The government could even cancel the Mukesh Ambani-owned Reliance Industries’ biggest gas find in the Krishna-Godavari (KG) basin’s D6 block if the Comptroller and Auditor-General of India nails the company in its final report for furnishing fake bills or using fraudulent means to inflate expenditure, according to petroleum ministry sources.

Currently, both the petroleum ministry and its technical arm, the directorate-general of hydrocarbons, are facing flak after a draft CAG report which pointed fingers at them for approving Reliance Industries’ request to hike expenditure for developing D6 block from $2.4 billion in 2004 to $8.5 billion in 2006. The government gets its share of revenue only after the company involved gets back its investment. Increase in expenditure by RIL means a decrease in revenue for the government.
In the draft report on production-sharing contracts (PSCs) in the oil and gas field, the CAG questioned DGH for not critically examining RIL’s request to hike expenditure. The report also pointed out anomalies like RIL buying expensive diesel for offshore operations from its own group company rather than from cheaper PSU suppliers. The draft report is now being examined by the petroleum ministry for framing a response which is required to be sent to the CAG.
A ministry official, however, sounded a cautious note, saying: “Many of the provisions of the draft report are sometimes dropped in the final report. However, in case the report suggests RIL indulged in fraud to overstate its expenditure, the petroleum ministry will order an investigation.”
Even while the petroleum ministry is preparing its response to the CAG draft, there are allegations emerging that the income-tax department has found that Reliance bought a house for former DGH head V.K. Sibal on the basis of the Niira Radia tapes. This has raised questions on whether a quid pro quo was involved in hiking the expenditure for RIL. Mr Sibal, who was heading DGH during the period examined by CAG in its draft report, is already being probed by the CBI for allegedly colluding with private operators.
An email sent to the agency handling Reliance Industries’ corporate communications on Wednesday seeking the company’s comments on the draft report as well as the house it allegedly bought for Mr Sibal did not elicit any response. However, Reliance Industries, in a statement issued soon after the draft report became public, had said it “has not received a copy of the aforesaid report, and hence is unable to comment on specific issues.” It maintained that Reliance Industries “has fully complied with the requirements in the production-sharing contract (PSC) at all times in conducting petroleum operations, and refutes any suggestion to the contrary.”
Petroleum ministry sources, however, said: “The operators always estimate the expenditure to be on the higher side. They can’t inflate it by more than 10-15 per cent because most of the items’ prices are standardised and known.” Sources added that the ministry wants to have an investor-friendly image and so allows private operators a free hand to encourage investment in the oil sector.
An official remarked that since investment in the oil sector is a high-risk business for companies, as they don’t always strike oil or gas and are not compensated in any manner for the investment they make during exploration, oil companies have to be “accommodated” for the big risk they take. The official said the policy is the same for private companies and PSUs such as ONGC.
“Private operators work in a way that’s different from government agencies. They want the best and pay more for that. They don’t usually bring out tenders. So their expenses are usually higher. They pay more to their employees will provide them with BlackBerrys rather than an MTNL connection,” the official added.