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CAG wants Cairn field cost increase to be audited as well

delhi Updated: Sep 08, 2011 18:42 IST

While Reliance Industries raising KG-D6 field capex from $ 2.4 billion to $ 8.8 billion have been subject matter of various scrutinies, top auditor CAG wants a similar increase in spending by Cairn India on its Rajasthan oilfields to be audited in future.

The Comptroller and Auditor General (CAG) in its final report on Rajasthan block audit, tabled in Parliament, said Cairn had in 2006 proposed $ 1.24 billion for developing the Mangala oil field in the block.

A revised field development plan (FDP) was submitted three years later in 2009 due to change in delivery point of crude oil from Barmer in Rajasthan to Salaya and later to Bhogat in Gujarat, which necessitated laying of pipeline.

"On June 30, 2009, the Management Committee approved the revised FDP at a cost of $ 2.367 billion, plus $ 941.05 million as the cost of the pipeline, plus $ 35.61 million as cost of Mangala (field) enhanced oil recovery (scheme); ie a total cost of $ 3.34 billion," it said.

The increase in revised FDP was primarily attributed to nearly doubling of upstream capital cost during 2005 and 2007, increase in rig hiring charges and delay in project schedule.

Reliance too had cited more or less similar reasons for raising capex for Dhirubhai-1 and 3 gas finds in the prolific KG-D6 block from $ 2.4 billion proposed in May 2004 to $ 8.8 billion ($ 5.2 billion in Phase-1 and rest in Phase-II) in October 2006 as it built facilities to handle 80 million standard cubic meters per day as against 40 mmscmd previously.

The CAG said the oil ministry had informed that the increase in capex was also due to changes in the production facilities in view of increased production rates from 100,000 barrels per day to 125,000 barrels per day.

"Most of the expenditure under the revised FDP (of Cairn) has been/would be incurred from 2008-09 and thereafter; this would be covered in future audits," it said.

The auditor said $ 201.54 million expense incurred by Cairn on works like exploration in development area DA-1, should not be eligible for cost recovery.

"We also found excess expenditure of $ 27.63 million on pre-development and development activities over the approved budget for 2007-08 of $ 160.56 million, which has not been ratified by the MC," it said.

The CAG said 13 fresh discoveries were made during or between the appraisal phase and in the development phase in areas already delineated as development areas.

"Consequently, in our opinion, the declaration of fresh discoveries during the appraisal/ development phases within delineated discovery/development areas amounted to irregular extension of exploration activities, which is not consonance with the terms of the PSC," it said.