Indian Oil, GAIL get CAG flak for exploration wastage | business | Hindustan Times
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Indian Oil, GAIL get CAG flak for exploration wastage

business Updated: Dec 11, 2011 23:09 IST
Anupama Airy
Anupama Airy
Hindustan Times

Are they sleeping partners asleep at the wheel? State-controller refiner Indian Oil Corporation (IOC) and natural gas transporter GAIL (India) Ltd have come under the Comptroller and Auditor General’s (CAG's) lens over wasting Rs 1,464 crore of public funds in the exploration and production (E&P) business, an area that is not the core business for these companies.

“The companies acquired E&P assets without having defined policy and investments in these assets were made on the basis of either inadequate technical study or incorrect interpretation of data or over-reliance on technical study by other joint venture partners,” according to the recent findings by the audit and accounts department of the the independent government auditor.

Waste report: What the auditor said

The observations are part of the audit undertaken by CAG for the first time on “abandoned E&P projects of GAIL and IOC”.

All the 23 out of the 70 blocks acquired by the two companies were abandoned during 2006-11 due to non-discovery of oil and gas and after incurring an expenditure of Rs 1,464 crore out of a total investment of Rs 3840 crore.

When contacted, officials of both GAIL and IOC said the CAG’s report has been received and response is being prepared for further submission.

The audit observed that GAIL and IOC entered the E&P business after the introduction of the New Exploration Licensing Policy by the Centre in 1999 and participated in 40 and 30 E&P blocks with an investment of Rs 2,305 crore and Rs 1,535 crore respectively. Of these, GAIL has discovered oil and gas in only four blocks, of which one block is producing and three are in the development stage. IOC has discovered oil and gas in seven blocks but all are still in development stages.

The audit also noted that “all of these discoveries were made by other JV partners as the operator, and GAIL and IOC were non-operators in these blocks.”

“GAIL and IOC were forced to relinquish 12 and 11 blocks respectively after incurring an expenditure of Rs 829 crore and Rs 635 crore which comes out to 36% and 41% of total E&P investment of these companies respectively,” the audit findings said.

“Despite being in the E&P business for a decade, the companies still have to rely on other JV partners for technical evaluation of E&P opportunities as they have failed to develop adequate in-house expertise for revalidation of data,” the audit said.

The audit findings have asked both the companies to formulate a policy and prepare guidelines for evaluation of investment opportunities for acquisition of E&P assets to mitigate the risks as “non-operators”.

The government’s auditor has asked the two companies to develop in-house expertise for evaluation of technical data so as to avoid over-dependence on other JV partners.