The faceoff between the Comptroller & Auditor General of India (CAG) and Reliance Industries (RIL) has taken a turn for the worse, with the Mukesh Ambani-owned oil and gas major threatening to end the entire audit process for its KG-D6 gas block off the eastern shores, sources told NDTV.
The block is jointly operated by RIL, British Petroleum (BP) and Canadian firm Niko.
Although CAG did not reply to an email query, an RIL official said: "RIL and the government have signed a legally binding contract, which is the PSC (production sharing contract). RIL fully accepts the government's right to audit in accordance with Section 1.9 of the PSC. RIL has been cooperating and will cooperate with the audit as per the PSC. It has not only given all records necessary for the conduct of such an audit, but has also granted the CAG team access to its online SAP system to facilitate the process."
The sources told NDTV that in a meeting between the two parties held in the first half of January, RIL told CAG officials that it reserved the right to bring the CAG audit to an end and refer any dispute to arbitration in accordance with the PSC (production sharing contract) "in the event that the audit of the contractor by the CAG exceeds the scope of Section 1.9 of the accounting procedure". The section recommends a financial audit only.
At the meeting, RIL said the consortium in KG-D6 is required to provide "only such records that were required for verifying charges and credit, and not questioning the merit of the decision of the operator", the sources said.
The dispute stems from the nature of audit. RIL wants CAG to confine its audit to a financial one under the PSC contract it had signed with the government and not under the CAG Act. It also does not want CAG to table the audit report in Parliament.
A CAG official told NDTV that the auditor had assured RIL in the meeting that it will be a financial audit only. Also, CAG told RIL that "it would use some aspect of the Section 1.9 and that of other contractor to supplement its performance audit by the Petroleum Ministry ... It is CAG's obligation to report such performance audit (of ministries and not RIL) to Parliament".
The CAG had told RIL that "just because the report will be submitted in Parliament, it did not mean it would be a performance audit".
RIL has informed the Petroleum Ministry that it will provide records to the CAG for the fiscal years 2008-09 to 2011-12 only and not before that. However, the CAG wanted the data for the previous financial years as well.