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Petro regulator cleared RIL plans sans checks, says CAG

The CAG has said in its report that the Production Sharing Contract (PSC) for KG-D6 clearly stipulates that a contractor (RIL in this case) should submit an appraisal programme to reassess the extent of the discoveries.

business Updated: Mar 09, 2014 23:20 IST
HT Correspondent

In what could spell fresh trouble for Mukesh Ambani-led Reliance Industries Ltd (RIL) and the petroleum ministry, currently facing charges of alleged collusion, the Comptroller and Auditor General (CAG) in its draft audit report on the KG-D6 gas block has said that the ministry and its regulatory arm — the Directorate General of Hydrocarbon (DGH) — approved the notification of gas discoveries by RIL in the block despite the company not doing enough appraisal.

The CAG has said in its report that the Production Sharing Contract (PSC) for KG-D6 clearly stipulates that a contractor (RIL in this case) should submit an appraisal programme to reassess the extent of the discoveries.

The government auditor said it was not clear how DGH had assured itself of the reliability of the development plan, as well as the estimates of reserves, production rates and costs in absence of such an appraisal programme.

“There was no appraisal programme in respect of D1&D3 gas discoveries as required under the PSC and the operator (RIL) moved directly from discovery to commercial discovery,” news agency PTI said quoting the report.

The CAG has sought the oil ministry’s comments on its draft report before finalising a performance audit report.

When contacted, RIL spokesperson refused comments, saying the company had not seen the report.

“It is not clear how DGH had ensured accuracy and realistic nature of the data before agreeing to the approval of Addendum to the Initial Development Plan (AIDP),” the auditor said.

RIL had found gas in the Dhirubhai-1 and 3 wells in the KG-D6 block in October 2002. In May 2004, RIL claimed that the finds held 8.3 trillion cubic feet (tcf) of inplace gas reserves.

The DGH approved a $2.5-billion initial development plan and lowered the inplace reserves to 5.45 tcf and recoverable resource to 3.81 tcf with the first gas coming in August 2006, the report said.

However, before the start of production, RIL in October 2006, submitted changes in the development plan by raising the capex requirement to $8.8 billion in two phases and putting recoverable reserves at 12.04 tcf out of inplace volumes of 14.164 tcf.

A committee, comprising representatives of DGH, oil ministry and the operatorapproved the revised plan in December 2006, putting recoverable reserves at 10.03 tcf. However output from the fields, which began production in April 2009, slumped within a year, forcing RIL and its new partner BP to restate the reserves at 2.9 tcf.

What the auditor said
The Production Sharing Contract for KG-D6 stipulates that a contractor (RIL in this case) should submit an appraisal programme to reassess the extent of discoveries.
It was not clear how DGH had assured itself of the reliability of the development plan, reserve estimates, production rates in absence of such a programme.
The CAG has sought the oil ministry’s comments on its draft report.

(with Agency inputs)