 Hello and welcome to this edition of NewsClick. With me here is the person who is in a sense one of the moving forces behind NewsClick, Prabir Purokaista, who also happens to be an important person in the Delhi Science Forum. And in this edition of the program we are going to discuss the Controller and Auditor-General of India's report on the Krishna Godavari Gas Basin and the manner in which the government of India, that is the Ministry of Petroleum and Natural Gas, has unduly favoured a few companies, the largest of whom happen to be reliance industries limited. The country's largest, biggest and perhaps most influential corporate conglomerate in the private sector. Prabir, thank you so much for coming here. You've been writing about the report of the Controller and Auditor-General of India. If you can kindly highlight how the CAG has pointed out that in the case of reliance industries limited and the exploration contract and the production sharing contract, they have with the Ministry of Petroleum and Natural Gas, reliance industries just in one month's time was allowed to increase its capital expenditure almost four times to increase its output by a hundred percent. So output was slated to double. Capital expenditure went up almost four times, almost four hundred percent. But what actually happened was though the capital expenditure went up, production not only did not double, but came down substantially. How do you explain what is often euphemistically called gold plating of contracts? Well, you know, this is of course one of the major issues on the CAG report. And this has also been focused much earlier because this is really, this issue had been explored, had come out much earlier when Director General of Hydrocarbons had accepted this inflated capital cost or what we would call as inflated capital cost. It was done in a matter of 55 days. So the CAG report says by September sometime this was submitted, the revised cost was submitted and this was again passed by December, so really a matter of 55 days this increase was accepted. It's almost impossible, humanly impossible to evaluate such huge contracts in the period in which the Director General of Hydrocarbons did it. So obviously as people have argued, there is a lot of problems with the way it was done. What CAG has draw out that these are the things which are really new that these were done on the basis of single party financial bids that quite often what would happen is five or six parties would be asked to bid, would be pre-qualified and then finally they would all be disqualified except one party and a single party financial bid would then be closed. Now, the control and auditor general's report has over a dozen such examples. But one of the biggest such examples was AKER, Acre Floating Production which is part of the Acre Group. They got a 10-year lease on a floating production and storage and offloading vessel and this contract of over a billion US dollars, 1.1 billion dollars was given to this contract without even looking at competing bids. The other bidders were completely disqualified and only Acre's financial bid was open. I mean this kind of manipulation of contracts which goes against the basic principles of competition, fairness and transparency, does it not? That of course if it is only a private issue between Reliance and ACRE we did not be concerned about it. But unfortunately what happens when the capital cost increases then as per the production sharing contract that has to first come out of the top number one and number two the profit petroleum ratio also changes in favor of the private party. So even if we accept that Reliance did not benefit directly from the extra money which ACRE got by virtue of as you are saying gold plating even then its share of profits would have gone up. So essentially it is the manner in which what is called the IM or the investment multiple is structured into that production sharing contract and one would say that if production goes up further one would logically assume that thanks to scales of production your investment should come down. But in this case the reverses happened and what is clearly evident is that the government of India becomes a loser. So there is something inherently there was something inherently faulty but the manner in which this production sharing contract was worked out and the way in which these investment multiples figured out and that is clearly something that the control and auditor general of India's report points out. Again there are a set of issues that come out with it because the award of the contract depends on what you have committed in your bid and that is how Reliance got the contract they had made attractive profit sharing proposals. All of it gets subverted by the fact of increasing of the capital cost and therefore the investment multiple changes and the changes in a way the government loses its share in fact that is what the essential point that CIG has made that in the way this has been handled the way this contract was handled the government has lost its profit share considerably and therefore the CIG comes in to review whether this contracts have been done properly or not because Reliance raised the issue these are private arrangements we are buying stuff how can you audit all this. But probably you know as you rightly pointed out it is not just a matter between private parties the government of India is supposed to be the custodian of resources that are supposed to belong to the people of this country in this case natural gas found under the sea in the Krishna Gaudawari basin in the Bay of Bengal now here you have a situation where the original cost estimates go up from 2.4 billion to 8.4 billion and then the company says that the gas flow will go up from 40 MMS CMD that's million metric standard cubic meters a day it would double from 40 MMS CMD to 80 but actually it comes down it doesn't reach that doesn't reach that figure at all in fact current reports indicate that it's way way way below the what had been predicted so clearly you deliberately inflate the target you gold played the investment you rob the exchequer so do you blame Reliance or was it the government which structured this production sharing contract because Reliance's argument is this is a highly risky business this is the deepest anywhere in the world such deep drilling doesn't happen the cost of hiring rigs has gone up all these reasons are being forwarded by the spokespersons of RIL let's take the one by one you know of course the question is that government did have the mechanism of what's called the management committee in which the government was the chair and also at 50% share on the board the two five four people two of them were government's nominees so government was supposed to supervise also all such large value contracts which of course it didn't do so that's one part of it the second part of it when you come to what Reliance is saying let's look at the let's go back to the 1.1 billion dollar FPS of the floating production the vessel storage vessel that we talked about it's an interesting issue and CG has done its homework on this the cost of that vessel was 26 billion it was a converted tanker conversion cost of two such vessels by Jurong shipyard shipyard in Singapore was given by Jurong shipyard in a press release as 88 million so if we take even outside figures the cost would be something like 150 million for this FPSO which was finally given as a bareboat lease for 10 years for 1.1 billion you know management committee of the government are obviously connived completely the government's parties are nominees can act completely the director general of hydrocarbon completely fail this regulatory oversight okay no no no all right now on this issue of the regulatory the regulator the DGA is the director general of hydrocarbons the first charge