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May 2016
The PAC had noted that the DGH encompass two sets of functions -- providing technical advice to the government while also being an upstream regulator -- with potential conflict of interest.
8The PAC has supported the views expressed by the CAG that the technical advisory and related functions should be discharged by a body completely subordinate in all respects to petroleum ministry but the functions of regulatory nature should be conducted by an autonomous body, which has an arm's length relationship with government.
8The Parliamentary committee claims that even the Ashok Chawla Committee had called for higher transparency in the management of contracts by increasing the independence of the regulatory mechanism and by clarifying the need for separation of the functions of the policy maker, regulator and the operator
8The PAC is of the view that long delays in operational decision making, budget approvals, huge administrative burden of conducting cost audits, disputes arising between the government and operating companies on matters of cost recovery, information asymmetry and a potentially misaligned incentives system are affecting the management of the PSCs by the government.
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8The PAC has supported the views expressed by the CAG that the technical advisory and related functions should be discharged by a body completely subordinate in all respects to petroleum ministry but the functions of regulatory nature should be conducted by an autonomous body, which has an arm's length relationship with government.
8The Parliamentary committee claims that even the Ashok Chawla Committee had called for higher transparency in the management of contracts by increasing the independence of the regulatory mechanism and by clarifying the need for separation of the functions of the policy maker, regulator and the operator
8The PAC is of the view that long delays in operational decision making, budget approvals, huge administrative burden of conducting cost audits, disputes arising between the government and operating companies on matters of cost recovery, information asymmetry and a potentially misaligned incentives system are affecting the management of the PSCs by the government.
Click on Reports for more Details
Now that the CAG's recommendations were found, according to the words of the petroleum ministry, to be "legally not tenable", can the statutory auditor be accused of being over enthusiastic in its zeal to disallow such contractual costs?
8The CAG in fact did only a first level audit, without diving deeper into the cost compulsions of such contracts. The auditor left the task of calculating the disallowable costs to the petroleum ministry instead.
8The ministry however, having approved such costs through the Management Committee earlier, was not willing to bell the cat as it would have ended up indicting itself for the supposed anomalies.
8Then again, the ministry's argument was that since the CAG had pointed out the anomalies, it was for the auditor to quantify the exact quantum of disallowance.
8The government's line is that no fraud or related party transactions were detected so RIL's cost escalation was not in violation of the rules.
8The CAG on the other hand claimed that extra costs were indeed incurred beyond what was permitted by the PSC and they should be disallowed.
8But now that the PAC has come out in support of the ministry's views, the thorny issues seem to have been settled once and for all.
8The PAC should be credited for doing a thorough job while giving its recommendations. The committee called in the former CAG and its team to hear first hand what they had to say before it wrote out the report.
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8The CAG in fact did only a first level audit, without diving deeper into the cost compulsions of such contracts. The auditor left the task of calculating the disallowable costs to the petroleum ministry instead.
8The ministry however, having approved such costs through the Management Committee earlier, was not willing to bell the cat as it would have ended up indicting itself for the supposed anomalies.
8Then again, the ministry's argument was that since the CAG had pointed out the anomalies, it was for the auditor to quantify the exact quantum of disallowance.
8The government's line is that no fraud or related party transactions were detected so RIL's cost escalation was not in violation of the rules.
8The CAG on the other hand claimed that extra costs were indeed incurred beyond what was permitted by the PSC and they should be disallowed.
8But now that the PAC has come out in support of the ministry's views, the thorny issues seem to have been settled once and for all.
8The PAC should be credited for doing a thorough job while giving its recommendations. The committee called in the former CAG and its team to hear first hand what they had to say before it wrote out the report.
Click on Reports for more Details
It is important to note that the PAC was able to conclusively decide on a host of issues concerning the dispute because the petroleum ministry's views were on the same side of the coin as well.
8Pertinently, the ministry had contested the CAG's views even during the Congress led regime but this time around it looks like the Modi government too has backed the ministry's position viz a viz that of the statutory auditor.
8The PAC's backing has now added extra credence to the ministry's stand
8The ministry's pet refrain in its presentation before the PAC was that the extra cost incurred on account of award of contracts on single financial bids or on post vendor contractual amendments to the original vendor-contracts do not point to any legally tenable ground for cost disallowance.
8The government's claim is that no undue advantage to the contactor was detected nor any incidence of fraud was found. All costs were supported by payment evidences and no wrong-doing was detected.
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8Pertinently, the ministry had contested the CAG's views even during the Congress led regime but this time around it looks like the Modi government too has backed the ministry's position viz a viz that of the statutory auditor.
