Oilmin seeks share in RIL gas levy Won’t Approve KG Field Fin Accounts Till Co Pays Cut In Marketing Margin

New Delhi: The government appears to be further tightening the screws on Reliance Industries (RIL). In a latest salvo, the oil ministry's technical arm for exploration — Directorate General of Hydrocarbons (DGH) — has refused to approve the financial accounts of the company's showcase Andhra offshore field without a cut from the marketing margin it charges from customers on sale of gas. 

    Government documents on the issue of approving the 2010-11 accounts for the KG-D6 block show the ministry's resolve to get a share of the 13 cents RIL charges customers on each unit of gas it sells from the field. RIL levies this amount in addition to the $4.2 per unit price set by the government, and does not share it with the exchequer. 
    The company's argument is that marketing margin is needed to cover the risks and costs associated with marketing of gas from the field. It also argues that it is a matter between the buyer and seller that did not brook intervention by the ministry or the gas market regulator. But unless the DGH approves the accounts, RIL will not be able to recover its investments and operating costs for the year under review. 
    The ministry wants the government's share of revenue from the field's gas sales to be calculated after adding the marketing margin to the base price, or $4.34 per unit instead of $4.2. The accounts show RIL mopping up over $88 million (around 472.6 crore) as marketing margin in 2010-11, when the field's gas output 
stagnated at less than half the target of 60 mcmd (million cubic metres per day). 
    This is the second time the ministry has taken a stern stand against the firm. It recently threatened to hold approvals for future investments in the field unless RIL allowed federal auditor to conduct a second round of audit of the KG-D6 accounts. 
    The marketing margin became a bone of contention ever since the fertilizer ministry and Fertiliser Association of India lodged their protests with the oil ministry last year. During deliberations on the issue, both the ministry and DGH took the view that since the government identified the customers and allotted the quantity of KG-D6 gas to be sold to each consumer, there was no marketing risk involved. It also said that RIL would have to share with the exchequer any additional charge it levies from customers. 
    RIL had argued back saying state-run gas utilities such as GAIL too charge marketing margin of up to 18 cents per unit of sale but do not share it with the government. 
PUMPING FOR EXTRA FEES 

• Oil ministry determined to get a share of 13 cents RIL charges on each unit of gas sold from KG-D6 block 

• The amount is levied by RIL in addition to the $4.2 per unit price set by govt, and not shared with the exchequer 

• Co argues that additional amount is required to cover risks and pay for marketing of gas from the field 

• RIL had raked in over $88m (around Rs 472.6cr) as marketing margin in 2010-11 UNDER SCANNER RIL to face second CAG audit OilMin Assures Auditor Will Scrutinize A/cs, Not Performance 
New Delhi: Decks have been cleared for the federal auditor's scrutiny of accounts for the Andhra offshore gas field being operated by Reliance Industries Ltd. Officials from the Comptroller and Auditor General are expected to meet Reliance executives on October 31 to discuss modalities of starting the audit of the KGD6 field's books for the 2009-2011 financial years. 
    The meeting has been called after the oil ministry agreed that the federal auditor would examine the accounts to verify whether Reliance's investments in the field and operational expenses were in line with the terms of its contract with the state. 
    The contract allows Reliance to recover its investments and running costs before sharing revenue with the government. 
    Any excess claim, thus, has a bearing on the government's take from the field. 
    Reliance had agreed to a CAG scrutiny in 2009 but has been opposing a second round because of the audit format. It argued that the contract allowed only scrutiny of the field's accounts and not performance. 
    It raised points of law to say the federal auditor did not have the powers to examine the accounts of a private company or evaluate the efficacy of technology or processes deployed in the field. 
    But the company also said it would have no objection to an audit of the field's accounts by a "duly appointed representative of the government", including CAG. 
    The adverse report of CAG's first round of audit and the recent drop in the field's output revived doubts over Reliance's investment plans for the field and put the ministry under pressure to order another round of audit. No wonder the ministry has put on hold approvals for future investments in the field to pressure Reliance. 
    The CAG report had said the government extended favours to private oil companies, including Reliance, and pointed out violations of terms of contracts. The report also pointed out "sweetheart deals" in the procurement process for the KG-D6 field but ruled out gold-plating of investments by Reliance. The field's output has fallen to 26 mcmd (million cubic metres per day), or less than half the target for which the government had approved investments. The reduced output has left the government grappling with clamour for fuel from starving power, fertilizer and other plants. 
    The ministry had in 2009 ordered the special CAG audit of contracts the government had signed with private oil firms, including Reliance, for operating fields after allegations of gold-plating by Reliance. On its part, Reliance has been pushing for quick approvals for fresh investments to develop other gas finds in the area, saying these were needed to shore up output from the KG-D6 block and stop the producing fields from dying. 
    But the ministry has been dragging its feet to make Reliance submit to a CAG audit of the field's performance in view of the fall in output.