CAG begins audit on government role in fixing oil and gas prices

 CAG begins audit on govt’s role in fixing oil and gas prices, particularly from Reliance Industries, to various consumers with an aim to ascertain the implications on the exchequer.


NEW DELHI: The national auditor has launched a comprehensive scrutiny of government's role in fixing prices of oil products and supply of scarce natural gas, particularly from Reliance Industries-operated KG-D6 block, to various consumers with an objective to ascertain the implications on the exchequer. 

The Comptroller and Auditor General (CAG) will conduct two separate "performance audits"; one on the supply and pricing of natural gas and the other is related to pricing mechanism of major petroleum products, including petrol and diesel, government and CAG officials said. 

"The performance audit of supply and pricing of natural gas is covering the period from 2007-08 to 2011-12, which will cover the pricing of RIL's KG-D6 gas, its allocation to various consumers and supply cuts due to decline in gas production," one government official said requesting anonymity. 

Through this audit, the CAG will also examine performance of petroleum, power and fertiliser ministries, which are actively involved in gas pricing and supply issues, government officials said. CAG's performance audit is considered the most comprehensive review which includes the auditor's independent assessment of economic, efficient and effective operation of an organisation, programme or scheme. Other audits undertaken by CAG are 'financial' and 'compliance' audits. 

In the first meeting of performance audit for supply and pricing of natural gas, state owned Gail India BSE 0.06 % suggested to expand the audit scope to private companies involved in supply of gas, a CAG official said requesting anonymity. The first meeting, which is also called entry conference, was attended by representatives of CAG, downstream regulator, petroleum, power and fertiliser ministries and executives of Gail, ONGC BSE -0.37 % and Oil India BSE 1.14 %. 

"It is likely that CAG will also examine supply and pricing issues concerning imported gas because its representatives asked several questions pertaining to import of liquefied natural gas (LNG) and infrastructure to handle LNG," one person present in the meeting said. 

In the meeting, CAG representatives assured officials that the auditor would provide opportunities to everyone to respond to its observations and their views would be "duly considered" before finalising the report. The entry conference for the second audit, which will examine pricing of major petroleum products, is expected soon, officials said. 

They expect the audit to cover controversial petrol pricing issues, because despite deregulation since June 2010, state oil firms continued selling the fuel below market rates to provide political mileage to the government in various assembly and local elections. Oil marketing firms—IOC, BPCL BSE -0.04 % and HPCL—have not yet recovered their past revenue losses on petrol, because they were forced to take tacit approval of the oil ministry before raising its rates to align them with market rates.