Amidst a raging controversy over Comptroller and Auditor General's (CAG) draft report severely criticising its role in approving Reliance Industries' KG-D6 field cost, Oil Ministry on Thursday called for restraint and not jumping to conclusion saying the top auditor has not yet finalised its report.
"The CAG report is at the draft stage," the ministry said in a press statement here. "This Ministry is examining the draft report, it involves scrutiny of administrative/ policy issues and technical issues. The preparation of a detailed reply will take some time."
"It is only after taking into account the reply of Government that the Office of CAG will suitably amend the draft report and send the final report for placing it on the table of Parliament," it added.
The CAG in its draft report had alleged that the oil ministry and its technical arm DGH favoured Reliance but did not say if by doubling of cost of developing eastern offshore KG-D6 field the Mukesh Ambani firm had overbilled the government and thereby caused loss to the state exchequer.
It also pulled up the ministry for going out of its way to grant nearly 1,700 sq km of additional area to Cairn India adjacent to its oil discovery in Rajasthan block.
"As the process of preparation of reply and its vetting by the Office of CAG is yet to be completed, it would be premature for the Ministry to give any response on the observations made in the draft report at this stage," it said.
"It would be equally incorrect for the media commentators, political leaders and civil rights activists to jump to conclusions and thus short-circuit the process," the statement added.
On receipt of ministry's reply, the Office of CAG will examine the reply on merits and will hold an exit conference with it before making its final observations.
"The Ministry, therefore, appeals to all concerned to exercise restraint and allow the process to be completed," the statement said.
The Ministry said it was at its request in November 2007 that the Comptroller & Auditor General of India agreed to carry out special audit in respect of certain blocks/fields operated under pre-New Exploration Licensing Policy (NELP) and NELP regimes.
"The draft Performance Audit Report has been received in this Ministry on June 8, 2011," it added. "While the above process is underway, the leaked draft report is being reported and commented upon in sections of the media."
The CAG in its draft audit report on KG-D6 block said the ministry and DGH also bent the rules to grant "huge benefits" to Reliance when it was allowed to retain the entire block, but said gains cannot be quantified.
"The increase in (Phase-1) cost from (USD 2.39 billion proposed in the) Initial Development Plan (of May 2004) to (USD 5.196 billion) in the addendum to the Initial Development Plan is likely to have a significant impact on the government of India's financial take.
"However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise of the increase in cost, both overall and in respect of individual line items," CAG said in the draft report.
Responding to the reports in media, Reliance earlier this week said that "as a responsible operator, it has fully complied with the requirements in the Production Sharing Contract (PSC) at all times in conducting petroleum operations, and refutes any suggestion to the contrary".
"The KG-D6 project.. has been globally acclaimed for its cost effective, speedy, flawless execution and smooth commissioning," Reliance had said in a statement.
Reliance had raised the cost of bringing to production India's first deep-sea and the largest gas field after reserves almost doubled to 11.3 trillion cubic feet, raising the peak output two times to 80 million cubic meters per day.
An operator like Reliance is allowed to recover all the capital cost incurred on developing a field from revenues earned from the sale of oil or gas before profits are split between the stakeholders, including the government.
The CAG conducted the audit of the Reliance accounts after allegations of 'gold-plating', or artificially inflating the development costs of Dhirubhai-1 and 3 gas fields, two of the 18 discoveries in KG-D6 block, were levied by the Anil
Ambani Group.
The premier auditor, whose report will be tabled in Parliament after incorporating comments from the Oil Ministry, said Reliance never had the intention of developing KG-D6 gas fields as per the initial cost estimates and said it did not initiate tendering for equipment as per the original plan.
CAG recommended that the "role of DGH and government of India representative on the Management Committee may be closely scrutinised to see why the operator was allowed to violate the provisions of Production Sharing Contract (PSC) and not adhere strictly to the terms of the approved initial development plan".
On Cairns India, the CAG said as per the PSC, the total contract area of the company's operated RJ-ON-90/1 block' in Rajasthan was 11,108 sq km. The Oil Ministry agreed to Cairn's request for grant of additional 852.2 sq km in August 2004 and 856 sq km in March 2005.
"In our view, the contract area under the PSC is sacrosanct... It can by no means be argued that already discovered reservoirs extend over the entire extended area of 852.20 sq km (and) 856 sq km," it said.
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