Government aided RIL in gas contract, lost money: CAG
The CAG of India has come down hard on Mukesh Ambani-controlled RIL, suggesting the company grossly overstated its development costs in India's largest gas field, possibly causing "significant" financial losses to the exchequer. Anupama Airy reports. What's the fuss?| An oily messbusiness Updated: Jun 13, 2011 01:39 IST
The Comptroller and Auditor General (CAG) of India has come down hard on Mukesh Ambani-controlled Reliance Industries Limited (RIL), suggesting the company grossly overstated its development costs in India's largest gas field, possibly causing "significant" financial losses to the exchequer.
The first audit report of the independent government auditor that followed allegations of "gold-plating" of costs while developing the KG-D6 field in Andhra Pradesh probed RIL, Cairn India, BG (the former British Gas) and others, but the Ambani firm gets the main attention.
As the production-sharing contract involves profit-sharing with the government, a higher capital expenditure results in the profit being lower for the government than it would be otherwise, which the CAG has explained in its 200-page June 7 report to the petroleum ministry.The report is a draft. The final version will be placed in Parliament after comments from the ministry.
Several attempts by email and phone to get RIL's response on the CAG report on exploration work in the 2003-2008 period did not elicit any comment from the company's senior executives until the time of going to press on Sunday.
The CAG report has revealed severe irregularities and violations on part of private operators and government departments and ministries.
The report - in possession of Hindustan Times - says the petroleum ministry and oil sector regulator Directorate General of Hydrocarbons (DGH) facilitated RIL to flout contractual stipulations on "discovery areas".
"The undue benefit granted to the contractor (RIL) is huge, but cannot be quantified," the report said.
The CAG's main focus is on Reliance's revision of the development cost of the KG-D6 gas field from $2.4 billion in 2004 to $8.8 billion in 2006 within a gap of only two years, without the company offering a single comprehensive development plan as required under the contract.
"The intent of the operator (Reliance) right at the outset, to submit revisions and changes to the development plan was evident all through from the submission of an initial development plan (IDP) rather than a comprehensive plan," the report said."The increase in cost… is likely to have significant adverse impact on the GoI's financial take," it added.
The CAG report also raised questions on high-value procurement activities by RIL involving huge payments. The CAG cited many instances where it could not verify the "reasonableness of costs incurred" by RIL.
This, the CAG said, was primarily because of a lack of adequate competition, including single financial bids, with major revisions in scope and specifications.
All this resulted in "adverse implication for cost recovery and GoI's financial stake," the CAG observed.