For Reliance Industries (RIL), the final version of the performance audit report by CAG on hydrocarbon production sharing contracts has proved less critical than expected. The national auditor, which in its initial draft report pointed out alleged irregularities including cost-inflation in the KG-D6 fields, seems to have toned down its censure of the company in the final report.

Much of the stick has been reserved for the government (Petroleum Ministry) and the hydrocarbons regulator (DGH), for allowing RIL to retain the entire area of the KG-D6 fields without phase-wise relinquishment, and for lack of oversight.

Though RIL has not been let off the hook completely, it is significant that there is little mention in CAG's final report about the original bone of contention — whether the increase in capital expenditure on the KG-D6 fields from the projected $2.4 billion to $8.8 billion was unjustified or inflated.

This issue which came up during the dispute between the Ambani brothers was again brought into focus in CAG's draft report, and added to the woes of the RIL stock during the past few months. The stock which was already a laggard on the bourses due to the dip in the KG-D6 gas production, slid further on fears that restrictive action, if any, recommended by CAG would further hamper gas production.

Aggressive defence

RIL, in its initial response to the draft report had put up an aggressive defence. It stated that the production sharing contracts incentivised cost reduction and discouraged cost increase, and that CAG had confused between authenticity of expenses and their desirability.

In its latest response to CAG's final report, RIL has drawn on favourable assessments by technical experts to buttress its case that there is no incentive for overspending, and that there has been no irregularity in the KG-D6 fields.

All said and done, that the auditor's final report does not make adverse observations against RIL on the issue of gold-plating and has not recommended restrictive action seems to have removed a significant overhang on the stock.

It closed 2.6 per cent higher last Thursday after the report was tabled in Parliament. The gains have been given up in trades on Friday and Monday, thanks to choppy market conditions.

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