National auditor CAG (comptroller and auditor general of India) on Thursday castigated the Oil Ministry for allowing Reliance industries to retain its entire eastern offshore KG-D6 block in contravention of the Production Sharing Contract, but did not comment on more than tripling of the field development cost.

The CAG, in its much-awaited report tabled in Parliament on Thursday, did not say if the capital expenditure for KG-D6 being raised from USD 2.4 billion proposed in 2004 to USD 8.8 billion in 2006 was unjustified or inflated.

It faulted the Oil Ministry and its technical arm, the directorate general of hydrocarbons (DGH), for allowing Reliance to retain the entire 7,645 sq km KG-DWN-98/3 (KG-D6) block in the Bay of Bengal after the giant Dhirubhai-1 and 3 gas finds were made in 2001.


National auditor CAG (comptroller and auditor general of India) on Thursday castigated the Oil Ministry for allowing Reliance industries to retain its entire eastern offshore KG-D6 block in contravention of the Production Sharing Contract, but did not comment on more than tripling of the field development cost.

The CAG, in its much-awaited report tabled in Parliament on Thursday, did not say if the capital expenditure for KG-D6 being raised from USD 2.4 billion proposed in 2004 to USD 8.8 billion in 2006 was unjustified or inflated.

It faulted the Oil Ministry and its technical arm, the directorate general of hydrocarbons (DGH), for allowing Reliance to retain the entire 7,645 sq km KG-DWN-98/3 (KG-D6) block in the Bay of Bengal after the giant Dhirubhai-1 and 3 gas finds were made in 2001.

As per the PSC, Reliance should have relinquished 25 per cent of the total area outside the discoveries in June, 2004, and 2005, but the entire block was declared as a discovery area and the company was allowed to retain it.

"We recommend that the Ministry of Petroleum and Natural Gas should review the determination of the entire contract area as 'discovery area' strictly in terms of the PSC provisions," the CAG said, asking for delineation of the discovery area and relinquishment of the rest.

The CAG was critical of government oversight, particularly on high value procurement decisions, and sought an "in-depth review" of 10 contracts, including eight awarded to Aker Group by Reliance on a single-bid basis.

Giving Reliance a breather on charges of 'gold-plating' its KG-D6 expenses, the CAG said "approval of estimates (first USD 2.4 billion and then USD 8.8 billion in 2006) does not constitute acceptance of the cost projects", which can be done only through an audit of the actual cost incurred.