11/6/12

The Hindu : News / National : CAG rebuffs Reliance on gas audit terms

News National
Published: November 6, 2012 02:44 IST | Updated: November 6, 2012 03:09 IST

CAG rebuffs Reliance on gas audit terms

Sujay Mehdudia
RIL had sought, inter alia, to restrict KG-D6 block audit to accounting books and records

Refusing the demands of the Mukesh-Ambani-owned Reliance Industries Limited (RIL), the Comptroller and Auditor
General (CAG) has stated that the operators restrictive conditions for carrying out an audit of the KG-D6 offshore
block impinge upon the basic mandate, rights and obligations of the [CAG] to conduct as well as report the results
of its audit to Parliament.

In a letter to Petroleum Secretary G.C. Chaturvedi on October 26, two days before Jaipal Reddy was shunted out of
the Petroleum Ministry, the CAG stated that the restrictive conditions were unacceptable to it and the CAGs (Duties,
Powers and Conditions of Service) Act gave it an unfettered right and would override all conditions sought to be
imposed on the audit process.
According to the CAG, RILs conditions included that: (i) Audit will be restricted to accounting books and records;
(ii) audit of the years that are time-barred would be subject to the consent of the operator; (iii) audit report is to be
submitted to the Ministry and not Parliament; (iv) the audit would be subjected to confidentiality arrangements
between parties to production-sharing contract (PSC), and the CAG would be bound not to use the information
acquired during such audit for any other audit under the CAGs (DPC) Act.
It would not be possible for us to conduct audit under such restrictions imposed by the operator [RIL], Principal
Director of Audit, Economic and Service Ministries A.M. Baja has stated in the letter.
The Petroleum Ministry on October 23 wrote to the CAG requesting it to commence audit of KG/DWN 98/3
hydrocarbon block under Section 1.9 of the accounting procedure of the PSC. The Ministry also wrote to the RIL
saying that audit under Section 1.9 of the PSC was perfectly legal and laid out under CAGs [DPC] Act.
Clarifying its position on the audit, the CAG has stated: (i) We are agreeable to undertake audit under Section 1.9 of
PSC on the lines we have done earlier; (ii) we are not contemplating performance audit of the operator/s in such
audit; (iii) the scope, extent and manner of audit would be as laid down under CAGs (DPC) Act and the results of
audit would be communicated to the Ministry and would be used for reporting to Parliament.

We, however, find that the proposed audit as committed to the operator by the Ministry vide letter dated October 23
would have to be undertaken by us in accordance with certain conditions mentioned in RILs letter dated October 18.
We find that these restrictive conditions impinge upon the basic mandate, rights and obligations of the CAG to
conduct as well as report the results of audit to Parliament under the CAGs [DPC] Act as well as the Constitution of
India.

Not consulted: CAG

In response to this, the CAG states in its letter: We feel that the Ministry ought to have consulted us on issues that
would have the effect of binding our audit, before committing on a subject to the operator in the manner it has been
done. We would like to state that our audit cannot be restricted only to the accounting records, and books of the
operator or to the documents and information provided at the discretion of the audited entity. Verification of charges
and credits relating to the contractors activities and other documents considered necessary to audit cannot be merel
limited to an arithmetical totalling of charges and credits and tracing of charges/expenses from the accounting
statements to the operators vouchers. Our audit would extend to verification whether the costs depicted are correctly
determined and in particular costs incurred for procurement of goods and services are determined through a
transparent and competitive process so as to protect governments revenue interests, especially as such costs are
recovered from profit petroleum. We shall consider taking up the audit under Section 1.9 of the accounting procedure
only if and when the Ministry ensures that the restrictive conditions are removed unambiguously before
commencement of audit.

Unfettered right
Finally, the CAG states that it reserves the right to undertake an an independent audit of the entire mechanism of
award of hydrocarbon blocks by the Ministry under Section 16 of the CAGs (DPC) Act as profit petroleum is a nontax revenue credited to the Consolidated Fund of India
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and this would involve examination of all records (including

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11/6/12

The Hindu : News / National : CAG rebuffs Reliance on gas audit terms

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 of the CAGs [DPC] Act gives us an unfettered right
and would override all conditions sought to be imposed on our audit process.
Keywords: RIL, Reliance, CAG audit report, KG-D6 block, gas exploration, oil rigging
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