No need for CAG audit of CBM blocks, says Rangarajan panel

In the wake of a row over Comptroller and Auditor General ( CAG) audit of Reliance Industries Ltd’s (RIL’s) KG-D6 block, a panel headed by Prime Minister’s Economic Advisory Council Chairman C Rangarajan has said CAG need not audit RIL’s coal-bed methane (CBM) blocks, as those were governed by a different contractual regime.

The panel said in its report last week that CBM blocks did not have elements of cost recovery, so a CAG audit “may not be required”.

In conventional oil and gas blocks, such as the eastern offshore KG-D6, companies are allowed to first recover their cost before the government gets a share in profit. CAG had earlier criticised this cost-recovery model and said it encouraged operators to keep raising costs to defer government profit.
However, the government had bid out CBM blocks, for extraction of gas from coal seams, on the basis of output share a company offered from the first day of production. A block was given out to the company offering the highest share.

“As the element of cost recovery is not applicable to CBM blocks and nominated (oil and gas) blocks (given to ONGC and OIL), CAG audit for such blocks may not be required, and production monitoring through field surveillance might be considered adequate,” the panel said in its report.

RIL, which has over the past few months bickered over the scope of a second round of audit of its spending on the flagging KG-D6 fields, has two CBM blocks in Sohagpur, Madhya Pradesh, for which it has been seeking a price of almost $13 per million British thermal unit.

Even for conventional oil and gas blocks, the panel said, CAG should carry out audit “with a period of two years” of closing of annual accounts.

RIL had contended that the government can appoint an auditor, including CAG, to verify its expenses within two years of the spendings, as had been provided in the production-sharing contract (PSC). Last month, it agreed to allow CAG to carry out scrutiny for 2008-09 and 2009-10, though it was time-barred.

“Audit by CAG may be carried out within a period of two years of the financial year under audit, as specified in PSCs,” the Rangarajan panel said. “Further, where investment is huge (a $1 billion threshold may be adopted), a suitable mechanism of concurrent audit may be considered,” it added.

It upheld RIL’s contention that CAG audit should be in line with Section 1.9 of the PSC that provides for only a financial scrutiny and not a commentative performance audit that can question technical decisions.

“Audit by CAG under Section 1.9 of the PSC should be prior to performance audit of the (petroleum) ministry, so that corrective actions emerging from CAG audit could be taken by the government in order to protect the government revenue,” it added.

Source: PTI