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CAG smells rat, says block RIL payment

Comptroller and Auditor General (CAG) has smelled a Rs 2,179 crore scam in Reliance operated KG basin. Dismayed over dubious presentations of facts and papers, the CAG on Friday recommended to the Ministry of Petroleum and Natural Gas (MoPNG) to disallow payment of Rs 2,179 crore (approx) which the Reliance Industries (RIL) has shown as expenditure on drilling of wells and payments which they made to contractors in the KG-D6 block exploration.

What came as a rude shock before the national auditor was that there were serious lapses from the concerned ministry in monitoring the whole exploration process of Mukesh Ambani-run RIL as well as delays in approvals and in its inconsistent parameters.

“The Work Programme & Budget (WP&B) is one of the most important tools available with the Management Committee (MC) to exercise monitoring and control over the operations of the block. Since, MC did not effectively utilize this tool, there was inadequate budgetary/financial control over operational activities leaving the expenditure open-minded. Audit recommends that MoPNG and Directorate General of Hydrocarbon (DGH) may take action for timely approval of the WP&B,’’ CAG report, which was placed in Parliament on Friday said.

The CAG has highlighted that “expenditure amounting to US$ 160.81 million incurred on account of three appraisal wells was not eligible for cost recovery and had been disallowed by MoPNG. However, even after the MoPNG communicated its decision, the operator continued to claim the cost recovery, as seen in the final accounts for the year ended 2013.”

The auditor has also recommended to disallow RIL from recovering additional $279.8 million in cost of three wells as well as a part of expenditure the firm had incurred in area which was improperly declared discovery area. It was found that irregular payment of $427.48 million was made to contractors, of which it sought disallowance of at least $77.36 million cost.

“CAG noticed deficiencies in implementation of procurement, servce contracts and in issues relating to accounting, revenue and has recommended issuing audit exceptions under sections 1.9 of the Accounting Procedure to the Production Sharing Contract (PSC) amounting to US$690.70 million, in respect of expenditure related issues (US$ 386.83 million), revenue issues (US$250.93 million) and accounting issues (US$ 52.94 million),” audit report states.

Also, the Ministry has been asked to take steps to resolve the differing views of the contractor (RIL) and upstream regulator DGH on the reserve estimates of KG-D6 and take appropriate action to increase production. Citing example of irregular payments, the auditor said RIL paid Allseas Marine Contractors (AMC) Euro 200 million more for construction of offshore facilities as concession, which were not allowable for cost recovery being not in line with Engineering, Procurement, Installation and Construction (EPIC).

CAG wanted cost recovery of $77.36 million paid for a floating oil production system to be disallowed. “We have also found fault with payment of $12.48 million start-up and production bonuses to employees, US$88.77 million in hiring of deep-sea drilling rig and over US$16 million in bonus to contractors,” CAG sources said. Finding fault with the Ministry in declaring the entire 7,645 square kilometre KG-D6 block area as discovery area, CAG said, usually the entire amount of $427.03 million would requirement to be disallowed for cost recovery since these activities were not in line with PSC provisions.

In respect of D29, D30 and D31 discoveries (wells), CAG said the Ministry should disallow their cost in case they are found to be commercial unviable. It said pricing mechanism for crude oil and condensate from MA field in the KG-D6 block has not been finalised even after six years of production.

According to CAG, the total expenditure incurred in Block KG-DWN-98/3 or KG-D6, till March 2013 was US $10.441 billion out of which US $ 9.929 billion has been cost recovered. Out of the profit petroleum of $1.03 billion till March 2013, the contractor has got $929.32 million and Government has got $103.26 million, the report added. The national auditor also expressed its anger over ‘extreme difficulties’ in getting records and documents from the company, which led to additional delay filing their audit report.

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