The Comptroller and Auditor General of India (CAG), in a report tabled in Parliament, said 831.88 sq km of KG-D6 area needs to be taken away from RIL as per the contract and cost of discoveries it had relinquished should not be allowed to be recovered from sale of oil and gas from the block.
Also, cost recovery for doing discovery conformity test should be looked into, it said. CAG said November 2015 report of independent expert DeGolyer & MacNaughton (D&M) submitted on reservoir continuity between the KG-D6 and contiguous ONGC operated blocks has pointed out that gas has migrated from the blocks owned by state-owned firm to the private company operated fields. "The report indicates that as on March 31, 2015, of the gas initially in place, 44.32 per cent in Godavari PML and 34.71 per cent in KG-DWN-98/2 (both of ONGC) had migrated" to KG-D6, it said. "The report projected a higher proportion of gas migration and its production through RIL operated KG-DWN- 98/3 (KG-D6) block by end of 2019."
The government has appointed one member committee under Justice A P Shah to consider the report and recommend future action. "In case if the Ministry of Petroleum and Natural Gas accepts D&M report conclusion that RIL did draw gas from ONGC's contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-DWN-98/3 including cost petroleum, profit petroleum, royalty and taxes over its entire period of operation (since April 2009 when production of gas commenced from the block)," CAG said.
It said many of the issue it had pointed out in the previous audits (2006-12) of the block still persist. "The total financial impact of excess cost recovery during 2012-14 on account of the earlier identified audit findings was $1.547 billion (Rs 9,307.22 crore). "For the period 2012-14, additional issues of excess cost recovery claimed by the operator (RIL) were noticed, financial effect of which was $46.35 million," it said.
CAG had in its previous reports slammed Oil Ministry and its technical arm DGH for not exercising enough control and vigil over KG-D6 block, leading to instance of excess cost recovery. As per the Production Sharing Contract (PSC), an operator is allowed to recover all his cost before sharing profit with the government, a provision which CAG says encourages companies to inflate cost to delay profit sharing.
CAG in its report tabled in Parliament today said RIL refused to connect to production system four wells it had drilled on the D1 and D3 gas field in KG-D6 block on the pretext that they would not produce adequate incremental volume to justify the additional capex spend. "Though these wells have not contributed to production from the D1-D3 field, the Operator has recovered $102.94 million up to the FY2013-14 towards their cost," CAG said.
Also, the ministry had ordered RIL to relinquish 6,198.88 sq km out of total KG-D6 area of 7645 sq km as per the contract that allowed retaining only area were discoveries are made.
"However, contrary to Ministry's directives, the Operator relinquished only an area of 5,367 sq km retaining an excess area of 831.88 sq km. The Operator also paid Petroleum Exploration License (PEL) fees of Rs 3.32 million relating to the excess retained area," CAG said, adding that the relinquishment of the additional area retained needs to be ensured by the ministry.
CAG said $63.78 million RIL got through marketing margin should be included in price of gas for calculation of royalty payable to government and profit sharing. Also, Aker of Norway, which supplies a floating oil production vessel (FPSO), was paid additional benefit of $10.13 million.