Oil ministry postpones CAG audit meet on Reliance block

The oil ministry postponed Wednesday's scheduled meeting for India's official auditor to begin audit of Reliance Industries' (RIL) KG-D6 oil and gas producing block.

The Comptroller and Auditor General (CAG) had called an Entry Conference for Wednesday with RIL and the oil ministry to begin its second round of audit that is to cover RIL's spending on KG-D6 gas fields during 2008-09 to 2011-12.

Official sources told IANS that the meeting was called off by the ministry earlier this week.
The meeting was seen as the government's attempt to break the impasse on the proposed second round of the CAG audit on the oil field.

RIL has sought written assurance that CAG's audit would be of accounting books and records as provided under the Production Sharing Contract (PSC) and that the company would not be "required to provide documents, information or any clarification of matters which go beyond scope of audit under Section 1.9 of the Accounting Procedure of the PSC".

The oil ministry, instead, wants RIL to give CAG "unfettered access to account books", and is yet to approve the company's investment proposals including annual budget for the last three years.

According to RIL, the pending investments are necessary to reverse the drop in output from the fields. There has been a decline in output at KG-D6 in recent years.
The CAG audit had questioned the company's revision of capital expenditure of the block to $8.8 billion from $2.39 billion.

RIL holds 60 percent share in the block followed by UK-based BP with 30 percent, and Canada's Niko Resources owns the remaining.

The KG-D6 block accounts for more than 80 percent of RIL's total oil and gas production.

Also, at least three discoveries RIL has made in the block had not been declared commercial, a step necessary to begin production from them.

Sources said the investment approvals withheld include USD 805 million RIL already spent in 2010-11 and another USD 532 million invested in 2011-12. A budget of USD 1.096 billion for current fiscal is also pending approval, sources added.

Gas production from Dhirubhai-1 and 3, the first two of the 18 discoveries that have been put on production, started declining from a plateau level of about 55 million standard cubic meters per day in August 2010. It is currently around 20 mmscmd.

Six out of the 18 wells on the field have been shut due to high water and sand ingress.

KG-D6 is currently producing around 26 mmscmd after including output from the MA field.

Sources said the Ministry on October 23 wrote to RIL saying, "...the proposed audit would be under Section 1.9 of the Accounting Procedure of the Production Sharing Contract, and not a performance audit of the operator (RIL)."

On the same day, the ministry also wrote to Principal Director of Audit (Economic & Service Ministries), CAG stating that "subject to certain conditions, RIL has agreed for an audit under Sector 1.9 of Accounting Procedure to the PSC by CAG and to cooperate with such audit without prejudice to any of their rights and contentions."

RIL had stated that it was ready for a CAG audit if done under the PSC which provides for checking of the contractor's accounts in order to verify the charges and credits but not questioning efficacies of processes or technology used in the complex deepsea operations.

The company last month had stated that said CAG's 2009 audit, which it had agreed to as a one-time exception, turned out to be a 'performance' audit which was contrary to the provisions of the PSC.

The CAG had in its first round of audit questioned the 'reasonableness' of costs incurred in the gas field development and said the government should revisit the profit sharing mechanism.