CAG asks govt to review 10 contracts for goods and services that were awarded "on the basis of single financial bids".-Sep 9, 2011

CAG asks govt to review 10 contracts

Sanjay DuttaSanjay Dutta, TNN | Sep 9, 2011, 04.08AM IST


NEW DELHI: The CAG has recommended that the government should review its decision to allow Reliance to retain the entire gas field acreage. It has suggested that the discovery area should be demarcated afresh so that the 25% area that Reliance should have given up can be identified.

It has also sought an "in-depth" review of 10 contracts for goods and services that were awarded "on the basis of single financial bids".

The report shows how Reliance was allowed to "proceed from phase (of development) to phase", while its "proposal of April 2004 to not relinquish any area" and declare the entire acreage as a discovery "remained submerged in a sea of correspondence between RIL and DGH."

The final CAG report appears more muted than the draft report, first reported by TOI on June 13. The draft report had blamed the ministry and the DGH for favouring private oil companies, including Reliance. It had also said there appeared to be some loss to the exchequer with regard to the RIL gas field, although it was unable to quantify it.

TOI had also reported on June 14 and June 22 how the draft report showed cost of contracts rising phenomenally because of RIL's "sweetheart deals" for procurement of goods and services.

In contrast, the final report does not talk about any loss to exchequer. It also clears Reliance - at least for the time being - of allegations of gold-plating (or artificially jacking up costs) of the KG production facilities. "Since approval of estimates does not constitute acceptance of the cost of projections of the operator, validating the cost incurred by him can be done only after audit of the actual cost through proper norms," the report says.

This allegation of gold-plating, leveled after Reliance increased the capital cost estimate from $2.4 billion to $5.2 billion, was the key reason for the oil ministry to order a special audit by CAG. It was also the first time a government auditor was asked to scrutinize the books of a private company.

CAG doesn't look askance at the then oil minister Murli Deora, who - says the report - ordered the special audit and expressed concern about the decision to allow Reliance to retain the entire acreage. The report notes that the minister ratified the decision only after an expert committee under an additional secretary approved it.

When contacted, Deora declined to comment. Reliance too withheld comment, saying it hadn't seen the report. "We had already provided to the ministry, DGH and CAG our detailed comments along with the views of international experts on such parts of the draft report that had been communicated to us... We reiterate that, as a contractor, we remain committed to complying with the PSC provisions and procedures," a company statement said.

"Since many of the comments in the draft report had referred to issues that were technical in nature, we had offered to CAG a complete and thorough interaction with subject matter specialists. We remain open to such
interaction at all times," it added.