January 2013

Upset at the repeated failure of Reliance Industries Limited (RIL) to submit for audit records and information relating to the Krishna Godavari D6 block, the Comptroller and Auditor-General has asked the Petroleum Ministry to withhold all approvals to the Mukesh Ambani-owned company, except in emergency situations.

The government auditor has also asked the Ministry not to clear the plans of British Gas (BG) for exploration projects as it had also failed to submit information and records relating to the Panna-Mukta-Tapti gasfields.
Sources in the government said that soon after M. Veerappa Moily took over as Petroleum Minister this month, following the “unceremonious” exit of S. Jaipal Reddy, the CAG wrote to the Ministry, pointing to the continuous failure of the two companies to submit the records it had sought. “The CAG, in its communication, has pointed out that every effort was being made to thwart the audit by the constitutional body, and one after another obstacle was created in the conduct of a smooth audit till 2011-12. Both RIL and BG are shying away from providing information and have adopted an ‘indifferent’ attitude to the CAG, resulting in the audit coming to a standstill,” the sources said.

Furthermore, the sources said, the CAG asked the Ministry to immediately direct RIL to submit all records pertaining to the KG D6 block for audit up to 2012, as any increase in capital expenditure would have an adverse impact on the government’s interest. “Till the time RIL and BG submit the relevant records for audit and cooperate with the CAG, their approvals should be held back except in emergency circumstances,” it said.
Earlier this month, the CAG strongly objected to the “restrictive conditions” laid down by RIL for an audit, which, it said, “impinge upon the basic mandate, rights and obligations of the CAG” to conduct an audit and report the results to Parliament.

In a letter to Petroleum Secretary G.C. Chaturvedi on October 26, two days before Mr. Reddy was shunted out of the Ministry, the CAG said the conditions were unacceptable, and the CAG’s (Duties, Powers and Conditions of Service) Act, 1971, gave it unfettered right and would override all conditions sought to be imposed on the audit process.
In it, the government auditor listed the conditions laid down by RIL: audit be restricted to “accounting books and records;” audit of the years that were time-barred be subject to the consent of the operator; audit report be submitted to the Ministry and not Parliament; audit be subjected to confidentiality arrangements between parties to the production-sharing contract; and the CAG be bound not to use the information acquired during the audit for any other audit under the Act.

“It would not be possible for us to conduct audit under such restrictions imposed by the operator [RIL],” A.M. Bajaj, Principal Director of Audit, Economic and Service Ministries, said in the letter.
The CAG said it reserved the right to undertake an independent audit of the entire process of award of hydrocarbon blocks by the Ministry under Section 16 of the CAG’s 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 those of the operator) that are relevant to our audit. This Section… gives us an unfettered right and will override all conditions sought to be imposed on our audit process.”.

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