To the list of acronyms and alphabets — 2G, CWG, ISRO — that have given the United Progressive Alliance government such an unsavoury image in recent times must now be added another: KG. According to the draft report of the Comptroller and Auditor General of India on hydrocarbon production sharing contracts (PSCs), the public exchequer has suffered an as yet unquantifiable loss thanks to the “undue benefit” provided by the Ministry of Petroleum and Natural Gas to Reliance Industries Ltd., the operator of the gas-rich Krishna-Godavari basin fields. The CAG also found that Cairn India Ltd., the United Kingdom-based company which operates oilfields in Rajasthan, was the beneficiary of unwarranted official largesse. Broadly speaking, the CAG identified two major irregularities in the KG basin case. First, the government allowed RIL to inflate its capital expenditure (capex) claims for the D6 gas field without adequate scrutiny. The financial implications of this are obvious: given the nature of the PSC, the higher RIL's claimed capex, the lower the government's share of the revenues accruing from the production of gas. Secondly, the company was allowed to retain the entire field despite being required to surrender those parts of it where no hydrocarbon discoveries had been made. In the case of Cairn, the CAG says the Ministry allowed the company to expand the contract area by more than 1,600 square kilometres when the PSC did not allow for this. The CAG report also covers the joint venture between ONGC and the private sector BGEPIL and RIL in the Panna-Mukta-Tapti (PMT) offshore oil fields in Bombay High, but the failure of the JV to provide relevant records meant the audit remained inconclusive.
The CAG's hydrocarbon report is a reminder of the unhealthy relationship that exists between UPA government Ministers, bureaucrats, and big business. The constitutionally sanctioned body believes the flaw lies with the structure of PSC, which gives private operators an incentive to inflate their capex. But the Oil Ministry and its officials are faulted for failing to exercise their powers of oversight and also for actively favouring RIL on KG-related matters. That all was not well at KG was known as early as 2008 and 2009, when the fight between the two Ambani brothers over gas pricing brought various internal aspects of the project into the public domain. The CBI opened a probe into the role of the then Director General of Hydrocarbons but neither the Prime Minister's Office nor Murli Deora, who headed the Ministry at the time, saw any need to conduct an urgent, real-time investigation into all the financial aspects of the project. Thanks to the CAG, the people of India have a small hole they can peer into. But the government has a duty to drill deeper, far deeper into the irregularities the auditors have found.