Ministry plans to rubbish CAG charges on RIL’s K-G capex

The petroleum ministry, preparing its reply to allegations in a draft report by the Comptroller & Auditor General, will argue that there was no loss to the exchequer on account of Reliance Industries Ltd (RIL) raising the capital cost for the D6 gas block in the Krishna-Godavari basin, which RIL operates, according to a report.

The CAG's draft report questions the ministry and its upstream regulator the Directorate General of Hydrocarbons (DGH) for allegedly allowing Reliance Industries Ltd (RIL) to inflate development costs.

According to The Economic Times, the oil ministry plans to tell the national auditor that some of its observations were not practical, and would repel much-needed private capital in the high-risk exploration business.

The CAG auditor has questioned the DGH's approval for a $8.5 billion capital expenditure by Reliance in the D6 block, against $2.4 billion approved initially.

According to the report, officials said the government had a clear strategy: it wanted to reward companies that discovered hydrocarbons instead of discouraging them by blocking projects with bureaucratic obstacles, as long as national interest was not compromised.

Unnamed oil ministry officials were reported to say the controversial $8.5-billion capital expenditure was merely a long-term estimate. The actual expenditure was approved by the government in the annual budget for the gas field after thorough verification of each item. This expenditure was subsequently recovered from the produce of the block only after an official audit.

"All operators, including RIL have to get government approval of their annual work programme budget before making any expenditure in their blocks every year, so the fear of financial loss to the government by allegedly inflating capex of KG-D6 is baseless," the report quoted an anonymous oil ministry official as saying.

 (See: Oil ministry preparing reply to CAG draft; CBI set for probe)