Auditors heavily criticise GSPC relationship with GGR

Vol 11, PW 23 (03 Apr 08) People & Policy

Federal government auditors have sharply criticised GSPC’s decision to grant GeoGlobal Resources (GGR) of Canada a risk-free 10% stake in discovery block KG-OSN-2001/3.

Submitted to the Gujarat state legislature on March 26, and seen by this report, the publicly available audit, carried out by the Comptroller and Auditor General (CAG), India’s feared accounting watchdog, doesn’t mince its words. "Inclusion of GeoGlobal Resources in the (KG) JV without it having to bring in any financial or technical contribution is not in order,â€‌ reads the CAG report.

“Absolving GGR from its share of the risk or responsibility related to this venture lacks justification.â€‌ Audit examination, says CAG, reveals that GSPC invited GeoGlobal into the project for its technical expertise in exploration activities.

“However, no clause to that effect was inserted in the Joint Operating Agreement (signed in August 2003) and GeoGlobal did not provide any technical expertise except for offshore block bidding.â€‌ CAG notes, however, that in September 2003, GSPC signed a separate agreement with GeoGlobal Resources (Barbados), a sister concern of GGR, for the provision of technical advice and that fees of Rs3.42cr ($855,000) claimed by GeoGlobal Resources (Barbados) from GSPC for services provided till March 2007 are under negotiation.

Despite the severity of its findings, don’t expect heads to roll. As the central government’s foremost accounting watchdog, CAG routinely submits critical reports on state-owned companies, and their expertise in wasting public money.

In this particular report, CAG details the relationship between GSPC and GGR, noting that one of the JOA conditions commits GSPC to â€کcarry’ a 10% stake for GGR, which the Canadian company would repay, plus its share of operational expenses over the â€کforecast production life’ or 10 years at the block, whichever is less. Should production fully or partially fail before the money is repaid, notes CAG, GSPC had agreed to forego its claim.