8The PAC's backing has now added extra credence to the ministry's stand
8The ministry's pet refrain in its presentation before the PAC was that the extra cost incurred on account of award of contracts on single financial bids or on post vendor contractual amendments to the original vendor-contracts do not point to any legally tenable ground for cost disallowance.
8The government's claim is that no undue advantage to the contactor was detected nor any incidence of fraud was found. All costs were supported by payment evidences and no wrong-doing was detected.
Click on Reports for more Details
For reference purposes, the website carries here the full background behind the following recommendations made by PAC last week:
8A Dispute Settlement Mechanism for the KG Basin imbroglio.
8RIL to retain 100% of the area in the D-6 block even though the CAG had called for phased relinquishment of areas as per the PSC in the first and second phases of the work programme. The ruling will ensure that all investments made in unviable discoveries will be cost reimbursable.
8The need for a new policy that allows for alternative tests -- other than the conduct of extremely expensive DSTs -- for confirming commerciality of discoveries.
8Norms be fixed in accordance with the draft "Good International Petroleum Industries Practices" be announced as soon as possible.
8Action be taken against officers who approved the revised capex for the D-6 project without eliciting the permission of the petroleum ministry.
8No cost disallowance should be carried out for extra payments made to EPIC contractor Allseas marine Contracts S.A. in the D-6 block.
8Allowing cost recovery of one-time payments made to by RIL to Aker for extending the life of the Floating Production Storage and Offloading facility from 10 to 15 years in the D-6 block. However additional costs will only be allowed when the utilization of the FPSO exceeds 10 years under the PSC.
8Ministry to carry out a renewed cost benefit analysis of the extra payments made by RIL for expediting first gas out from the D-6 block. This is to ensure whether a disallowance of the incremental cost is justified.
8Law ministry opinion be sought on whether start-up and production bonuses paid to improve employee morale and productivity should be cost deducted as was suggested by the PAC.
8Extra cost incurred in the piece meal hiring of a Transocean rig instead of hiring it on a long term continuous basis can be cost deducted as such a hiring methodology was undertaken due to genuine reasons.
8The question of whether bonus paid to Transocean for time saved in rig movement should be disallowed should be referred to the law ministry for an opinion as it involves differing interpretations of the PSC.
Click on Reports for more Details
8A Dispute Settlement Mechanism for the KG Basin imbroglio.
8RIL to retain 100% of the area in the D-6 block even though the CAG had called for phased relinquishment of areas as per the PSC in the first and second phases of the work programme. The ruling will ensure that all investments made in unviable discoveries will be cost reimbursable.
8The need for a new policy that allows for alternative tests -- other than the conduct of extremely expensive DSTs -- for confirming commerciality of discoveries.
8Norms be fixed in accordance with the draft "Good International Petroleum Industries Practices" be announced as soon as possible.
8Action be taken against officers who approved the revised capex for the D-6 project without eliciting the permission of the petroleum ministry.
8No cost disallowance should be carried out for extra payments made to EPIC contractor Allseas marine Contracts S.A. in the D-6 block.
8Allowing cost recovery of one-time payments made to by RIL to Aker for extending the life of the Floating Production Storage and Offloading facility from 10 to 15 years in the D-6 block. However additional costs will only be allowed when the utilization of the FPSO exceeds 10 years under the PSC.
8Ministry to carry out a renewed cost benefit analysis of the extra payments made by RIL for expediting first gas out from the D-6 block. This is to ensure whether a disallowance of the incremental cost is justified.
8Law ministry opinion be sought on whether start-up and production bonuses paid to improve employee morale and productivity should be cost deducted as was suggested by the PAC.
8Extra cost incurred in the piece meal hiring of a Transocean rig instead of hiring it on a long term continuous basis can be cost deducted as such a hiring methodology was undertaken due to genuine reasons.
8The question of whether bonus paid to Transocean for time saved in rig movement should be disallowed should be referred to the law ministry for an opinion as it involves differing interpretations of the PSC.
Click on Reports for more Details
For the Modi regime, the sound and fury of the first two years of governance will have to slowly give way to a more pragmatic and sober view on how to resolve some of the key disputes in the oil and gas sector.
8When it came to power, the new mindset was that expensive London based arbitration procedures were delaying the government's attempt to garner fines and penalties from the likes of RIL and BP. The law was amended to set time-bound limits for all arbitrations.
