The role of the Directorate General of Hydrocarbons (DGH) and the Petroleum Ministry officials may come under scrutiny if the findings of the Comptroller and Auditor General's (CAG) draft performance audit report on some important exploration production sharing contracts (PSCs) are any indicators.
The PSCs includes Reliance Industries Ltd-operated Krishna Godavari Basin D6 gas block; Cairn India-operated Rajasthan oilfields; and the BG-ONGC-RIL joint venture Panna-Mukta-Tapti fields. The CAG has criticised the Ministry and the DGH for allowing some explorers to inflate costs of field developments and explore beyond their contracted areas.
A Petroleum Ministry official said, “We need to study the report and give our views within two weeks' time to the CAG.”
In a statement the Ministry said, in November 2007, the CAG agreed to carry out a special audit in respect of certain blocks/fields operated under pre-NELP and NELP regimes.
The draft performance audit report has been received by the Ministry on June 8.
“The Ministry is examining the draft report. It will prepare a reply to the audit observations after obtaining details from relevant agencies and send it to the CAG for further necessary action at their end,” it added.
In case of RIL's D6 block, the CAG is said to have observed that the role of the DGH and Government representatives on the management committee may be closely scrutinised to see why the operator was allowed to violate provisions of the PSC and not adhere strictly to the terms of the approved initial development plan.
It also observed that the increase in cost from the initial plan would result in significant adverse impact on the Government's revenues.
The draft report is said to have pointed out that RIL had inflated development costs on its D6 block.
According to the report, the submission of an addendum to the initial development plan rather than a revised comprehensive development plan, and lack of adequate details with regard to the Phase-II development (estimated cost of $3.3 billion), made it virtually certain that the operator will submit more addendums, the report observes. The CAG audit covers two financial years — 2006-07 and 2007-08.
When contacted, an RIL spokesperson said the company has not received a copy of the report and hence, is unable to comment on specific issues.
He further said that Reliance strongly affirms that as a responsible operator, it has fully complied with the requirements in the PSC in conducting petroleum operations, and refutes any suggestion to the contrary. The KG D6 project is a significant contributor to the country's economy and has been globally acclaimed for its cost effective, speedy, flawless execution and smooth commissioning, he added.
The draft report also raises questions on favours shown by the Ministry to Cairn India for Rajasthan oilfields. Cairn, according to the report, has been allowed to explore additional areas not stipulated in its contract for the block.
A joint venture of Reliance, BG and ONGC that operates the Panna-Mukta and Tapti fields, has also been flayed for inflating the development cost.
RIL's stock closed 1.84 per cent down on the BSE on Monday at Rs 926.65.
Analysts attributed the drop to the news that DGH had favoured private oil explorers as well as concerns that the company has overpaid for Bharti Enterprises' majority stake in its insurance ventures with AXA.
The other private oil exploration company Cairn India's scrip closed 0.34 per cent lower at Rs 335.05.