CAG rebukes RIL on scope of audit of KG-D6 fields

The Comptroller and Auditor General (CAG) has rebuked Reliance Industries on scope of audit of its eastern offshore KG-D6 fields, saying the audit was to verify if government revenues were protected.

Reliance had challenged the scope, extent and coverage of CAG audit at various points, including as late as the Exit Conference the top auditor held in July to conclude the audit.

"We do not agree with the operator's (Reliance's) views regarding our audit scope, extent and coverage," CAG said in its final report tabled in Parliament today.

Reliance had stated that CAG's scope was limited to verification of charges and credits (authenticity of expenditure) and inspection of books and records and did not permit an audit of the operational, commercial and technical decisions.

"One of our key audit objectives was to verify whether the revenue interests of the government (including royalty and Government of India share of profit petroleum) were properly protected," CAG said.

Verification of charges and credits relating to the contractor's activities were not merely limited to an arithmetical totalling.

"Such an exercise would extend to verifying whether the costs being depicted in the Production Sharing Contract (PSC) accounts by the contractor, which would critically affect the determination of profit petroleum and government's share therein, are correctly determined," it said.

The CAG emphasised that all its enquiries and findings emerge from and were limited to the PSC. "We do not profess to go into a procedure or policy related aspects leading to the conclusion of the PSC."

"The challenge of the operator (Reliance) with regard to the experience of the institution of the CAG in conducting audit of oil and gas exploration and production (E&P) is unwarranted.

"This institution has been conducting audit of India's largest E&P company, ONGC as well as Oil India Ltd for several decades. The collective audit expertise of our institution is adequate to meet the challenges of scrutiny of hydrocarbon PSC," it added.

In its response, the oil ministry in July, 2011, had agreed that scope of audit conducted by the CAG was within the common audit parameters and indicated that financial or accounting audit also envisages review of activities and resources contributing to financial events and the controls thereon.