The CAG today sought disallowance of USD 357.16 million (about Rs 2,179 crore) expenditure Reliance Industries incurred on drilling of wells and payments to contractors in KG-D6 while it pulled up Oil Ministry for delays in approvals and inconsistent parameters.
In its second audit of RIL's eastern offshore KG-D6 block, the CAG recommended disallowing the Mukesh Ambani-run company from recovering USD 279.8 million in cost of three wells as well as a part of expenditure the firm had incurred in area which was improperly declared discovery area.
The Comptroller and Auditor General of India (CAG) in its report tabled in Parliament, found irregular payment of USD 427.48 million to contractors, of which it sought disallowance of at least USD 77.36 million cost.
Under the Production Sharing Contract (PSC), RIL and its partners BP plc of UK and Canada's Niko Resources are allowed to recover all capital and operating expenditure from sale of oil and gas before sharing profits with the government.
"Expenditure amounting to USD 160.81 million incurred on account of three appraisal wells was not eligible for cost recovery and had been disallowed by Petroleum Ministry. However, even after the Ministry communicated its decision, the Operator continued to claim the cost recovery, as seen in the final accounts for the year ended 2013," it said.
The CAG recommended that the Ministry "ensure that the disallowed cost of three wells amounting to USD 160.81 million is recovered" from RIL and its partners.
It pulled up the Ministry for not approving annual expenditure and work budgets on time and also asked it to "develop consistent and uniform parameters for evaluating commerciality of discoveries."
Also, the Ministry was asked to urgently take steps to resolve the differing views of the contractor (RIL) and upstream regulator DGH on the reserve estimates of KG-D6 and take appropriate action to increase production.
Listing instances of irregular payments, the CAG said RIL paid Allseas Marine Contractors (AMC) Euro 200 million more for construction of offshore facilities.
It wanted cost recovery of USD 77.36 million paid for a floating oil production system to be disallowed. Besides, it found fault with payment of USD 12.48 million start-up and production bonuses to employees, USD 88.77 million in hiring of deepsea drilling rig and over USD 16 million in bonus to contractors.
Finding fault with the Ministry in declaring the entire 7,645 square kilometre KG-D6 block area as discovery area, CAG said, "Normally the entire amount of USD 427.03 million would requirement to be disallowed for cost recovery since these activities were not in line with PSC provisions."
Keeping in mind, however, the fact that the exploration resulted in a commercial discovery (D34), it said recommended disallowing USD 118.99 million expenditure.
