Why the petroleum ministry is reluctant for a CAG audit of RIL?
Moneylife Digital Team 05 November 2012

According to the former secretary to the GoI, activities of RIL in the KG basin have a long-term bearing on the public exchequer and therefore the petroleum ministry should allow the company’s accounts to be audited by the CAG 

EAS Sarma, former secretary to the Government of India (GoI) has reiterated the demand to conduct a performance audit of Reliance Industries (RIL) and the Krishna Godavari (KG) Basin. In a letter sent to prime minister Dr Manmohan Singh and petroleum minister Veerappa Moily, the former secretary raised several issues related with RIL’s operations in the KG Basin while reinterring the need for conduction audit by Comptroller and Auditor General (CAG).

 

“The exploration and development effort put in by RIL in the KG Basin, the technology adopted, the resources discovered, the costs incurred, the claims made on pricing of gas and the costs to be reimbursed are all matters that impinge directly and indirectly on the public exchequer. All such matters should be subject to public scrutiny and RIL should be held accountable to the public,” Mr Sarma said in his letters.

 

Last week, RIL, in a statement, said it had never contested the government’s right to get the company’s spending on KG-D6 gas fields audited by the CAG but hoped it will not be subjected to a performance audit. Stating that it was a private operator functioning under a Production Sharing Contract (PSC), RIL said it ‘appreciates’ CAG's reported statement that it does not conduct performance audit of private firms.

 

”We appreciate the fact that the CAG is in agreement that it does not conduct performance audit of private operators and expect that no such performance related audit issues applicable to the government will be applied to any such audit,” RIL said.

 

The ministry of petroleum & natural gas, which continues to withhold permissions for RIL’s investment proposals, postponed a kick-off meeting scheduled for the CAG to begin audit of spending in the KG-D6 block by the Mukesh Ambani-led company. The CAG had called an Entry Conference 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. However, on 29th October, the ministry wrote letters calling off the 31st October meeting, sources told to PTI.

 

According to the PTI report, the meeting was called off due to differences over the nature and scope of audit to be conducted by the CAG. RIL has sought written assurance that the CAG scrutiny would be an “audit 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.”

 

Also, RIL wants the audit to be carried at its premises and audit report to be submitted to the oil ministry, as provided under PSC, and not to the Parliament.

 

Mr Sarma, in his letter to the petroleum minister, said, that from the reports appearing in the press, he understands that the ministry has some reservations on asking the CAG to conduct a performance audit of RIL’s operations. In this connection, the former secretary has raised following points of relevance...

  1. The natural gas resources found in the KG Basin are public resources belonging to the people of the country, as reiterated time and again by the courts. Article 39(b) of the Constitution requires the State to ensure that “the ownership and control of the material resources of the community are so distributed as best to subserve the common good”. All executive actions and instruments, including the Production Sharing Contract (PSC) signed by your ministry with RIL are subject his Directive Principle. While the PSC may define the relationship between petroleum ministry and RIL, to the extent it comes in conflict with Article 39, it should be deemed to be void.
  1. The exploration and development effort put in by RIL in the KG Basin, the technology adopted, the resources discovered, the costs incurred and the claims made on pricing of gas and the costs to be reimbursed are all matters that impinge directly and indirectly on the public exchequer. They also have a direct bearing on the “common good” envisaged in Article 39. As such, all such matters should be subject to public scrutiny and RIL should be held accountable to the public.
  1. Under Article 149, “the Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament.” In 1971, the Parliament enacted the CAG’s (Duties, Powers and Conditions of Service) Act, 1971. Section 13 of that Act empowers the CAG to “audit all transactions of the Union.....relating to ...public accounts”. Under this provision, the CAG is empowered to conduct a performance audit of RIL in relation to the activities referred at Item 2 above viz. the exploration and development effort put in by RIL in KG Basin, the technology adopted, the resources discovered, the costs incurred and the claims made on the pricing gas and the costs to be reimbursed, as all such matters impinge directly and indirectly on the public exchequer. In fact, the ministry of finance examined this aspect separately and reiterated this position vide DEA 6(5)-B(R)/99 dated 13-6-2006. In view of this, it is mandatory that RIL’s accounts are submitted for a comprehensive and unconditional performance audit by C&AG. There should be no hesitation on this, on the part of the petroleum ministry.
  1. I had earlier written to PM with copies to your ministry that the so-called ‘independent’ external evaluators that RIL had commissioned to evaluate its capital expenditure were RIL’s own clients, which meant that they had a clear conflict of interest. RIL appeared to have “gold-plated” its accounts to the detriment of the public interest. Unfortunately, the regulator who was expected to safeguard the public interest had apparently connived with the company and some of these concerns were deliberately obfuscated.
  1. I have a copy of the note circulated for EGoM that fixed the gas price at $4.20 per mmBtu indexed to crude price. I obtained it under RTI Act. It clearly showed that the EGoM had ignored an earlier offer made by RIL to NTPC to supply gas at $2.34/ mmBtu. It ignored the disclosures made by RIL to DGH that the unit cost of gas from the KG Basin was not more than $1/ mmBtu. The stance thus taken by the government and the EGoM had compromised the interests of NTPC in particular and the public interest in general. In my view, the manner in which the EGoM had fixed the price then should be got investigated by an independent agency and corrective action taken to protect the public interest. I will not be surprised if there is a serious vigilance aspect to it.

“I request you to keep all these concerns in view and entrust the CAG with the task of a comprehensive performance audit of RIL’s accounts for the KG Basin operations. It should be unconditional. I believe that such an action on your part will inspire confidence in all of us and protect the public interest,” Mr Sarma concluded.

 

Here is the letter written by Mr Sarma to the Prime Minister…
 

 

 

Comments
Suiketu Shah
1 decade ago
The facts in this article proves proves what Kejiwal said that Mr Ambani rules the country.
NSriramamurty
1 decade ago
RIL's continuous objection to CAG Perfomance Audit itself is to be viewed that RIL is Conceiling vital Data and trying to extract More Public Money.Ministry is acting as though only RIL can Extract Gas from KG Basinand no-body else.Something seriously Fishy.
( 2 )All PPP Projects Should be under the Purview of CAG Audit fully unlimitedly.( 3 )Many Scams are coming out in PPPs,as quid pro quos.Even if GOI erred in signing contract with Conditions,they will be void,if CAG Performance Audit is objected citing those conditions. Hats off to Mr. Sarma for Boldly taking up with Ministry/PM.
Vaibhav Dhoka
1 decade ago
Now it is high time for firm action.The corruption should be dealt with steel hand.Now it should be ne talk only action is need of hour.
Sunil
1 decade ago
Wow , I do hope that the GAG if permitted to audit RIL uses Mr. EAS Sarma as a advisor.
sivaraman anant narayan
1 decade ago
Excellent!
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