The national auditor has taken a stern stand on auditing government revenue from oil and gas fields and has told the oil ministry that it will also scrutinise coal bed methane (CBM) blocks awarded to firms such as Reliance Industries, Essar Oil, Reliance Power and Great Eastern Energy.

It has also advised the government that all future contracts with operators of oil and gas fields should unambiguously mention that their operations would be scrutinised by the Comptroller and Auditor General of India, government officials said.

CAG is keen to insert the audit clause in contracts after Reliance Industries argued that its production-sharing contract does not provide for comprehensive audit by the constitutional authority.

The company says the contract only mentions a financial audit for which the oil ministry can appoint any auditor, including the CAG. Industry experts say the audit of CBM blocks may not be a big issue.

CBM Blocks Face Hurdles

The CBM contracts are governed by the system of production-linked payment, unlike the production-sharing contracts in which the field operator is entitled to recover costs and can gain by overstating expenditure.

CBM blocks are already facing regulatory problems. Two blocks held by RILBSE 0.27 % in Madhya Pradesh and one by Essar in West Bengal have not been able to produce gas for a year as the oil ministry has not approved their pricing formula.

Great Eastern Energy is the only company which is currently producing CBM in commercial quantity and is selling it for $6.8 per unit. Reliance Industries and Essar have already developed their CBM blocks, while Reliance Power is developing its block. State-run ONGC, which is in the process of leasing out four CBM blocks to private operators, has invited bids from international energy firms.

CAG has directed the oil ministry not to approve work plan and budgets of RIL-operated D6 block until it accepts that the auditor has unbridled rights to scrutinise D6 accounts. RIL does not challenge CAG's rights to examine the accounts, but differs on the scope of the audit.

Oil ministry officials are in talks with RIL and CAG to resolve the stalemate as soon as possible, officials said. "RIL has raised certain apprehensions regarding this (CAG) audit and expressed their desire to discuss the issue further. The issues are likely to be finalised in the next few weeks," the oil ministry said immediately after Veerappa Moily took charge of the ministry last month.

On May, when the oil ministry had decided that CAG would undertake audit of KG-D6 for 2008-09 to 2011-12, Reliance Industries sought the ministry's assurance that the auditor would conduct only financial audit and not performance audit, which was objected by the auditor.

Keywords: national auditor ,government revenue ,oil , gas fields, coal bed methane ,CBM, Reliance Industries, Essar Oil, Reliance Power , Great Eastern Energy,CAG,CBM contracts, ONGC,D6 accounts, RIL,business news