Reliance hits back at CAG criticism of Aker deal

Vol 15, PW 1 (14 Jul 11) People & Policy

Reliance has attacked India’s Comptroller and Auditor General (CAG) for “misleading” the government over its decision to spend $1.075bn to hire and operate a Floating Production Storage and Offloading vessel from Aker Floating Production to develop the MA oilfield at the KG-DWN-98/3 (D6) licence.

In a detailed 424-page response, Reliance offers a point-by-point rebuttal of CAG’s draft audit, prepared to investigate allegations the Mukesh Ambani-led conglomerate inflated or ‘gold-plated’ D6 development costs. Central to CAG’s allegation is that Reliance’s Declaration of Commerciality (DoC) for MA pegged the FPSO cost at $300m, while Aker’s initial quote was $571m.

Reliance later raised this to $733m in the Field Development Programme while the, “final order value awarded against a single bid was $1.075bn for a 10-year contract,” says CAG. Not true, retorts Reliance: there were 15 bidders, not one, later reduced to eight, and finally two: Aker and Monaco-based Single Buoy Moorings.

“CAG has misunderstood the nature of the FPSO contract,” says Reliance. “The purpose of a DoC is not to establish definitive costs.

The estimate of $300m was not a binding or firm guide. No FPSO of similar specification had ever been used in Indian waters.

It was impossible to gauge how much a FPSO might cost.” Reliance goes on to accuse CAG of sloppy auditing.

Aker’s initial offer of $571m, it says, was for Phase-I only. “CAG has misunderstood the nature of this contract and mischaracterised the cost of exercising options,” adds Reliance.

“This led CAG to believe there were price escalations whereas in fact the cost of the FPSO contract actually fell. CAG is seeking to compare the $1.075bn figure, which is an aggregate figure, with the simple buy price at the contract outset.

This is not comparing like for like.”