Audit brief exceeded in Krishna-Godavari gas report: Reliance

India's official audit agency exceeded its brief in its report on the Krishna-Godavari gas blocks won by Reliance Industries, using hindsight and not the legal contractual pact as a basis for its annotations, the company has charged.

In a letter to the watchdog, the Directorate General of Hydrocarbons, Reliance also said unlike the award of coal blocks, or the spectrum for telephony, the oil assets were won by it after global competitive bidding and that issues had been unnecessarily hyped.

It said the Comptroller and Auditor General of India (CAG), with comments on commercial, operational and technical performance of Reliance, had exceeded its brief, providing its own interpretation of the production-sharing contract with the government.

The company also sought to inform the watchdog that its responses furnished to the audit agency were not considered when the final report was drawn up, adding it was bereft of any legal or technical merit.

"At several places in the CAG's draft audit report the audit team has merely paraphrased our responses and then dismissed them with a vague 'we disagree', without specifying the reasons for not accepting our responses," it added.

Primarily, the auditor's observations pertain to two issues: Under-utilisation of the facilities built for 80 million units of gas per day, and procedures followed on expenditure-accounting that has a bearing on the gas to be shared with the government.

Reliance Industries, for the record, could not match the production targets.
On both counts, the company refuted the charges. In the response to the auditor, it said it had taken all steps for timely and cost-efficient deliveries. To the watchdog, it also said the matter was sub-judice and under arbitration. Hence comment was improper.

Reliance said it had also challenged the government's move to link the so-called lower gas output due to under-utilisation of facilities that resulted in a lower share of the exchequer. An audit comment on this, therefore, was inappropriate, Reliance said.

It said it was concerned over comments that intend to show conclusiveness on the legal interpretation of the contract provisions that are in arbitration.
"We believe comments on matters that are sub judice are inappropriate and prejudicial," the company said.

It had told the audit agency that the Krishna-Godavari basin was among the most complex ones in the world and that members of its team would have had better perspective on the issues, had they physically visit these facilities.

Reliance said despite assurances that it was not a performance audit, retrospection seemed to have been the basis of not only doubting the efficiency, effectiveness and the economic viability of the contracts but also the operational decisions taken eight years ago.

"We submit this could easily be perceived as a performance audit which obviously was not the stated intent of audit," said Reliance, adding such comments needlessly prejudice an arbitration and may be misused by vested interests.

"Issues which are either under arbitration, or are the consequence of differences in the interpretation of PSC provisions should not be commented upon in an Audit of accounts," the company said.