG notes, pointing to a basic flaw in the nature of PSCs which offers private explorers little incentive to keep capital expenditure down.

“The increase in cost from $2.39 billion in the Initial Development Plan to $5.196 billion in the Addendum to the Initial Development Plan is likely to have a significant impact on the Government of India's financial take. However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise, of the increase in cost, both overall and in respect of individual line items,'' the CAG stated in its report that has been sent to the Petroleum Ministry for comments.

In an annexure, the CAG questions various items of expenditure including one for a vessel MOB-DEMOB where costs were increased more than four times from $91 million to $366 million but where the details of that spend were not provided to it by RIL. Other expenses added up to less but suggested a quest for featherbedding – such as buying expensive diesel for offshore operations from an RIL family company rather than from a cheaper PSU supplier.

RIL's “initial” capital expenditure plan was for $2.4 billion, which was increased to $5.2 billion for Phase-I with another $3.3 billion for Phase-II. The total amount comes to approximately Rs. 45,000 crore. Total gas output today, however, is much less than what the company had indicated on the basis of its capex.

Reacting to the CAG draft report, a RIL spokesman said: “Reliance Industries has not received a copy of the aforesaid report and hence is unable to comment on specific issues. The company strongly affirms that as a responsible Operator, it has fully complied with the requirements in the PSC at all times in conducting petroleum operations, and refutes any suggestion to the contrary.”