Review all contracts, says CAG

The Comptroller and Auditor General (CAG) in its draft report submitted to the government seeking its response said that the current PSC structure was unsuitable for protecting the government of India’s financial interests. It also said that these contracts were prepared to help private companies at the cost of the exchequer.

The CAG was pushing for review the existing PSC system was backed by its claim that Reliance Industries and Cairn Energy used the PSCs to commit alleged irregularities in the Krishna-Godavari KG-DWN-98/3 and Rajasthan RJ-ON-90/1 blocks.

The report, which is likely to have far reaching impact on the functioning of the UPA Government, also said that the Petroleum Ministry as well as Directorate General of Hydrocarbons (DGH) virtually bent the rules to favour private companies which was resulted in massive but as yet unquantifiable loss to the national exchequer.

It also said that as per the Indian context, the profiting sharing mechanism linked to investment multiple incorporated in the current PSC structure is unsuitable for protecting the government financial interest.

On the role of the Management Committee in RIL’s KG basin operations, the report said that Ministry and DGH (both are in the management committee) did not pay sufficient attention to protecting government's financial interests specially in terms of exercising adequate control on recoverable costs and monitoring the with hawks eye’.

The report also pulled up the ministry for going the extra mile to grant additional area to Cairn Energy adjacent to its oil discovery in Rajasthan block.

The CAG had sent its report to the ministry on June 8 seeking its comments within 15 days.

However, sources in the Ministry said that they would take at least six to eight weeks time to submit the report. Ministry officials have begun the exercise to dig up files to submit its report.

As the final report is likely to be tabled in the monsoon session next month, the government is virtually gearing up to face onslaught from the opposition on this issue.