8But even as the stalemate over the KG Basin block continued, it took the government a few months to figure out what ailed the industry. Soon thereafter, it went about relaxing some of the stricter provisions of the PSC that lead to the KG D-6 dispute in the first place. A new revenue sharing model has now eliminated the need to monitor the cost-plus regime that was the hallmark of the NELP. Relaxation of the PSC allowed for more flexible timelines for E&P work. Exploration activity was allowed in a discovered area.
8While these were steps in the right direction, the troubling dispute with RIL over the D-6 block continued to fester. Adding fuel to fire was the finding that RIL's D-6 wells have sucked out a large quantity of gas from the neighboring ONGC block.
The following are the reasons why the government should be looking at readjusting its position with respect to the RIL-BP combine in the KG Basin:
8The geology of the KG Basin is highly complicated and discoveries in deepwater areas are in HPHT and tight oil formats. The best in class technology is required to tap these resources. A collaborative model involving the major players in the Basin -- ONGC, GSPC, RIL-BP and OIL -- is best suited to develop these resources in an environment where the ex-ship (Dahej) price of LNG is likely to hover around $4/mmbtu up to 2030.
8ONGC may attract strictures from statutory authorities such as the CAG if it were to ignore savings that could total up to Rs 10,000 crore if it were to use the existing spare infrastructure available with RIL. If the current ex-ship price of LNG were to prevail, ONGC's Rs 34,000 crore investment in the KG-DWN-98/2 block would elicit a negative return. Sharing of infrastructure would allow for better economics. The claim that legacy disputes -- such as the supposedly illegal tapping of gas by D-6 wells from the KG-DWN-98/2 block -- came in the way of sharing of infrastructure would not be taken as a tenable argument.
8Prime Minister Narendra Modi is under attack from the opposition parties for GSPC's debacle in the Deendayal field in the KG Basin. The only way the investment will be viable is through a shoring up of GSPC's resources using the collaborative model.
8Studies by international research organizations project that up to 50% of KG Basin's gas reserves will stay untapped because of low gas prices and global emission reduction programmes. The only way these reserves can be tapped is when the cost economics turn favourable. This is possible through a collaborative model.
8The finest tenets of the Make in India programme can be showcased in the KG Basin using the collaborative model if new rules are framed to usher in an innovative techno-economic paradigm. It can well be a once-in-era opportunity for India to bring about transformative change in the oil and gas industry with global implications. The benefits to the domestic industry can be huge.
8The PAC has laid the ground for easing of the government's position on the KG-D-6 dispute, paving the way for a reconciliation. A dispute resolution mechanism has been suggested that will pave the way for a settlement of arbitration cases.
Click on Reports for more Details
8When it came to power, the new mindset was that expensive London based arbitration procedures were delaying the government's attempt to garner fines and penalties from the likes of RIL and BP. The law was amended to set time-bound limits for all arbitrations.
8But even as the stalemate over the KG Basin block continued, it took the government a few months to figure out what ailed the industry. Soon thereafter, it went about relaxing some of the stricter provisions of the PSC that lead to the KG D-6 dispute in the first place. A new revenue sharing model has now eliminated the need to monitor the cost-plus regime that was the hallmark of the NELP. Relaxation of the PSC allowed for more flexible timelines for E&P work. Exploration activity was allowed in a discovered area.
8While these were steps in the right direction, the troubling dispute with RIL over the D-6 block continued to fester. Adding fuel to fire was the finding that RIL's D-6 wells have sucked out a large quantity of gas from the neighboring ONGC block.
The following are the reasons why the government should be looking at readjusting its position with respect to the RIL-BP combine in the KG Basin:
8The geology of the KG Basin is highly complicated and discoveries in deepwater areas are in HPHT and tight oil formats. The best in class technology is required to tap these resources. A collaborative model involving the major players in the Basin -- ONGC, GSPC, RIL-BP and OIL -- is best suited to develop these resources in an environment where the ex-ship (Dahej) price of LNG is likely to hover around $4/mmbtu up to 2030.
8ONGC may attract strictures from statutory authorities such as the CAG if it were to ignore savings that could total up to Rs 10,000 crore if it were to use the existing spare infrastructure available with RIL. If the current ex-ship price of LNG were to prevail, ONGC's Rs 34,000 crore investment in the KG-DWN-98/2 block would elicit a negative return. Sharing of infrastructure would allow for better economics. The claim that legacy disputes -- such as the supposedly illegal tapping of gas by D-6 wells from the KG-DWN-98/2 block -- came in the way of sharing of infrastructure would not be taken as a tenable argument.
8Prime Minister Narendra Modi is under attack from the opposition parties for GSPC's debacle in the Deendayal field in the KG Basin. The only way the investment will be viable is through a shoring up of GSPC's resources using the collaborative model.
