Panel declines ministry’s proposal to delegate power to DGH on excess cost

“DGH will constitute a multi-disciplinary committee to review and recommend the proposal for final approval by the DG. DGH will ensure that principles such as transactions at arm’s length, competitive bidding have been complied with by the operator,” the ministry reasoned for surrendering its authority.

While agreeing to remove the additional layers of the decision-making process, the ECS on April 10 declined unfettered power to the DGH and delegated it to only approve additional costs not exceeding 10 percent of the original estimates.

The ECS’ stated view was that since cost overruns — and hence the operator’s cost recovery — was a “revenue issue for the government”, the ministry’s technical advisor could not be given this authority. It said that cost escalations beyond 10 per cent would be brought to the ministry for approval.

The approval to empower the DGH as the final deciding authority in case of cost overruns marks a departure from the norms laid down in the production sharing contract (PSC) signed under the now-discontinued NELP.

Earlier, the expenses were audited and the rationale for extra cost recovery was first evaluated by the DGH before placing it before the Management Committee. Once the MC recommended it, the cost recovery by the operator would need the ministry’s approval.

The Comptroller and Auditor General of India has in its reports slammed the DGH for not exercising enough control and vigil over oil and gas blocks, leading to instances of excess cost recovery and loss of revenue to the national exchequer.

Since the government’s take decreases when cumulative cost rises at a rate higher than the cumulative income, there was (and continues to be) — an incentive for NELP producers to book more costs in exploration, development and production expenses than what it submitted as costs for the minimum work programme at the time of bidding.

The ECS, headed by Finance Secretary Hasmukh Adhia, also approved that operators appoint auditors “not later than six months from closure of the financial year” instead of the present upper limit of conducting audit within two years from the end of a financial year.

It halved the timeline for notifying audit exceptions to operators within 60 days from the date of receipt of the audit report and delegated the notifying powers to the DGH instead of the ministry.

The ECS also delegated to the DGH the power to approve “excusable delays” in exploration phase due to any delays in government approvals and clearances. Earlier, the extra period for excusable delays was given only after approval by the ministry.