Dr Ashwani Mahajan
Honouring its election promise, Arvind Kejriwal’s Aam Admi Party’s Delhi Government ordered Comptroller and Auditor’s General’s (CAG) audit of power distribution companies of Delhi. With this, a big question is coming to fore, that whether CAG could now audit accounts of Private Public Partnership projects. These PPP projects are those where private sector and Government are partners, in which Government has invested funds and where there is an agreement with regard to sharing of revenue, collection rights of which vests with the private company. In the meanwhile, coincidently Supreme Court has also decided against telecom companies, who have appealed against Government to get their accounts audited from CAG. It is notable that Public Accounts Committee of the Parliament had favoured CAG’s audit of telecom companies; as they are sharing their revenue with the Government.
In the past one decade, a large number of projects are being run under private-public partnership. National and State highways; number of airports, including Delhi and Mumbai Airports; Delhi Metro and metro in many other cities and even ports are being built under PPP arrangement. As private sector has been investing on a large scale in these projects, private companies have been allowed to collect user charges. For carrying out the work for every project, a new company or Special Purpose Vehicle (SPV) is created. This company undertakes work ranging from erection of project to operation of the service and collection of user charges. Government also invests huge amount of money in these projects. It is notable that all the projects which involve public (Government) funds are subject to audit by CAG; however these private public partnership projects of the present day have so far been out of radar of CAG. Sometime back Public Accounts Committee (PAC) had recommended for CAG’s audit of telecom companies and Government ordered for the same. Telecom companies approached court against this decision of the Government. After court’s decision against telecom companies, they have come under the CAG’s scanners.
Implication of Court’s Order
Court has ordered that CAG can audit account of any company, who is collecting user charges, which is subject to sharing with the government. For instance Delhi International Airport Limited (DIAL) and Mumbai International Airport Limited (MIAL), who have been authorised to collect user charges, which needs to be shared with the Government should also be subject to audit by CAG. Similarly revenues of Delhi Metro and other metros are also shared with the Government. It is no secret that these projects could not have seen the light of the day but for the support of government. Not just that Government has invested heavily in projects, these projects were conveniently carried out because of easy approvals from public authorities.
It is unfortunate that despite heavy public investment, and provision of sharing of revenue with the Government, CAG is not empowered to audit accounts of the public private partnership company. Many years back, agreement with a power company Enron, had to be cancelled after the same was found to be not complying with the terms of agreement and lending agencies ultimately faced the brunt. Later that company was found to be involved in frauds and ultimately got bankrupt. However CAG could not do anything to curb the frauds. Recently a couple of years back a company, Satayam, CEO of which conceded to have committed a fraud of more than rupees 7000 crores, and which was involved in a number of infrastructure projects; these projects have come under severe stress.
CAG’s demand that companies running all these public private partnership projects and subject to revenue sharing with the Government, be subject to its audit is fully legitimate. It is notable that CAG can audit these projects; however that is limited only to stage till the memorandum of understanding (MOU) with private companies about various conditions of the project. CAG can examine the issues such as whether the agreement is based on competitive bidding or a due process of law has been followed. However CAG has legitimate right to audit these projects even at construction stage and operational level, due to the fact that there is provision of revenue sharing with the government. Times to time questions are raised about inflated costs and lower revenues, shown from these projects, due to absence of any regulatory mechanism in place. On the other hand companies’ whose interests are linked with these projects oppose any such audit. Their argument is that since these projects are run under the supervision of government officials, there is no need for further supervision by CAG. They also argue that in these projects availability of finance is a major issue and government auditors do not understand these compulsions. Major argument against CAG audit is that, this process may delay these projects which may escalate costs.
However, because of the objections and opposition by the private stake holders, principle of accountability and parliamentary control cannot be ignored, as a huge amount of public funds has been invested in these projects and Government also receives revenue from them. We understand that in whichever field private sector has been allowed to participate; regulatory institutions have also been created along with. Telecom Regulatory Authority of India, Insurance Regulatory and Development Authority, Central Electricity Commission are some such examples. Apart from these regulators, banks are regulated by Reserve Bank of India (RBI) and stock market by Security Exchange Board of India (SEBI). It is ironical that despite billions of rupees of public investment and expectation of big revenue, there is absence of any constitutional audit of these projects. If one says, that since these projects are run under the supervision of the related ministries of government of India, and therefore there is no legitimacy of CAG’s audit, then by same logic there is no legitimacy of CAG’s audit of public enterprises and ministries of government of India and State Government, as they are under their respective government officials.
Need of the hour is that all public private partnership projects be compulsorily be subject to audit by CAG and in future while making any Memorandum of Understanding (MOU), this condition should be made integral part of the agreement.
(The author is Associate Professor, Dept of Economics, PGDAV College (University of Delhi)
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