CAG lacks technical knowledge of hydrocarbon sector; says RIL

<p>The Comptroller and Audit General (CAG)has found itself in a sheath of accusation following its irrational claims that struck out many major oil and gas operators including Mukesh Ambani owned Reliance Industries Limited (RIL). Commenting of the CAG’s audit report, RIL representatives have lashed out against the audit body on suggesting gold plating of costs incurred on account of KG D6 block when no such act was accounted for during the process of audit.</p>
<p>Reliance Industries, in it reply, has stated that CAG lacks technical knowledge of the hydrocarbon sector to fully assess the handling of the process, including its costs. It noted that CAG failed to grasp the commercial terms of the production sharing contracts (PSC) in relation to cost recovery and production sharing. These are designed to ‘incentivizes cost reduction and disincentives cost increase’ and the audit body has failed to understand the same. Supporting this claim, RIL noted that while an operator incurs increase in cost, for a valid reason, it does not imply an increase in profits for that operator. It is actually otherwise which holds true.</p>
<p>CAG had also suggested that because of RIL’s cost inflation, the government stands to incur a huge loss. Rebutting this allegation, Reliance stated that while government has a chance to recover its losses by way of reduction of subsidy burden, RIL has no way of recovering its loss. Also, as a point of contention, RIL noted that government has, in fact, earned Rs. 7,000 crore as royalty and Rs. 32,000 crore as profit petroleum without having made any financial investment. RIL is rather at the dearth of facing losses on 1.5 trillion cubic feet (tcf) of gas produced from the KG D6 fields, which is equivalent to 250 million barrels of oil imports valuated at almost $ 25 billion, as result of low price valuation affixed by the government.</p>
<p>RIL has tagged CAG’s findings as lacking concrete base, and fuelled most likely by suggestive corporate rivalry.</p>