KG-D6 gas block: CAG red-flags $1.6 bn excess cost recovery by Reliance

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Government auditor CAG has red- flagged USD 1.6 billion of excess cost recovered by Reliance Industries in the KG-D6 gas block and took note of state-owned ONGC’s gas flowing into the eastern offshore fields of the Mukesh Ambani-led firm.

The Comptroller and Auditor General of India (CAG), in a report tabled in Parliament, said 831.88 sq km of KG-D6 area needs to be taken away from RIL as per the contract and cost of discoveries it had relinquished should not be allowed to be recovered from sale of oil and gas from the block.

Also, cost recovery for doing discovery conformity test should be looked into, it said. CAG said November 2015 report of independent expert DeGolyer & MacNaughton (D&M) submitted on reservoir continuity between the KG-D6 and contiguous ONGC operated blocks has pointed out that gas has migrated from the blocks owned by state-owned firm to the private company operated fields.

“The report indicates that as on March 31, 2015, of the gas initially in place, 44.32 per cent in Godavari PML and 34.71 per cent in KG-DWN-98/2 (both of ONGC) had migrated” to KG-D6, it said.

“The report projected a higher proportion of gas migration and its production through RIL operated KG-DWN- 98/3 (KG-D6) block by end of 2019.”

The government has appointed one member committee under Justice A P Shah to consider the report and recommend future action.

“In case if the Ministry of Petroleum and Natural Gas accepts D&M report conclusion that RIL did draw gas from ONGC’s contiguous fields, and directs RIL to compensate ONGC for the same, it may affect the financials of KG-DWN-98/3 including cost petroleum, profit petroleum, royalty and taxes over its entire period of operation (since April 2009 when production of gas commenced from the block),” CAG said.

It said many of the issue it had pointed out in the previous audits (2006-12) of the block still persist.

“The total financial impact of excess cost recovery during 2012-14 on account of the earlier identified audit findings was USD 1.547 billion (Rs 9,307.22 crore). “For the period 2012-14, additional issues of excess cost recovery claimed by the operator (RIL) were noticed, financial effect of which was USD 46.35 million,” it said.

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