Oil Minister Veerappa Moily has said that audits of oil and gas blocks are a contractual obligation and that “Reliance will abide by it”. He also stressed that “we will not create any problems for Reliance or the CAG” (India’s national auditor).
Mukesh Ambani’s Reliance Industries Limited (RIL) has been challenging a performance audit of its gas fields in the Krishna-Godavari basin off the Andhra Pradesh coast (read RIL's statement).
India’s official auditor, Comptroller and Auditor General, clarified over the weekend, “CAG does not conduct performance audit of private operators. This has been clarified to the Ministry on 26th October 2012 that CAG's audit would not be a performance audit of the operator and would be conducted on the same lines as done earlier.”
A few weeks ago, the government agreed to limiting the proposed audit to a financial one, which would exempt any evaluation of the technologies and processes employed by Reliance. Then, Jaipal Reddy was transferred out as Oil Minister as part of a major cabinet reshuffle. His exit has been attributed by the opposition and anti-corruption campaigner Arvind Kejriwal to his insistence on holding Reliance accountable.
The CAG has objected to the government's move to narrow the scope of audit.
One of the controversies surrounding the KG-D6 gas blocks is that its output has been falling, while Reliance has been showing increasing capital expenditure.
Mr Kejriwal had alleged last week that RIL "hoarded" gas, deliberately failing to deliver the required output. He also said the government allowed Reliance to substantially increase its capital expenditure on producing the gas, which reduces the government's share of oil and gas revenue. The higher the capex cost, the longer it takes for the government to see revenue from the blocks. Though Reliance has increased its capex, the output has been falling steadily, raising doubts about the justification for the hike.
Earlier, an "entry meeting" between CAG, the oil ministry and RIL scheduled for October 31 in order to begin the audit process was postponed by the ministry.
"Reliance Industries Ltd (RIL) has raised certain apprehensions regarding this audit and expressed their desire to discuss the issue further. The issues are likely to be finalised in the next few weeks," the petroleum ministry had said after Mr Moily took over.
With inputs from agencies