RIL-CAG row goes to PMO

The Petroleum and Natural Gas Ministry has written to the Prime Minister’s Office (PMO) saying that Reliance Industries Limited’s (RIL) proposal for approval of additional expenditure of $1 billion for the KG D6 block would be subject to the company accepting the Controller and Auditor General (CAG) audit up to 2011-12.

In a note to the PMO, the Petroleum Ministry said there was a proposal from RIL for permitting an additional expenditure of $1 billion which had been agreed to by the managing committee and Directorate General of Hydrocarbons (DGH) subject to the condition that RIL would accept the CAG audit without any pre-conditions.

The Petroleum Ministry had recently informed RIL that the conditions it sought to impose for allowing the CAG audit of its KG D6 facility’s financial statements, records and documents were not acceptable, and that RIL had to agree to the audit without any conditions. Sources in the Petroleum Ministry said the resolution approving annual capital expenditure on the KG-D6 block for 2010-11, 2011-12 and 2012-13 fiscal had not been signed as yet. While the managing committee of the KG-D6 block had approved annual capex plans pending for past three years, the resolution had not been signed. This capex included those on well interventions to reverse the trend of falling gas output. The investment approvals withheld include $805 million that RIL already spent in 2010-11 and another $532 million invested in 2011-12. A budget of $1.096 billion for the current fiscal is also pending approval. The note said that in September 2012, RIL had submitted a revised field development plan bringing back the reserves at 3.4 trillion cubic feet and capex to $6.2 billion, which was under examination of the DGH.

Drop in production

“In the meantime, production has declined substantially. As per estimate, the production was to reach a level of 81 mmscmd in 2012. From a peak of 67 mmscmd in 2009-10, it has declined to around 20.5 in 2012, prompting the government to stop proportionate cost recovery by the contractor, which is under arbitration. The Petroleum Ministry will continue to protect the government’s interest in all force,” the note stated.

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