State-run Oil and Natural Gas Corporation (ONGC) ended up paying an additional Rs.18,626 crore in subsidies over the period 2011-12 to 2014-15 by overstating its crude oil output, a CAG audit has found.

“The company had to bear a larger share of subsidy due to overstatement of reported crude oil production by inclusion of condensate and off-gas (7.06 per cent of condensate and 1 per cent of off-gas),” according to a CAG report tabled in Parliament on Monday.

The report was quite categorical in stating that the measurement of crude oil production should not include condensates and off-gas (a dissolved gas in crude oil separated during the stabilisation process of crude oil).

Additional subsidy

“The additional subsidy burden borne by the company was Rs.18,626.74 crore (that is, Rs.16,331.96 crore on account of inclusion of condensate and Rs.2,294.78 crore on account of inclusion of off-gas in crude oil production) during the period from 2011-12 to 2014-15,” the report added.

Upstream national oil companies such as ONGC and OIL shared the under-recoveries of oil marketing companies that arose from their having to sell petroleum products at subsidised rates. Under the subsidy sharing system in place since 2012, an upstream company’s subsidy burden was to be calculated on the basis of its total crude oil production.

Further, the report found that the over-reporting of production in Ankleshwar and Assam assets — by inflating closing stock — had resulted in an additional subsidy burden of Rs.160.69 crore.

Had it not over-stated production, ONGC would have missed its production targets for all the years under review, the report found.

“By including BS&W (basic sediment and water) of 3.9 per cent, off-gas of 1 per cent, and recoverable internal consumption of 0.12 per cent, the production performance was over stated,” according to the report. “If the actual crude oil production was reported, the company would not have met its crude oil production targets in any of the years (2010-11 to 2014-15).”

The report also found that this over-stating of production inflated the company’s wage bill.

“As performance related pay (PRP) of its employees is related to achievement of production targets, actual production reporting would have resulted in lesser pay-outs of Rs.106.51 crore of PRP to the employees,” the report said.

Significant implication

“The significant implication of inclusion of condensate for determination of ONGC’s share of under-recoveries has been taken up with the Government,” the Ministry of Petroleum and Natural Gas and the management of ONGC said in its reply to the CAG.

“ONGC had appealed to Government that in future only crude oil quantity be considered for determination of ONGC’s share of under-recoveries and quantity of gas condensate may not be included, as it is neither crude oil nor is it sold,” the reply, included in the CAG report, said.

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