Pradeep Thakur, TNN | Feb 19, 2013, 05.38AM IST
NEW DELHI: Comptroller and Auditor General (CAG) Vinod Rai has sought government’s intervention to ensure that it gets to investigate Reliance Industries Limited’s (RIL) claim to have spent more than Rs 25,000 crore for developing the D-6 gas fields in the Krishna-Godavari basin.
Rai last week wrote a letter to petroleum minister Veerappa Moily pointing out that a CAG team deputed to audit RIL’s expenditure claim was not allowed access to the company’s books. The private sector giant remained engaged with the CAG audit team, but refused to share details of the equipment worth thousands of crore it claims to have procured for developing the gas field since early 2007.
RIL justified the denial of documents and details by arguing that the top federal auditor did not have the mandate to ask for “propriety expenditure” of a private concern. CAG had wanted to know the sources from where RIL procured the machinery. When asked about it, the petroleum minister sought to play the standoff down. Speaking on the sidelines of a GAIL function in Bengaluru, Moily said: “RIL is not the only party involved. They will do their job, CAG will do its job and the ministry will do its work.”
Rai’s letter to the petroleum ministry renews a running feud between the CAG and RIL over the former’s jurisdiction to review the expenses that the corporate behemoth says it has incurred for developing the gas reserves in K-G basin. RIL has justified its stand by saying that it was a private concern and, consequently, outside the CAG’s purview.
However, CAG has asserted its right to inspect the accounts by saying that they pertain to a production-sharing contract where government is a partner. It has also argued that under the production-sharing agreement, RIL is supposed to be reimbursed for the capital expenses, and this is taken into account while determining government’s share of gas revenue. Anti-corruption activists like Prashant Bhushan and Arvind Kejriwal have alleged that RIL inflates its cost — “gold plating” in business parlance — in order to maximize its profits at the cost of public exchequer.
The matter had taken a political overtone when the removal of S Jaipal Reddy from the petroleum ministry was attributed to RIL’s machinations. Reddy had sided with the view that CAG had the jurisdiction to examine the veracity of RIL’s capital expenditure claim, and had stopped them from making further investments until they had submitted to the auditor’s scrutiny.
Anti-graft activists released documents to say that Reddy lost his job because he refused to ignore the allegations that RIL was engaged in gold plating.
Sources said 90% of receipts from the D-6 are going towards reimbursing the RIL’s capital expenses. And 9% of the remainder goes to RIL, leaving only 1% for the government.
“The government is losing out on 90% of the proceeds from the sale of gas as they are being shown as expenditure. As representative of the government we should know where these expenditures have been made,” said an official. The RIL is believed to have offered only an account statement showing expenditures and receipts, but refused to elaborate.
The six-member audit team had its first meeting at Mumbai with RIL officials on January 9 and returned last week empty handed. The feud has flared up afresh just as Rai’s tenure expires in May.
CAG has told Moily that unless the audit team is furnished with all the details of procurement from where such purchases were made it would not be possible to make a proper audit observation.
When contacted, RIL refused to comment. While the CAG team was still sitting at its Mumbai office, the RIL on January 29 wrote to the petroleum ministry saying, “although differences have arisen as to the basis and scope of the audit after the January 9 meeting, we are making all efforts to co-operate with CAG by providing records.”
However, it said that CAG audit as per the production sharing contract “do not make any reference to a performance audit or propriety audit or challenge the reasonableness of any expenditure incurred.”
While making it clear that it would not share with the auditor any “propriety” expenditure details, the RIL in its letter to the petroleum ministry said that “non-furnishing of documents, which are not required for the purpose of audit under Section 1.9 (of the PSC) but are sought by CAG, cannot constitute a breach of the PSC”.