Oil ministry preparing reply to CAG draft; CBI set for probe

The ministry of petroleum and natural gas is reportedly preparing a response to the draft report submitted by the Comptroller and Auditor General of India which has criticised the role of the ministry and the Directorate General of Hydrocarbons (DGH) in allowing Mukesh Ambani's Reliance Industries Ltd (RIL) to inflate development costs for the D6 gas block in the Krishna-Godavari basin (See: Government favoured RIL, others in gas exploration contract: CAG).

At the same time, a report suggests that Central Bureau of Investigation (CBI) is scrutinising the oil ministry's role in dealing with energy companies, including RIL, and may register a case after the country's apex auditor submits its final report on the matter.

The CAG has raised several questions about the way the DGH allowed RIL to raise expenditure in the D6 field. ''The increase in cost from the initial development plan in the addendum to the plan is likely to have a significant impact on the government of India's financial take,'' CAG said in its report titled Draft performance audit report on hydrocarbon production sharing contracts that was submitted to the ministry on Thursday.

CAG has sought the ministry's comments and responses within two weeks, to be incorporated in the final audit report.

The charge has been denied by RIL. It says it has acted responsibly, fully complied with the production sharing contracts, and "refutes any suggestion to the contrary." It added that the project was globally acclaimed as cost effective.

Citing sources in the CBI, The Economic Times said the agency had already registered preliminary enquiries against the way the DGH had approved a significant jump in capital expenditure in developing RIL's KG-D 6 block from $2.4 billion in 2004 to $8.5 billion in 2006.