8Studies by international research organizations project that up to 50% of KG Basin's gas reserves will stay untapped because of low gas prices and global emission reduction programmes. The only way these reserves can be tapped is when the cost economics turn favourable. This is possible through a collaborative model.
8The finest tenets of the Make in India programme can be showcased in the KG Basin using the collaborative model if new rules are framed to usher in an innovative techno-economic paradigm. It can well be a once-in-era opportunity for India to bring about transformative change in the oil and gas industry with global implications. The benefits to the domestic industry can be huge.
8The PAC has laid the ground for easing of the government's position on the KG-D-6 dispute, paving the way for a reconciliation. A dispute resolution mechanism has been suggested that will pave the way for a settlement of arbitration cases.
Click on Reports for more Details
For reference purposes the website carries here the following tenders:
8Supply of Plate Type Heat Exchangers, Gujarat Refinery [IOC] Details
8Quantitative Risk Analysis study of Petrochemical Complex, Pata [GAIL] Details
8Supply of Gas Regulators under City Gas Distribution Project, Karnataka [Gail Gas Limited] Details
8Supply of Carbon steel bare and Coated line pipes [GAIL] Details
8Supply of Caustic and Chemical injection skid for processing of high TAN Crude, Paradip Refinery [IOC] Details
You can also click on Tenders for more
For reference purposes the website carries here the following Newsclips:
8Make CAG accountable to parliament: Public Accounts Committee Details
8Reliance Industries entitled to recover cost on unviable gas discovery: PAC Details
8Reliance Industries' March Oil Imports up 22% Y-O-Y: Report Details
8Italian oil giant Eni swings to 1Q loss Details
8Gazprom profits up 5-fold in 2015 Details
8Global LNG price rally to lose steam amid Argentina tender flop Details
8Petronas Canada LNG project chief sees investment decision in months Details
8China CNOOC's Q1 revenue falls 30.7 pct as oil prices dive Details
8Vedanta posts Q4 adjusted loss of Rs 11,181 crore on impairment of goodwill Details
8IOC investing Rs 45K crore to expand refining capacity to meet demand Details
8Govt to sell 15 per cent in National Fertilizers, 5 per cent in Rashtriya Chemicals and Fertilizers Details
8Govt cuts LPG subsidy funds 17% as prices fall Details
8Asia's March Iran oil imports surge 50% Details
8Petrol price hiked by 1.06 a litre, diesel 2.094 paise Details
8Exports for 17 out of 30 sectors including petrochemicals in negative zone in March Details
8Vedanta unit seeks rollover of $1.25 billion loan from Cairn Details
8Non-subsidised LPG, kerosene, ATF prices hiked Details
8Women employees to bear brunt of ban on diesel cabs Details
8Oil market deja vu triggers predictions of a return to $30 Details
8Government wants cash-rich PSUs like Coal India, Oil India and NTPC to emulate private sector, buy back shares Details
8Emerging currencies gain in April as rouble, real climb with oil Details
8Oil prices fall on rising OPEC crude production Details
8Narendra Modi launches LPG-for-poor scheme in Uttar Pradesh Details
You can also click on Newsclips for more Details
8Supply of Plate Type Heat Exchangers, Gujarat Refinery [IOC] Details
8Quantitative Risk Analysis study of Petrochemical Complex, Pata [GAIL] Details
8Supply of Gas Regulators under City Gas Distribution Project, Karnataka [Gail Gas Limited] Details
8Supply of Carbon steel bare and Coated line pipes [GAIL] Details
8Supply of Caustic and Chemical injection skid for processing of high TAN Crude, Paradip Refinery [IOC] Details
You can also click on Tenders for more
For reference purposes the website carries here the following Newsclips:
8Make CAG accountable to parliament: Public Accounts Committee Details
8Reliance Industries entitled to recover cost on unviable gas discovery: PAC Details
8Reliance Industries' March Oil Imports up 22% Y-O-Y: Report Details
8Italian oil giant Eni swings to 1Q loss Details
8Gazprom profits up 5-fold in 2015 Details
8Global LNG price rally to lose steam amid Argentina tender flop Details
8Petronas Canada LNG project chief sees investment decision in months Details
8China CNOOC's Q1 revenue falls 30.7 pct as oil prices dive Details
8Vedanta posts Q4 adjusted loss of Rs 11,181 crore on impairment of goodwill Details
8IOC investing Rs 45K crore to expand refining capacity to meet demand Details
8Govt to sell 15 per cent in National Fertilizers, 5 per cent in Rashtriya Chemicals and Fertilizers Details
8Govt cuts LPG subsidy funds 17% as prices fall Details
8Asia's March Iran oil imports surge 50% Details
8Petrol price hiked by 1.06 a litre, diesel 2.094 paise Details
8Exports for 17 out of 30 sectors including petrochemicals in negative zone in March Details
8Vedanta unit seeks rollover of $1.25 billion loan from Cairn Details
8Non-subsidised LPG, kerosene, ATF prices hiked Details
8Women employees to bear brunt of ban on diesel cabs Details
8Oil market deja vu triggers predictions of a return to $30 Details
8Government wants cash-rich PSUs like Coal India, Oil India and NTPC to emulate private sector, buy back shares Details
8Emerging currencies gain in April as rouble, real climb with oil Details
8Oil prices fall on rising OPEC crude production Details
8Narendra Modi launches LPG-for-poor scheme in Uttar Pradesh Details
You can also click on Newsclips for more Details
The PAC has made the recommendation that the regulatory work of the DGH should be done by the PNGRB instead of the government.
