RIL contests CAG's powers to audit KG-D6 field

The CAG in the first round conducted a 'performance' audit which is contrary to the provisions of the Production Sharing Contract (PSC), it wrote on September 18.

Updated: Oct 02, 2012, 17:46 PM IST

New Delhi: Contesting CAG's powers to audit a private company, Reliance Industries has said it is ready for an audit of its flagging KG-D6 gas field by any government- appointed auditor subject of the scrutiny being carried out as prescribed under the signed contract or PSC.

Just as the Comptroller and Auditor General of India (CAG) prepared to begin audit of KG-D6 field spendings in 2008-09 to 2011-12, RIL wrote to the Oil Ministry saying under the CAG Act, the official auditor was "entitled to carry out an audit of central government, the state government or government body or bodies" only.

The CAG in the first round conducted a 'performance' audit which is contrary to the provisions of the Production Sharing Contract (PSC), it wrote on September 18.

RIL said it was open to financial audit of its spending on the field, which has seen production drop by over 55 per cent to 27.5 million cubic metres per day instead of rising to planned 80 mmcmd.

It was opposed CAG doing a 'performance' audit wherein efficacies of process or technology used in the complex deepsea operations are called in for questioning by a non-technical authority.

Stating that it had as a one-time exception agreed to a CAG audit in 2009, RIL said in case the government insists on CAG doing further audit, the same should be done with an assurance that the report will be given only to the ministry (and not to the Parliament as is required under the CAG Act).

Also, "all information submitted by contractor (RIL) during the course of the audit be kept and considered confidential and not disclosed to any third party," it added.

The company said CAG can audit 'performance' of DGH or the petroleum ministry, but not a private sector company like RIL which was functioning as a contractor.

The PSC provides for the Oil ministry appointing a representative to carry audit the contractor's accounts in order to verify the charges and credits.

If the CAG is to be that 'representative', "it would be incumbent upon the ministry to invoke the process stipulated in Section 20 of the CAG Act relating to entrusting the CAG with the audit of an entity, the audit of which is not entrusted to the CAG by or under any law made by the Parliament and provided that the provisions of Section 20 of the CAG Act can be made applicable to the contractor operating under the PSC," it wrote.

As an alternative, RIL suggested appointment of any auditor other than CAG as the government's representative to conduct an audit.

The CAG had in its first round of audit questioned the 'reasonableness of costs incurred in the gas field development and said the government should revisit the profit sharing mechanism.
Citing its August 17, 2009 letter, RIL President and COO B Ganguly said the company had in 2009 agreed to an CAG audit of KG-D6 spending "strictly as a one time exception" even though the audit exercise proposed by CAG did not comply with the provisions of CAG Act.

The Ministry, he said, prior to the beginning of that audit had indicated that CAG would conduct its audit in terms of Section 1.9 of the Accounting Procedure of the PSC.

"However, the CAG appears to have carried out an audit under the Comptroller and Auditor-General's (Duties, Powers & Conditions of Service) Act, 1971," he wrote pointing to the reference made in the CAG report submitted to Parliament last year.

"In fact, it would appear that the CAG intended and did carry out a 'performance' audit of the contractor (RIL). We would respectfully submit that this is beyond the scope of Section 1.9 of the Accounting Procedure of the PSC," he said.

Building up the argument against CAG, RIL quoted article 149 of the Constitution saying that it was upon Parliament to decide and stipulate the extent of the CAG's power and authority.

If the official auditor under the CAG Act "undertakes an audit of the Ministry of Petroleum and Natural Gas and/or DGH and we as contractors would fully cooperate and provide all data, records and information as has been maintained by us under the PSC whenever we are required to do so," it added.