New Delhi: In a startling development, the CAG has refused to give Reliance Industries an opportunity to comment on its draft audit report that indicts the Mukesh Ambani-run firm for allegedly receiving undue favours from the Oil Ministry.

The nation's top auditor turned down a request of the Oil Ministry to allow private firms like Reliance and Cairn India, against whom the draft report has passed strictures, an opportunity to present their views on the audit objections.

Sources privy to the development said the ministry had on June 22 written to the CAG saying the audit observations were never discussed with either Reliance or Cairn and they did not get an opportunity to respond to the strictures.

The CAG on the same day replied back saying its "audit mandate, scope and coverage" did not provide for seeking a response on its draft observations and the government can raise audit objections after it has finalised its report and it is tabled in Parliament, they said.

The CAG, during the audit of Reliance's eastern offshore KG-D6 gas fields and Cairn's Rajasthan oilfields last year, never gave the private operators a chance to explain the complex nature of their business, which the nation's top auditor had hitherto never scrutinised.

Instead, the CAG wrote audit memos and requisitioned accounts, with which the private operator fully complied.

Sources said the CAG had a 90-minute session with the operators in the first week of June this year with no pre-set agenda and no audit observations were discussed.

Within days of this meeting, the auditor sent its draft report without including any inputs from the private firms, to the Oil Ministry for comments.

The CAG, in its June 8 draft report, stated that the Oil Ministry and its technical arm, the Directorate General of Hydrocarbons (DGH), favoured Reliance and Cairn by allowing them to retain their entire exploration acreage, turning a blind eye to increases in capital expenditure and giving additional area in violation of the Production Sharing Contracts (PSCs).

The CAG took almost a year since completion of the audit in June last year to prepare the draft report. But now it is not giving the operators a few weeks to respond as per the principle of natural justice, sources said.

The CAG wants an exit conference with the ministry to be held in the first week of July to conclude its final report. In the draft report, the CAG said rules were bent, enabling Reliance to retain the entire 7,645 square kilometer KG-DWN-98/3, or KG-D6 block, in the Krishna Godavari Basin off the East Coast.

Also, the development plan Reliance submitted for Dhirubhai-1 and 3, two of the 18 gas discoveries in the KG-D6 block, was not in compliance with the PSC and the ministry and the DGH turned blind eye to the company raising capital expenditure without having begun work on the previous one.

Reliance had in May, 2004, proposed an investment of USD 2.4 billion for producing 40 million standard cubic metres per day of gas from the D1 and D3 fields and later, in October, 2006, moved an addendum to this saying USD 5.2 billion would be required in Phase-1 to produce 80 mmscmd of gas and another USD 3.3 billion to sustain the peak output for a longer duration.

The CAG, however, did not say Reliance overbilled the government or caused a loss to the exchequer with the increase in development cost.