8"The mandate of extant Petroleum and Natural Gas Regulatory Board (PNGRB) "to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country" may be extended/ strengthened to include the exploration, development and production of crude oil and natural gas for regulating the PSCs," the PAC has said.
8Then again, instead of filling places in the DGH with deputationists for 3-5 years, a separate cadre of technical experts should be constituted for the technical and advisory functions of DGH, the PAC has asserted.
8The powerful Parliamentary committee has urged the government to take a decision on the segregation of roles at the earliest "since a large number of PSCs have already been signed and RSCs will be signed in future".
Click on Reports for more Details
8"The mandate of extant Petroleum and Natural Gas Regulatory Board (PNGRB) "to regulate the refining, processing, storage, transportation, distribution, marketing and sale of petroleum, petroleum products and natural gas excluding production of crude oil and natural gas so as and to ensure uninterrupted and adequate supply of petroleum, petroleum products and natural gas in all parts of the country" may be extended/ strengthened to include the exploration, development and production of crude oil and natural gas for regulating the PSCs," the PAC has said.
8Then again, instead of filling places in the DGH with deputationists for 3-5 years, a separate cadre of technical experts should be constituted for the technical and advisory functions of DGH, the PAC has asserted.
8The powerful Parliamentary committee has urged the government to take a decision on the segregation of roles at the earliest "since a large number of PSCs have already been signed and RSCs will be signed in future".
Click on Reports for more Details
RIL and the government are moving towards a settlement of the long standing dispute between the two over the KG D-6 block.
8And it is none other than the Public Accounts Committee (PAC) of Parliament which is acting as a catalyst to resolve the dispute.
8A settlement will eventually require a withdrawal of the series of arbitration notices filed by RIL and its partners in the block against the government.
8The PAC has paved the way for resolution of the dispute by setting aside several rulings of the CAG on which the ministry too seems to be in agreement but was afraid to take a clear position earlier.
8It will now become easier for the government to tone down its earlier stridency and pave the way for a settlement.
8In some disputes in which the stand is not clear, the PAC has called for a review of the government's position by seeking fresh views from the law ministry.
8The PAC's main argument is that some of the original provisions of the PSC on which a majority of the disputes have arisen have been subsequently relaxed by the government through the announcement of a new revenue sharing model and by allowing exploration activity during the development phase of a block.
8The PAC claims that a time has come to put in place a strong dispute resolution mechanism to address the concerns of both parties.
8Moving a step forward, the PAC has said that the government should keep it appraised of its next course of action on addressing the concerns of both parties.
Click on Reports for more Details
8And it is none other than the Public Accounts Committee (PAC) of Parliament which is acting as a catalyst to resolve the dispute.
8A settlement will eventually require a withdrawal of the series of arbitration notices filed by RIL and its partners in the block against the government.
8The PAC has paved the way for resolution of the dispute by setting aside several rulings of the CAG on which the ministry too seems to be in agreement but was afraid to take a clear position earlier.
8It will now become easier for the government to tone down its earlier stridency and pave the way for a settlement.
8In some disputes in which the stand is not clear, the PAC has called for a review of the government's position by seeking fresh views from the law ministry.
8The PAC's main argument is that some of the original provisions of the PSC on which a majority of the disputes have arisen have been subsequently relaxed by the government through the announcement of a new revenue sharing model and by allowing exploration activity during the development phase of a block.
8The PAC claims that a time has come to put in place a strong dispute resolution mechanism to address the concerns of both parties.
8Moving a step forward, the PAC has said that the government should keep it appraised of its next course of action on addressing the concerns of both parties.
Click on Reports for more Details
