CAG hauls up ONGC for hiring RIL drilling rig without bidding

The Comptroller and Auditor General (CAG) has hauled up state-owned oil explorer ONGC for hiring a deepsea drilling rig from Reliance Industries without calling for competitive bids on ground that are untenable.

CAG, in a report table in the Parliament today, said ONGC "deviated from the standard tendering procedure and hired a rig viz Dhirubhai Deepwater KG-1 (DDKG-1) from RIL without calling for competitive bids for a period of four years on untenable grounds".

ONGC had in May 2009 hired DDKG-1 from RIL for four years ending July 2013 without calling for competitive bids at an operating day rate of USD 495,000 for first 180 days and at USD 510,000 from 181st day onwards.

The effective day rate worked out to USD 563,488. CAG said the company in December 2008 projected a requirement of rig capable of drilling in ultra deep water (water depth of 10,000 feet) by December 2010 to meet its work commitment in exploration block it had won under NELP rounds.

"On the plea that no ultra deep water rig was available with it before December 2010, the company (ONGC) hired the rig from RIL," it said in the report for 2010-11 fiscal.
The rig, CAG pointed out, was in fact hired by RIL from Deepwater Pacific-1 Inc in October 2007 for a period of five years commencing July 2009 and ending July 2014.

"Upon RIL's willingness (in March 2009) to share the rig with the company (ONGC), the latter obtain the same rig from RIL under a tripartite assignment agreement on the same rates, terms and conditions as were applicable to RIL," it said.

Stating that ONGC did not obtain competitive bids before hiring the rig from RIL, CAG said the state-owned firm had in July 2009 projected "a situation of emergency" to acquire an ultra deep water rig by deviating from the standard tendering procedure of competitive bidding.

The company drilled seven ultra deep wells using DDKG-1 rig till December 2010. Of these seven well, three were appraisal wells, drilled to confirm previous finds. "In December 2009, the company (ONGC) itself had expressed its inability to the Ministry of Petroleum and Natural Gas in committing a definite development plan for these (discovery) wells stating that demonstrable technology implementation analogues were not available in the world in such ultra deep waters.

"Hence, in the absence of technology, drilling of these appraisal wells was not crucial to decide their commercial viability by December 2010," the audit said. CAG said the remaining four wells could have been drilled after December 2010 when another rig - Platinum Explorer was scheduled to be mobilised by ONGC.

"Moreover, the Government of India had already granted extension of time to the company to drill these well by March/May 2011 under the rig moratorium policy," it added.

Listing deviations from standard contractual terms, the official auditor said ONGC agreed to pay standby day rate or daily payments when rig was not operating at the rate of 98 per cent of the operating day rate instead of standard terms and condition obliging it to pay at the rate of no more than 95 per cent.

"As a result, it had to make extra payment of USD 1,802,005 (Rs 8.11 crore) during July 2009 to October 2011," it said.