The next salvo from the Comptroller and Auditor General (CAG) may come in the form of year-wise figures of the loss to the exchequer because of falling gas production from Reliance Industries Ltd’s KG-D6 field. How the CAG’s Rs 1.76-lakh-crore loss figure it came out for 2G telecom spectrum allocation haunted the government is well documented already.
The ministry of petroleum and natural gas had recently rejected an arbitration notice of RIL on the flagging production, stating there was no dispute. But, CAG’s second audit of the field will focus on the underutilisation of capacity.
The second phase of the audit is expected to formally begin after Parliament’s Public Accounts Committee (PAC) completes evaluation of the CAG’s earlier report on the KG-D6 basin focused on 2007-08. The new audit will cover the years between 2008 and 2011. Unlike the earlier audit, this one will name year-wise losses to the exchequer. The PAC in its meetings had sought loss figures from the petroleum ministry. The ministry directed the issue to the CAG, saying it was the auditor’s job to estimate losses.(Click here for AUDITOR IN ACTION)
A senior official in the office of the CAG, on the condition of anonymity, said the audit agency had begun monitoring the gas volume being produced from the basin. “The production at present is lower than the capacity. We are trying to ascertain from the investor multiple formula what loss, if any, the government may face because of this,” the official said.
The issue of falling gas production at the KG-D6 basin has been a source of dispute between the ministry and the company ever since the CAG criticised the government for its limited role in overseeing production-sharing contracts governing the operation of oil and gas blocks.
The dispute grew after RIL on November 24 slapped an arbitration notice on learning the ministry was moving to restrict cost-recovery in the KG-D6 block, as flagging production led to the utilisation of less than half the 80 million cubic metres per day of infrastructure the company had built. The RIL move came before any action from the ministry.
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Earlier, the ministry of law in its opinion to the petroleum ministry said cost-recovery could be restricted to the capacity being used for the current quantity of gas produced and not the full capacity.
More recently, the Press Trust of India reported the petroleum ministry had asked RIL to immediately withdraw its arbitration notice against the proposed move to curtail cost-recovery at its KG-D6 gas fields, saying “as on date” there was no cause for such action. In a press statement after the arbitration notice, RIL maintained the contract contained no provision that entitled the government to restrict costs recovered by the company by reference to factors such as the level of production or the extent to which field facilities were utilised. It said the company had resorted to arbitration to resolve this issue “so as not to hinder future investments in this block”.
Gas production at the basin averaged 48.13 mscmd against the target of 53.40 mscmd in 2010-11 and 38.61 mscmd (up to October 31, 2011), compared to the target of 61.88 mscmd, in 2011-12. Production of 80 mscmd was envisaged in 2012-13. RIL says it has not drilled committed wells, as the reservoir has not behaved as previously predicted and output dipped due to a fall in pressure and water and sand ingress in wells.