People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 38

September 18, 2011

Take Action against

Reliance; Review Policy


The Polit Bureau of the Communist Party of India (Marxist) issued the following statement on September 10, 2011.


THE CAG report on the Performance Audit of Hydrocarbon Production Sharing Contracts for the onshore and offshore oil and gas blocks has once again exposed the nexus between the policy makers and big businesses that has matured under the UPA government. The audit of the KG-D6 deepwater block, operated by the Reliance Industries Ltd (RIL), reveals the following malpractices, which have caused substantial losses to the government:

1) The RIL grossly inflated the capital costs to claim a much higher share of the profit petroleum.

2) The RIL awarded procurement contracts to other private companies without competitive bidding, leading to inflated costs.

3) The RIL has retained the entire 7645 sq km exploration area instead of their entitlement of retaining only 5 per cent of this area after 2009, in complete violation of the Production Sharing Contract.


The CAG report makes it clear that there was a 117 per cent increase in estimated capital expenditure for the block --- from 2.4 billion dollars to 5.5 billion dollars --- for Phase I itself, where no augmentation of capacity was involved.


The CAG report has also pointed out that in huge procurement contracts, awards were made by RIL “on single financial bids, major revision of scope/quantities/specifications, post-price bid opening, substantial variation in order quantities, with consequential adverse implications for cost recovery and GoI’s financial take.” In one instance of a single party financial bid, a contract of 1.1 billion dollars was given to the Aker group for a 10-year lease against an estimated original cost of 300 million dollars. The RIL gave 8 such contracts to the Aker group out of 10 single party bids, on what appears prima facie to be sweet-heart deals which enabled it to inflate capital expenditure.  


The other major issue that the CAG has noted is the connivance of the DGH and the Petroleum Ministry with RIL in allowing the latter to hoard the entire exploration area as discovery area. As per the Production Sharing Contract, the RIL was supposed to vacate 25 per cent of the exploration area in the first phase, 50 per cent in the second phase, and all areas in which it had not sunk wells or developed oil wells in the third phase. Instead, the RIL never relinquished any of the areas and has been allowed to keep the entire 100 per cent of the 7645 sq km of the exploration area for the KG D6 block in complete violation of the contract. The entire purpose of New Exploration Licensing Policy (NELP) of time bound and expeditious development of India's hydrocarbon resources gets defeated if private parties are allowed to retain exploration area.


The CAG report shows that while royalties have gone up clearly indicating a rise in production, the share of profit petroleum has dipped from Rs 5,926 crore in 2009-2010 to Rs 3,610 crore in 2010-2011. This further substantiates that all is not well in the handling of the Production Sharing Contracts, calling for their thorough review and modification. The audit of the Panna Mukta oilfield and the one held by Cairn Energy shows similar anomalies, bringing into question the entire NELP and the way it is being implemented.


The CPI (M) demands the following immediate actions on the basis of the CAG findings:

1) Taking back 95 per cent of the exploration area illegally retained by the RIL in gross violation of the Production Sharing Contract.

2) Imposing penalties on the RIL for gold-plating contracts and cornering almost the entire share of the profit petroleum.

3) Immediate prosecution of the former DGH and other involved officials.

4) Investigation into the role played by the Ministry of Petroleum.

5) Bringing major modifications in the Hydrocarbon Production Sharing Contracts to prevent such misuse.

6) Review of the New Exploration Licensing Policy (NELP).