sheet against Mr. VK Sibble who used to head the DGH at that point of time has nothing to do with the Krishnagodhavi gas it pertains to alleged favoritism shown in a completely different matter now there's a huge amount of evidence which indicates how Mr. Sibble allegedly got a lot of favors from RIL do you think that the time is now opportune that the CBI should name reliance industries limited as one of the parties that allegedly bribed Mr. Sibble and that's why all the paperwork was done as you say superfast I think there is absolutely no question that Mr. Sibble should be proceeded against and obviously the beneficiary is reliance and if the beneficiary is reliance then it should also be proceeded against but you know coming back to the production sharing contract this one element of the CAG report which hasn't received as much public you're talking about the whole issue about vacation of acreage vacation of acreage you know I really wanted to ask you about that and you could even argue that this is a land grab of a different kind except it's not land it's acreage under the under the ocean bed under the sea and then basically sitting or hoarding future hydrocarbon reserves which you are supposed to have brought on stream by certain date on which you have to make it all right you know the facts as has been highlighted in the controller and auditor general's report is that there was 7,645 square kilometers of the exploration area now and you know as for the terms of the contract up till say 2009 if you you continue to explore and then if you do not you know get the reserves of are you not able to strike your gas you're supposed to vacate 25 percent of the exploration area in the first phase then 50 percent in the second phase and finally another you know almost 100 percent you just keep 5 percent but what we actually said that instead of keeping 5 percent RIL continue to keep 100 percent and continue to work that entire 7,645 square kilometers this is the issue really and I think this is a very important issue which is difficult to quantify the benefits and reliance may or may not get out of it the essential issue is that as you progressively explore the area you put in money you're allowed to keep a certain amount you're allowed to keep that amount which you have explored and struck gas if you have not struck gas or you have not drill wells you're supposed to release that area as you said there is a phase wise release and then the last phase which is expired in 2009 you're supposed to release all areas where you have not made commercial discoveries or you have not developed all but 5 percent which in this case would be tantamount to 5 percent if you see the map that CIG has given it shows that probably only about one-third of the area max that reliance has even sunk wells the other area nothing has been done so there are absolutely no basis why DGHH the director general of hydrocarbon DGH should have allowed them to keep 75 percent and 50 percent which they are supposed to have kept rest they're supposed to have released the first two phases itself after 2009 all other areas except the 5 percent should have been kept DGH and ministry of petroleum and natural gas finally connived with reliance to allow them to keep entire hundred percent in complete violation of the production sharing contract more important this areas if they had been released to other parties we might have had strikes there and you could have alternate sources of gas coming up because the entire logic of the NELP the new exploration policy is that it brings hydrocarbon to stream much faster which public funds may not be able to do so so in a sense what this episode has highlighted it's undermined the very basis of that new exploration licensing policy I have two quick questions for you before we conclude this interview the draft report of the controller and auditor general was leaked to the media and it was widely publicized various newspapers television channels websites including news click had published detailed extracts from the draft report of the CAG how much of a difference is there between the draft report and the final report has it truly been diluted has a lot of the I should say harsh criticism of the manner in which the ministry of petroleum and natural gas favored reliance industries limited has a language being toned down substantially because the CAG has been criticized for commenting on policy issues which is not supposed to be part of its domain so that's the question I have to has the report really been diluted I think it's very clear language has been softened but the content has not been diluted so CAG has stuck to all the substantive points are made I did not see comparing the two reports I did not see that they have really taken back any of the points they had made in substantive terms so so in other words what you're saying is just the tone and the tenor tone has been there diluted on the question of policy it has been very clear that it is commenting on the policy in so far as governments share of profits or government share of revenue has decreased and it has said it shows that the original policy perhaps needs to have a relook because it's very difficult to keep the production sharing contract without really doing continuous in well you know analysis of the investment expenditure and so on the government might be better off with a simpler exploration policy in which the production sharing is really a lump sum royalty on the total amount of gas that is produced so that is what you are suggesting a change in the manner in which these contracts are lined up greater transparency also in way these contracts are not only signed other way in which these are awarded my last question to you was the apparently sudden decision on the part of the then former minister for petroleum and natural gas the union minister Mr. Murli Deora to decide to quit his position and devote all his time for the party the Indian National Congress ostensibly because he was also getting my ideas do you think that this was some sort of a move to preempt the criticism that would be leveled against him because after all he was the minister when all this was happening or all these contracts all these the alleged favoritism was taking place you know only there was proximity to the money group is quite public I mean I don't think there is really it's hardly a secret it's not really the best kept secret in the country now the question is it's also on record in the CAG report that the minister did show an interest in what was being done and if we really dig deep into the files perhaps we'll find dotings in the files which have not come up in the CG report which would show that minister was favorably inclined to the reliance case having said that I don't think leaving his chair would be reason enough to stop the heat on him because Maran has left his chair on telecom but the heat is still on him that's another story this kind of things really don't die down that easily we are talking of mammoth scams what would you explain what would we expect the public accounts committee which is supposed to you know then recommend to the government what action it needs to take on the basis of the control and auditor general support what do you expect the PSC to do I think the PSC should talk about how cases should be filed against the corrupt officials and exact really examination of the culpability of the minister and the senior officials in the petroleum and listeria petroleum and natural gas well time alone will tell probir whether that happens or not and whether action will be taken to break this nexus between business and politics thank you so much for explaining the issues behind the controversy surrounding the manner in which gas in the Krishnagodawari basin is being exploited by reliance industries limited thank you once again