The Ministry for Petroleum & Natural Gas finds itself caught between the devil and the deep sea on the issue of ‘performance audit’ for Reliance Industries Ltd-operated D6 block.

The tussle between the Comptroller & Auditor General of India (CAG) and the contractor (RIL) has left the Ministry hoping that the two will find a middle path so that the audit can be done without any hassle.

Simply put, performance audit in case of an exploration and production company will include all the technical aspects, reservoir management, as well as procurement.

For example, whether costs incurred for procurement of goods and services are determined through a transparent and competitive process, so as to protect Government’s revenue interests, especially as such costs are recovered from profit petroleum, is subject to scrutiny. Profit petroleum is Government’s share of profit from revenues of the field.

A comparison is also made with adjacent basins and their cost effectiveness, say those from auditing fraternity.

An argument could be that CAG has conducted audit for public sector entities like ONGC, and also commented on their performance, so a private contractor could not be treated any differently.

Any audit cannot be restricted only to the accounting records, but extends to verification whether the costs depicted are correctly determined, CAG had said in its October 26 letter to the Ministry.

The CAG in its statement of November 1 while stating that it does not conduct performance audit of private operators, also said that, “It is the consistent stand of CAG that performance audit of the production sharing contracts is covered under Section 16 of the CAG’s (DPC) Act, as profit petroleum is non-tax revenue credited to the Consolidated Fund of India and such audit would involve examination of all records including those of the operator, which are relevant to our audit.”

“This provision of CAG’s (DPC) Act gives CAG the unfettered right of access to all records required for such audit and would override any conditions sought to be imposed on our audit process,” the statement said.

Meanwhile, concerns raised by RIL are based on its past experience with CAG, where it felt that issues of procurement and other technical points raised by the Government auditor were not appropriate.

The Petroleum Ministry in November 2007 had requested the CAG to carry special audits in respect of certain blocks/fields operated under NELP and Pre-NELP regime. The Government move is justified by the fact that the production sharing contracts provides for two audits, one by the management committee of the block and the other by the Government.

Further, it can get an audit done by its representatives or through Chartered Accountants. Based on the audit by the Government, the cost petroleum is determined and it is crucial for finalising Government share of profit petroleum.

RIL, while not contesting the Government’s decision for an as provided in Section 1.9 of the accounting procedure of the production sharing contract, had expressed reservations on the Government auditor looking into the technical aspects. The contractor has maintained that it will welcome comments on operational matters if such comments come from experts having the knowledge of the complexities of deep water operations.

Those following the sector point out that another concern of RIL could be that this will be an independent standalone audit, and if this is made public it will lead to more media scrutiny.

Critics say that the concern could be that a question can be raised on why the contractor has not been able to meet the commitment of hitting an output of 80 mmscmd.

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