CAG has power to audit oil & gas blocks: Rangarajan

The Prime Minister-appointed Rangarajan Committee, which went into oil and gas contracts, today said CAG's authority to audit expenses was unquestionable.

"Audit is prerogative of CAG and so the power of audit remains with CAG," C Rangarajan said after the report of the panel, headed by him, was made public.

The comments come in the backdrop of intense bickering over the scope of CAG audit of Reliance Industries' spending on the flagging eastern offshore KG-D6 gas fields.

RIL has argued that while it is open to CAG doing a financial scrutiny as provided, the Production Sharing Contract does not provide a performance audit by the official auditor.

Rangarajan said blocks with low value can be audited by panel of auditors formed by CAG and for high value blocks, the official auditor should audit directly.

The CAG have the power to decide the value of the block that will be audited by it directly, he said.

In its report, the Rangarajan Committee has suggested shunning the present cost recovery model that allows operators like RIL to first recover all their investment before sharing profits with the government.

This model had come in for criticism from CAG which said it encouraged companies to keep raising cost to defer higher profit for the government.

"We want to move from the present format of contracts," he said adding the present system has run into lot of dispute.

These disputes has led to delay of implementation of contract, he said adding under the new system both govt and contractor will have revenue share from day one of production.

For the future, the panel suggested bidding out the blocks based on the highest production share offered.

On pricing of natural gas, the panel suggested a new model, Rangarajan said.

The average of three international gas hub price and the cost of imported LNG will the well head price in India, he said adding the panel was not interfering in gas utilisation or allocation policy that will be decided by the government.

Rangarajan said the committee has recommended that the new gas price formula will be reviewed every five years.

"There are existing contracts. Only after expiry of existing contracts new formula will be applied," he said.

RIL's USD 4.2 per million British thermal unit price for KG-D6 gas is valid for the first five years of production ending March 31, 2014.

"I will not go into individual names," Rangarajan said when asked pricing of KG-D6.

Asked about the impact of new gas price on subsidies, he said it all depends on if the fuel cost is passed on to consumers.

"If are really going to have situation when you will not allow the power prices to increase or fertiliser prices to increase and you will always bear the subsidies then your subsidies bill will go up," he said without getting into specifics.

"I am saying impact on user industry will depend on what you will do with price. It is impossible for us to say that we will contain the fiscal deficit at 5.3 per cent ... we will have to take fresh look at pricing of end product," he added.