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Published: November 6, 2012 02:44 IST | Updated: November 6, 2012 03:09 IST

CAG rebuffs Reliance on gas audit terms

Sujay Mehdudia

RIL had sought, inter alia, to restrict KG-D6 block audit to accounting books and records

Refusing the demands of the Mukesh-Ambani-owned Reliance Industries Limited (RIL), the Comptroller and AuditorGeneral (CAG) has stated that the operators restrictive conditions for carrying out an audit of the KG-D6 offshoreblock impinge upon the basic mandate, rights and obligations of the [CAG] to conduct as well as report the resultsof its audit to Parliament.

In a letter to Petroleum Secretary G.C. Chaturvedi on October 26, two days before Jaipal Reddy was shunted out ofthe Petroleum Ministry, the CAG stated that the restrictive conditions were unacceptable to it and the CAGs (Duties,Powers and Conditions of Service) Act gave it an unfettered right and would override all conditions sought to beimposed on the audit process.

According to the CAG, RILs conditions included that: (i) Audit will be restricted to accounting books and records;(ii) audit of the years that are time-barred would be subject to the consent of the operator; (iii) audit report is to besubmitted to the Ministry and not Parliament; (iv) the audit would be subjected to confidentiality arrangementsbetween parties to production-sharing contract (PSC), and the CAG would be bound not to use the informationacquired during such audit for any other audit under the CAGs (DPC) Act.

It would not be possible for us to conduct audit under such restrictions imposed by the operator [RIL], PrincipalDirector of Audit, Economic and Service Ministries A.M. Baja has stated in the letter.

The Petroleum Ministry on October 23 wrote to the CAG requesting it to commence audit of KG/DWN 98/3hydrocarbon block under Section 1.9 of the accounting procedure of the PSC. The Ministry also wrote to the RILsaying that audit under Section 1.9 of the PSC was perfectly legal and laid out under CAGs [DPC] Act.

Clarifying its position on the audit, the CAG has stated: (i) We are agreeable to undertake audit under Section 1.9 ofPSC on the lines we have done earlier; (ii) we are not contemplating performance audit of the operator/s in suchaudit; (iii) the scope, extent and manner of audit would be as laid down under CAGs (DPC) Act and the results ofaudit would be communicated to the Ministry and would be used for reporting to Parliament.

We, however, find that the proposed audit as committed to the operator by the Ministry vide letter dated October 23,would have to be undertaken by us in accordance with certain conditions mentioned in RILs letter dated October 18.We find that these restrictive conditions impinge upon the basic mandate, rights and obligations of the CAG toconduct as well as report the results of audit to Parliament under the CAGs [DPC] Act as well as the Constitution ofIndia.

Not consulted: CAG

In response to this, the CAG states in its letter: We feel that the Ministry ought to have consulted us on issues thatwould have the effect of binding our audit, before committing on a subject to the operator in the manner it has beendone. We would like to state that our audit cannot be restricted only to the accounting records, and books of theoperator or to the documents and information provided at the discretion of the audited entity. Verification of chargesand credits relating to the contractors activities and other documents considered necessary to audit cannot be merelylimited to an arithmetical totalling of charges and credits and tracing of charges/expenses from the accountingstatements to the operators vouchers. Our audit would extend to verification whether the costs depicted are correctlydetermined and in particular costs incurred for procurement of goods and services are determined through atransparent and competitive process so as to protect governments revenue interests, especially as such costs arerecovered from profit petroleum. We shall consider taking up the audit under Section 1.9 of the accounting procedureonly if and when the Ministry ensures that the restrictive conditions are removed unambiguously beforecommencement of audit.

Unfettered right

Finally, the CAG states that it reserves the right to undertake an an independent audit of the entire mechanism ofaward of hydrocarbon blocks by the Ministry under Section 16 of the CAGs (DPC) Act as profit petroleum is a non-

tax revenue credited to the Consolidated Fund of India and this would involve examination of all records (including

11/6/12 The Hindu : News / National : CAG rebuffs Reliance on gas audit terms

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tax revenue credited to the Consolidated Fund of India and this would involve examination of all records (includingthose of the operator) that are relevant to our audit. This Section of the CAGs [DPC] Act gives us an unfettered rightand would override all conditions sought to be imposed on our audit process.

Keywords: RIL, Reliance, CAG audit report, KG-D6 block, gas exploration, oil rigging

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