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CAG Seeks Explanations For Delay in KG-D6 Audit

The Comptroller & Auditor General (CAG) of India has asked the oil ministry to explain the delay in approving audited accounts of Reliance Industries-operated KG-D6 block since 2008-09, which the company said is affecting investor confidence.

While Reliance accused the Directorate General of Hydrocarbons (DGH) for raising minor issues to stall the approval processes despite the company having submitted audited accounts long back, DGH has blamed the oil ministry, the government and industry officials with direct knowledge of the matter said. In its reply to the audit query, DGH said it had finished scrutinizing audited accounts of the KG-D6 block for 2008-09 and 2009-10 about three years ago and had forwarded the same to the oil ministry for its approval, government officials said, requesting anonymity.

DGH, which is the technical arm of the oil ministry and initially scrutinizes accounts of oil and gas fields before sending them to the ministry for final approvals, could verify accounts for only 2008-09 and 2009-10, officials in the directorate said.

“Audited accounts for 2010-11, submitted by the contractor, are under examination. During this process a series of clarifications and queries was sought from the contractor. The last such clarification has been received from the contractor on May 14, 2012. Once the review process is completed at DGH, it will be forwarded to the oil ministry,” one DGH official said on condition of anonymity.

RIL blamed DGH for delays in clearing accounts for 2008-12.

“The reasons for non-approval of the entire accounts for several years is due to different views being held by DGH on certain minor issues related to parent company overhead charges, profit petroleum on the closing stock of crude oil and marketing margin raised in different years. During the approval of 10-11 accounts, a further issue on non-approval of three appraisal wells were raised. Since these issues are pending resolution, other approved costs have also not been cleared,” a company spokesman said in an email.

“Key decisions like approval of accounts do affect investors’ confidence,” he said. Spokesmen of the oil ministry and DGH did not respond to email queries.

A senior oil ministry official said he was not aware about delays in approval of audited accounts of the KD-D6 block. “I have no idea. But, RIL is fully cooperating with CAG, which has helped us in approving its various investment proposals in the block totaling about $4.8 billion,” said the official who did not wish to be named.

RIL was unable to ramp up output from the field pending approvals of its investment plans in the block. Now, it is able to raise the output gradually, the official said. “CAG is conducting audit as per the PSC (production sharing contract) and the process is on,” he said. DGH and Oil ministry officials said CAG is continuously issuing memos related to expenditure and output. Recently, it has sought their explanation on reasons for allowing the contractor to overspend and build access infrastructure. “These issues were raised by CAG in its 2011 report. As CAG audit is on, often memos of similar nature are being raised again and again for more clarifications or reminders,” another official said.

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