Thursday, September 8, 2011

RIL violated contract terms: CAG

New Delhi:The Comptroller and Auditor General of India (CAG) has accused Mukesh Ambani-controlled Reliance Industries of violating the terms of its contract with the government by not relinquishing 25% of its Andhra offshore acreage after discovering oil and gas there.
The auditor has said that the Director General of Hydrocarbons (DGH) appears to have gone along with this violation. In fact, after initially raising objections, the DGH made a U-turn and went along with Reliance’s demand for retaining the entire exploration block.
The CAG report has also raised questions about the way Reliance awarded procurement contracts for commissioning its project. It gave away as many as 10 contracts on single bids, points out the auditor, while wondering whether this did not lead to an inflation of cost of the project. Normally, higher costs would be detrimental to the government’s stake since the company is allowed to recover its spending from the oil and gas revenue before sharing profit with the Centre.
The CAG’s report on a special audit of Reliance’s KG basin gas fields, presented to Parliament on Thursday, also suggests that the oil ministry played along with the DGH’s decision, which was not in line with provisions of the contract.
The CAG has recommended that the government should review its decision to allow Reliance to retain the entire gas field acreage. It has suggested that the discovery area should be demarcated afresh so that the 25% area that Reliance should have given up can be identified. It has also sought an “in-depth” review of 10 contracts for goods and services that were awarded “on the basis of single financial bids”.
The report shows how Reliance was allowed to “proceed from phase (of development) to phase”, while its “proposal of April 2004 to not relinquish any area” and declare the entire acreage as a discovery “remained submerged in a sea of correspondence between RIL and DGH.” The final CAG report appears more muted than the draft report, first reported by TOI on June 13. The draft report had blamed the ministry and the DGH for favouring private oil companies, including Reliance. It had also said there appeared to be some loss to the exchequer with regard to the RIL gas field, although it was unable to quantify it.
TOI had also reported on June 14 and June 22 how the draft report showed cost of contracts rising phenomenally because of RIL’s “sweetheart deals” for procurement of goods and services.
In contrast, the final report does not talk about any loss to exchequer.

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