The Petroleum Ministry is stepping in to resolve the stand-off between the CAG and Reliance Industries on the scope of the financial/performance audit of the KG Basin’s D6 block.

After a meeting in the latter half of February with Reliance, the block’s contractor, the Ministry has opened a dialogue with the Comptroller and Auditor General of India to find a way out for the auditor to complete its task smoothly.

Scope of audit

Reliance wanted from the Ministry legal clarity on the scope of the audit, and if the CAG was doing the audit purely as a Government representative.

It asked the Ministry to make clear the roles of the CAG and itself (Reliance). And, it wanted CAG’s questions restricted to deviations from the production sharing contract (PSC).

The company had raised these issues last year too, and only after reaching a consensus, in January, did the Government auditor start the second round of scrutiny of the KG D6 block for the years 2008-09 to 2011-12.

But once the auditing began, Reliance felt the CAG was seeking information not required for a financial audit.

Reliance, which has not been able to check the drop in output from the country’s largest gas fields from 60 mmscmd in end-2009 to below 17 mmscmd at present, is of the view that the Government has the right to get the audit done in accordance with Section 1.9 of the Production Sharing Contract (PSC).

That is, it will be a financial, and not performance, audit.

The Ministry and the CAG are to discuss these issues before arriving at a working agreement.

Rangarajan report

The scrutiny of production contracts has been a knotty issue, with the C. Rangarajan Committee on PSC Mechanism in the petroleum industry also exploring a governmental mechanism to monitor and audit the Government’s share of profit.

The Rangarajan Committee had observed that the issues currently being raised in the audit would no longer arise under the proposed fiscal regime for new PSCs.

This apart, after consulting the CAG, it recommended that the list of blocks be periodically made available to the auditor for selecting those that it would scrutiny directly.

The CAG would select blocks on the basis of financial significance and focus on those in the exploration and development phase when the costs incurred are significant.

The other blocks would be ordinarily audited by CAG-empanelled auditors, although the CAG would continue to have the freedom to audit even these directly.

Scrutiny

Further, the Rangarajan panel recommended that the CAG perform the scrutiny within two years of the financial year under audit, as prescribed under the PSC.

Also, for PSCs beyond a high financial threshold, a concurrent audit mechanism can be considered.

richa.mishra@thehindu.co.in

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