Monday, June 13, 2011

“Undue benefit to Reliance is huge but can't be quantified”

The Petroleum Ministry and Director General Hydrocarbons irregularly allowed Reliance Industries Ltd to enter successive exploration phases in the Krishna Godavari basin without the stipulated relinquishment of area and was allowed to declare the entire contract areas as “discovery area,'' thus avoiding any relinquishment whatsoever, the Comptroller and Auditor General has concluded in its draft report on production sharing contracts in the KG basin.

“In our opinion, this is irregular and incorrect, since drilling of wells and consequential discoveries, which is the primary requirement for discovery and discovery area, had not taken place in the major portion of the contract area. The undue benefit grant to the contractor (RIL) is huge, but cannot be quantified,'' the CAG said.

Revenues were lost because the surrendered acreage would have eventually been put up to other bidders with better exploring technology who might be tempted to enter once the overall value of the KG structure is clear.

The Petroleum Ministry at that time was led by Murli Deora and the Management Committee on KG-D6 included the then DGH, V.K. Sibal and Joint Secretary (Exploration), Anil Jain. “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,'' the CAG has recommended. “We recommend that the government should re-examine delineation of the entire contract area as ‘discovery area' and take immediate steps for relinquishment of excess area in line with provisions of the PSC, as also fix accountability for those responsible for this decision.''

The CAG also found a ‘similar irregular determination of the entire contract area' as ‘discovery area' in the case of another block operated by Reliance, dubbed KG-OSN-2001/2.

The CAG, despite being faced with continued non-cooperation from the operator as well as the Petroleum Ministry into the audit, has accused RIL of having no intention of developing the KG-D6 gas fields as per the initial cost estimates as it did not initiate tendering for equipment as per the original plan. “Most procurement activities were undertaken late, in line with the schedules of the IDP of May, 2004, clearly evidencing that the operator had no intention of complying with these timelines,'' the draft report states.

However, in sharp contrast, the CAG said, activities in respect of items in the AIDP were initiated even before the submission/approval of the AIDP. “The submission of an addendum to the initial development plan (IDP) instead of a revised comprehensive development plan, as well as lack of adequate details with regard to the Phase-II development cost of $3.3 billion, made it virtually certain that the operator will submit more addendums. The DGH also approved the AIDP, without questioning why the operator did not take action in-line with the already approved IDP,'' the CAG said.

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