The oil ministry is expected to take at least 5-6 weeks to reply to points raised by the CAG which S Jaipal Reddy may have told the prime minister. The CAG had asked for comments in two weeks time
New Delhi: With the Comptroller and Auditor General (CAG) severely criticising the oil ministry's role in approving Reliance Industries' (RIL) KG-D6 field cost, petroleum minister S Jaipal Reddy today met prime minister Manmohan Singh to brief him about his ministry response to the CAG's draft report, reports PTI.
While Mr Reddy refused to comment on his 15 minute meeting with the prime minister this morning, sources in his ministry said the meeting was fixed a long time back, much before the CAG submitted in draft audit report on 8th June.
The ministry, they said, will take at least 5-6 weeks to reply to points raised by CAG which Mr Reddy may have told the prime minister. CAG had asked for comments in two weeks time.
The delay in ministry's reply may mean that the CAG final report would not be tabled in Parliament in the monsoon session of Parliament next month.
Sources said the ministry is taking longer time as it has an entirely new set of officials. The decision on KG-D6 field was taken when Murli Deora was the minister and V K Sibal was the head of ministry's technical arm, Directorate General of Hydrocarbons (DGH).
Incidentally, Mr Sibal too was in the ministry today probably to explain to the new oil secretary GC Chaturvedi and his team about his role in KG-D6 approvals.
The CAG in its draft report had rapped oil ministry and its technical arm DGH for allegedly favouring RIL by allowing it to double KG-D6 gas field's cost but it stopped short of saying if the Mukesh Ambani firm had overbilled the government and thereby caused loss to the state exchequer.
It also pulled up the ministry for going out of its way to grant over 856 sq km of additional area to Cairn India adjacent to its oil discovery in Rajasthan block.
The CAG in its draft audit report on KG-D6 block said the ministry and DGH also bent the rules to grant 'huge benefits' to RIL when it was allowed to retain the entire block, but said gains cannot be quantified.
"The increase in (Phase-1) cost from ($2.39 billion) proposed in the Initial Development Plan (of May 2004) to ($5.196 billion) in the addendum to the Initial Development Plan is likely to have a significant impact on the government of India's financial take.
"However, at this stage based on the information provided, we are unable to comment on the reasonableness, or otherwise of the increase in cost, both overall and in respect of individual line items," accounting watchdog CAG said.
Reliance, however, said that "as a responsible operator, it has fully complied with the requirements in the Production Sharing Contract (PSC) at all times in conducting petroleum operations, and refutes any suggestion to the contrary."
"The KG-D6 project... has been globally acclaimed for its cost effective, speedy, flawless execution and smooth commissioning," RIL said in a statement yesterday.
RIL had raised the cost of bringing to production India's first deep-sea and the largest gas field after reserves almost doubled to 11.3 trillion cubic feet (tcf), raising the peak output two times to 80 million cubic meters per day.
An operator like RIL is allowed to recover all the capital cost incurred on developing a field from revenues earned from the sale of oil or gas before profits are split between the stakeholders, including the government.
The CAG conducted the audit of the RIL accounts after allegations of 'gold-plating', or artificially inflating the development costs of Dhirubhai-1 and 3 gas fields, two of the 18 discoveries in KG-D6 block, were levied by the Anil Ambani Group.
The premier auditor, whose report will be tabled in Parliament after incorporating comments from the oil ministry, said RIL never had the intention of developing KG-D6 gas fields as per the initial cost estimates and said it did not initiate tendering for equipment as per the original plan.
A top oil ministry official said that a reply to the CAG comments would be sent in two weeks' time.
The CAG recommended that the "role of DGH and government of India representative on the Management Committee may be closely scrutinised to see why the operator was allowed to violate the provisions of Production Sharing Contract (PSC) and not adhere strictly to the terms of the approved initial development plan."
On Cairns India, the CAG said as per the PSC, the total contract area of company's operated RJ-ON-90/1 block' in Rajasthan was 11,108 sq km. The oil ministry agreed to Cairn's request for grant of additional 852.2 sq km in August 2004 and 856 sq km in March 2005.
CAG in its draft performance audit of the Rajasthan block stated that according to the PSC, the government can extend the contract area to include a hydrocarbon reservoir that extends beyond the block boundaries.
"In our view, the contract area under the PSC is sacrosanct... It can by no means be argued that already discovered reservoirs extend over the entire extended area of 852.20 sq km (and) 856 sq km," it said.
On KG-D6, CAG said the submission of an addendum to the Initial Development Plan (IDP) instead of a revised comprehensive development plan, as well as lack of adequate details with regard to the Phase-II development cost of $3.3 billion, made it virtually certain that the operator will submit more addendums.
