The Comptroller and Auditor General of India is finalising a report that questions the government's move to allow Reliance Industries to increase its expenditure in developing the D-6 field in the Krishna-Godavari basin by over $6 billion, significantly reducing the state's share of revenue from the country's biggest gas field.
Despite the higher expenditure, Reliance's gas output from D-6 has fallen to about 55 million cubic metres a day, well below the target of 80 million cubic metres, a performance which the national auditor may criticise, a senior government official, who did not want to be identified, told ET.
Analysts say concerns over gas output from the field has been a drag on Reliance's shares, which have fallen from a 52-week peak of 1,187 in November to 919 on Monday. Goldman Sachs said in a recent report that there was "uncertainty" about ramping up output, while JP Morgan said after the company's quarterly earnings that " RIL management gave no guidance on the timelines for the ramp-up in the D-6 field."
The official said the chief auditor's finding is likely to include an extensive account of lapses by the oil ministry, which abandoned its own procedures, and Reliance, which the CAG feels did not comply with some provisions of the production sharing contract (PSC). Under the PSC, the company that is awarded the field recovers the cost of developing the field from sale of gas and balance output, called profit petroleum. This is shared between the government and the company.
The report would be sent to the oil ministry before it is placed in Parliament, he said. Reliance did not respond to a detailed questionnaire sent by ET. Murli Deora , who was petroleum minister when higher costs were approved, did not respond to calls by ET. The CAG report is not final and can undergo changes after being reviewed by the oil ministry. But if the report sticks to the conclusion described to ET it could lead to a furore in Parliament.
UNCOMFORTABLE QUESTIONS
What is the controversy?
RIL's capex for developing KG D-6 has increased from $2.4 billion to $8.8 billion, but there has been no commensurate increase in gas production. Production from the field has plateaued at 55 mmscmd, well below the target of 80 mmscmd. An escalation in cost, approved by the oil ministry and the DGH, has led to a decrease in govt's revenue in terms of profit petroleum.
What is CAG likely to say?
CAG likely to point out many procedural lapses on the part of oilmin & DGH as well as non-compliance of various conditions in the PSC by RIL. Auditor likely to raise issues relating to profit petroleum, oversight on part of the government and how oilmin did not follow its own procedures.
What does it mean for RIL?
RIL's performance might come under scrutiny. The company's perceived inability to ramp up output is one of the reasons for its share price coming under pressure.
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