“CAG must gauge actions based on influencing factors both internal and external to a process”

As the issue enters a steaming stage, industry experts have stepped up with their opinions regarding the matter concerning Reliance Industries Limited (RIL) and the allegation put on its account by Comptroller and Audit General (CAG) body of India. The subject matter of concern revolves around the allegation made by CAG accusing RIL of gold-plating its capital expenditure incurred on its oil and gas acreage, including KG D6 block, and a parallel assertion made on account of the oil ministry for allowing such price escalation, that too in violation of production sharing contract s (PSCs).

CAG had submitted its initial report on the KG D6 audit earlier in June, red lining many aspects of RIL’s production process, however, the audit report has failed to rationalize any claims it has made against RIL. RIL, in its reply to the audit report, had stated that the increase in cost was a result of increase in cost of deep sea exploration process altogether. Due to rise in cost of procurement of technology and labor worldwide, a ripple affect found its way to Indian operators as well, including Reliance. CAG had also noted that because of this unwarranted increase in cost, the government is at the brink of facing heavy losses, to which RIL has replied that it is in fact the operator that stands to face heavy losses; while the government stands to regain its share through reduction of subsidiary burden.

At present, when CAG is in the process of finalizing its audit report regarding RIL, industry experts have come to suggest that CAG is not the right body to raise questions at the prudence of an operator and question the technical and operational judgments of the operator that were in effect the best possible judgments at the time. It should consider every factor, internal and external, which led to a possible situation and try to reason the action undertaken by taking in the viewpoints of the operator as well. CAG cannot use a pre-existing yardstick to reason an outcome, which could have been taken as necessitated by the situation. Also, to suggest changes in the PSC is matter of deliberation for concerned authorities and not CAG.

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