RIL contests CAG's observations on KG-D6

Reliance Industries has contested CAG's draft observations on some payments the company made to contractors of KG-D6 fields, saying the auditor had not considered the contract requirement of factoring consequences of delays in procurement of goods and services on the project.

RIL in a presentation at an Exit Conference called by CAG at the end of its second audit of KG-D6 for 2008-09 to 2011-12, stated that the auditor was using hindsight to question project efficiencies and procurements made 8 years back.

The Production Sharing Contract (PSC), RIL said, stipulates that "goods and services are delivered in a timely manner taking into consideration the consequences of delays in the acquisition of these goods and services on the project as a whole."

The PSC procurement procedures were intended to differ from Government/PSU procurement procedures and to promote investment efficiency, faster decision making in the interest of the project, it said.

CAG in its draft report had questioned euro 200 million payment to Allseas Marine Contractors beyond the contracted amount. Stating that the payment was essential to get the project completed in time after some sub-contractors defaulted in timely delivery of goods, the firm drew a parallel of a similar instance with state-owned ONGC.

ONGC faced with delay in supplies of certain equipment for its shallow water G-1 field in same Krishna Godavari basin from Clough Engineering of Australia. ONGC terminated the contract that resulted in the Australian firm going for arbitration.

The state-owned firm, RIL said, settled for an out-of-court settlement to get the project going but the cost has shot up from Rs 1,263 crore or Rs 12.63 billion approved in November 2004 to Rs 3,437 crore or Rs 34.37 now and yet no sign of the project being completed soon.

While government/PSU procedures focus on piece meal & individual tenders taken on standalone basis, avoiding delays and cost of not doing things becomes a primary consideration in PSC procurement

. "Therefore, audit of procurement under the PSC cannot be done keeping Government/PSU procurement procedures in mind," it said.

RIL said the CAG appears to conclude that the Contractor was required under the PSC to achieve the levels of gas production estimated in the approved field development plan and that the government is entitled disallow cost recovery for under-utilisation of facilities.

"However, the interpretation of such provisions is already the subject of an arbitration proceeding."

"We respectfully submit that matters such as this should be left to be resolved by the arbitral tribunal and doing otherwise would be to undermine the arbitral tribunal and the dispute resolution provisions contained in the PSC," it said.