ONGC paid ₹18,626 cr in excess subsidy on overstated crude output: CAG

NEW DELHI, AUGUST 8:  

Pointing to inadequacies in ONGC’s measurement of crude production, the Comptroller and Auditor General has said the public sector hydrocarbon giant over-reported its output by including condensate and off-gas output. 

In a report titled ‘Crude Oil Production Measurement and Reporting System in ONGC’ tabled in Parliament on Monday, the government auditor said ‘condensate’ and ‘off gas ‘ ought not be reported as ‘crude oil’ production. 

It said the inclusion of condensate and off-gas led to additional subsidy burden of ₹16,331 crore and ₹2,294 crore, repectively, during the period 2011-12 to 2014-15. 

Calculation of subsidy

The subsidy is calculated by multiplying the reported crude production (measured in barrels) with the per barrel price of oil ($56). This formula was used to calculate ONGC’s share of subsidy between 2011-12 till September 2014. 

For the third quarter of 2014-15, the subsidy rate was revised to $37.5/barrel and then to zero for the last quarter. 

The CAG’s view that condensate and off-gas should not be counted in crude oil production was also strengthened by the replies the company management gave the auditor. “The significant implication of inclusion of condensate for determination of ONGC’s share of under-recoveries has been taken up with the government. ONGC had appealed to the government that in future only crude oil quantity be considered for determination of ONGC’s share of under-recoveries…,” the CAG report quoted ONGC’s reply. 

The CAG report also found that in 2011-12, ONGC had appointed an international consultant DeGolyer & McNaughton (D&M), which had recommended that the company should not count condensate in crude oil production. 

In its recommendations, the CAG suggested that the company should report condensate output separately, as recommended by D&M. It also suggested that the company ensure that items other than crude oil are not reported as crude oil production. 

“Considering the difficulties expressed by the management/ministry in accurately measuring crude oil at the production point, there appears to be a case for shifting the production reporting point to a suitable location where stabilised crude can be accurately measured,” the CAG report stated.