"The DGH also approved the Addendum to Initial Development Plan (AIDP), without questioning as to why the operator did not take action in line with the already approved IDP," it said.
In general, the CAG said the benefit granted to RIL is huge, but cannot be quantified.
It also found a "similar irregular determination of the entire contract area" as 'discovery area' in the case of another block operated by Reliance, dubbed KG-OSN-2001/2.
The CAG's scope of audit covers the Production Sharing Contract (PSC) in respect of the KG-DWN-98/3 (KG-D6) block awarded to Reliance for two financial years-2006-07 and 2007-08-with access to the records of previous years linked to the transactions of these years.
The project cost would be Rs350 crore on 60:40 debt-equity ratio
Monsoon Capital, a US-based private equity firm, picked up 50% equity stake for nearly $16 million in a real estate project promoted by Phoenix Group, Hyderabad-based real and infrastructure firm.
Monsoon picked up stake in a special purpose vehicle formed to execute Golf Edge-a property of 1-million square feet comprising a five-star hotel and residential complexes involving an investment of Rs350 crore at Gachibowli, the IT district of Hyderabad.
Phoenix Group managing director Gopikrishna Patibanda, without revealing the exact investment made by Monsoon, said the project cost would be Rs350 crore on 60:40 debt-equity ratio and the PE firm picked up 50% stake in the SPV.
"The project is being financed on 60:40 debt-equity ratio and Monsoon Capital invested 50% of the equity recently," Patibanda said.
Catalyst Sansara India Opportunity Fund holds 20% equity stake in the holding company of Phoenix Group that is currently executing around Rs10,000 crore worth real estate projects spread across three southern India states involving 30 million square feet, Patibanda said.
On Golf Edge, he said the project will have two 30 storied residential towers comprising 497 flats and a 210 room five-star hotel to be managed by Inter Continental Hotels. The total project is expected to be ready by 2014, he said.
According to him, the company has also tied-up half of the equity funds from seven private equity funds for another seven residential projects that are coming up in the city at an investment of Rs2,000 crore.
The company expects to complete all the 30 million square feet projects in hand in three southern India states over the next five years and may offer exit route to couple of PE investors in the next 2-3 years, he said without revealing the names of the PE firms.
"I think the inflation numbers are in a sense upsetting ... We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation," PMEAC chairman C Rangarajan opined
New Delhi: Describing the rise in inflation to above 9% as 'upsetting', the Prime Minister's Economic Advisory Council (PMEAC) today pitched for further tightening of the monetary policy by the Reserve Bank of India (RBI) at its next review, which is due on Thursday, reports PTI.
"I think the inflation numbers are in a sense upsetting ... We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation," PMEAC chairman C Rangarajan told reporters here.
His reaction came after the release of the latest data, which showed headline inflation going up to 9.06% in May from 8.66% in April on the back of rising prices of manufactured products and petrol.
Asked about the expected hike in policy rates by the RBI at its mid-quarterly review on 16th June, Mr Rangarajan said: "... I think the RBI will probably look at the inflation issue more seriously and will take some action... (It) will probably decide to do in the context of the high level of inflation."
He, however, refused to cite any numbers on the quantum of the hike in short-term lending (repo) and borrowing (reverse repo) rates.
"I do not know what the RBI will do, but I think the concern regarding inflation will be very dominant," he said.
The RBI has already hiked key policy rates nine times since March 2010 to curb demand and tame inflation. With headline inflation remaining high, it is now almost certain that the apex bank will go for another hike at its 16th June mid-quarterly review.
Experts have said that such action is inevitable and the RBI has also said in recent times that taming inflation is the biggest challenge before it.
The PMEAC chief also favoured deregulating diesel prices.
"The oil marketing companies are losing in a big way. If the diesel prices are not raised, then the burden on the Budget will also increase... We need to move toward adjusting the diesel prices in line with international crude prices," Mr Rangarajan said.
He, however, refused to comment on any timeframe for deregulating diesel prices.
Oil marketing companies had in mid-May hiked retail prices of petrol, which was deregulated last year, by over Rs5 a litre. However, the price of diesel and LPG prices was not increased, as these are still in the controlled list.
Oil firms have been saying that the regulated prices have been hurting them as global crude rates continue to hover around $100 per barrel, mainly on account of the conflict in the Middle East and North Africa region.
Last month's petrol price hike was reflected in the May inflation numbers. Petrol prices went up by 27.31% on an annual basis. Overall inflation in the fuel and power segment stood at 12.32% year-on-year.
Prices of manufactured products, which have a weight of around 65% in the WPI basket, went up by 7.27% year-on-year in May.
In its monetary policy for 2011-12 released last month, the RBI had said that high prices of global commodities, particularly crude, will continue to drive inflation upward.
It had projected inflation to average 9% for the first six months of 2011-12.