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Future PSCs must have audit provision
September, 03rd 2009

CAG has recommended that all future production sharing contracts for auctioned exploration acreages should have an in-built provision that will allow the government's auditor to scrutinise the records of expenses incurred by private operators in developing the fields, according to documents available with TOI.

"For the future, I would recommend the following: For future PSCs, starting from NELP-VIII, a suitable clause may be added in the contract, providing for audit by the CAG, at his discretion, of the accounting records maintained by the contractor in addition to the existing audit provisions," CAG Vinod Rai said in an August 26 letter to oil minister Murli Deora that was also marked to PM's principal secretary.

Senior oil ministry officials confirmed the letter and also receiving a PMO communication on August 31, suggesting "urgent follow-up action on the points raised in the letter, under intimation to the PMO".

They pointed out that the ministry had already acted, with Deora replying on August 27 to assure Rai that "future PSCs will have provisions for CAG audit".

Rai has suggested that CAG could conduct the audit either through its own people "and/or a firm of qualified chartered accountants appointed by him". "We believe this enabling provision for CAG's audit is necessary in view of the huge government stake involved, particularly in terms of current and future profit petroleum".

For existing contracts, where the ministry has appointed auditors for specific years, Rai recommended "negotiating with the operators to provide free and unfettered access to their records for CAG audit".

Rai suggested bringing the oilfield contracts "under the system of parliamentary oversight in order to protect the financial interests of government in such profit sharing, public-private ventures which involve exploitation of public resources".

The ministry officials explained Rai's suggestion to say that a CAG audit will automatically bring these contracts under parliamentary oversight since CAG submits its reports to the House.

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