The Comptroller and Auditor-General on Monday strongly refuted the charge that it did not consult private operators, including Reliance Industries Limited (RIL), before finalising its draft performance audit report on oil and gas production sharing contracts (PSCs). It said an opportunity was given to all operators to respond to its observations.

RIL and Cairn India have come under the scanner after the draft report accused the Ministry of Petroleum and Natural Gas and the Directorate-General of Hydrocarbons (DGH) of providing huge and undue benefit to these companies and allowing irregularities and bending rules to oblige RIL in the Krishna Godavari Basin gas fields, leading to a massive and as yet unquantifiable loss to the exchequer.

Reacting to reports suggesting that it refused to give RIL an opportunity to comment on its draft report, the CAG said in a statement that as per the standard practice in vogue for all its performance audits, an entry conference and exit conference is conducted with the audited entity in this case, the Ministry.

Furthermore, the statement said, in the case of the performance audit of hydrocarbon PSC, interactive meetings were held with two operators, including RIL, prior to the finalisation of the draft performance audit report. At no stage did this office refuse any operator an opportunity to respond to observations made by us, it said.

The statement added: This office sought the date for an exit conference for discussing the main audit findings in the draft performance audit report and subsequently a reminder was sent on June, 22, 2011 to the Petroleum and Natural Gas Ministry. As regards sharing of the draft performance audit report with the operators, it is stated that as per the established audit methodology, the draft report is forwarded to the Ministry, and it is for the Ministry to take a view on what operator-specific points it needs to share, at this stage, with the operators.

The CAG said it had clarified to the Ministry that it might call the representatives of the operators at the time of discussion of the operator-specific points at the exit conference. The purpose of the exit conference is to provide an opportunity to the Petroleum Ministry to discuss the audit findings and to clarify to the Ministry any point of doubt that the Ministry may like to raise.

It is reiterated that the performance audit process follows a very structured, systematic and objective architecture, which involves taking into account all relevant facts furnished by the parties concerned to ensure a balanced and objective reporting, it concluded.

Interestingly, the Ministry, in a June 22 letter, said the CAG did not mention its observations or seek comments of the private firms on its audit objections during the interactive meetings it had with RIL and Cairn days before finalising its draft report. The CAG draft report said the rules were bent to enable RIL to retain the entire 7,645 sq-km KG-DWN-98/3, or KG-D6 block, in the Krishna Godavari Basin.