The oil ministry hit back at the report prepared by Comptroller and Auditor General of India or CAG, which had criticized the ministry along with the Directorate General of Hydrocarbons or DGH in being careless in the process of auctioning oil blocks and approving capex, thereby allowing companies like RIL to book hefty profits at the cost of national interest.
The oil ministry re-iterated the importance of private sector in such high risk green-field projects.
CAG is miffed by the fact that how DGH approved a capex of 8.5 billion USD when only 2.4 billion USD was originally sanctioned. The ministry on its part said that there was no question of any companies benefitting at the cost of the government.
The ministry said that the cost of developing the field was sanctioned by the government in its annual oil and gas budget and each item was separately checked and all costs were recovered from the producer of the block. Moreover, RIL and other operators commence work every year on their blocks only after obtaining government approval of their annual capex in each block. So, according to the ministry the question of increasing the cost of the block cannot arise.
The ministry said the CAG has ignored the fact that the gas output in the KGD6 region has increased from 40 million cubic meters per day to 80 million cubic meters per day. This fact would definitely have increased the cost.
The ministry paid emphasis on the fact that private investment is essential in exploration projects. To attract them to bear high risk, they need a high return on investment. Oil companies are governed by the National Exploration Policy or NELP, where they have to bear the entire expenses of exploration and production or E &P. But if any oil discovery takes place, then they can recover the costs from other operators in the field before sharing the profits with the government. In case no oil is discovered, the entire costs will be borne by the company alone. The ministry praised RIL for its efforts in the KGD6 block and its excellent deep-water infrastructure.