Procurement deals in KG basin under cloud

NEW DELHI: The Comptroller and Auditor General (CAG) of India has raised questions over the way Reliance Industries Ltd awarded procurement contracts worth billions of dollars for bringing its Andhra offshore field into production and recommended review of 10 such high-value deals.

“We found that payments during 2006-07 and 2007-08 revealed instances of huge procurement contracts where we could not derive assurance as to the reasonableness of costs incurred..., ” the final report on a special audit of eight blocks, including RIL’s showcase field, by the government auditor says.

The report primarily blames “lack of adequate competition; awarding contracts on single financial bids; major revisions in scope, quantities, specifications and variations” affected after opening of the financial bids for the higher outgo on goods and services that has “adverse implications for cost-recovery and government’s financial take” .

The report says, “During our scrutiny of the operator’s records, we have come across instances, where multiple vendors were pre-qualified. However, when technical bids were received, all vendors except one were rejected , and the contract was finally awarded on a single financial bid.”

It adds, “such elimination of vendors on technical grounds — after a pre-qualification process and bidders’ meetings for technical clarifications — limits the competitiveness which is not in accordance with the spirit of the procurement procedure given in the contract with the government.”

It, however, also points out that operators do not have to follow the procurement process adopted by government departments or entities but whenever deviations take place in the process, the management committee’s approval must be sought before awarding contracts.
Each block has a management panel made up of representatives from the oil ministry and its regulatory arm Directorate General of Hydrocarbons and the company. This panel has to vet all decisions and expenses before they can be implemented or recovered from oil/gas sales revenue.

FLASHBACK

Ministry ordered the special audit by CAG in Nov 2007 Move came after charges of Reliance artificially jacking up investment size were levelled Reliance won the block in the first round of exploration acreage auction in 2000 One of the decade’s biggest gas discoveries, projected to produce 80-100 million cubic metres per day of gas at peak But production has dropped to 45 mcmd Initial cost of bringing field to production was $2.4 billion, raised to $5.2 billion