Most observers gag at the thought of the Comptroller and Auditor General of India (CAG) auditing Public Private Partnership (PPP) projects since, they argue, the very things that bedevilled public sector projects will now apply to PPPs as well. The argument is that public sector projects take forever since, apart from the fear of Central Vigilance Commission and CBI probes, managers also live in mortal dread of the audit objections raised by the CAG (the dreaded 3Cs!) — so, public sector managers concentrate on going by the book, even when it comes to buying a pin, never mind if there are greater losses due to project delays. A good example of this is the ongoing furore over the latest BSNL tender — even though BSNL has managed to reduce Ericsson’s quote by a third, it is being accused of violating the CVC rule of not negotiating with suppliers after a bid has been received!
It’s easy to sympathise with this view given how, often enough, CAG reports do focus on trivia — I have seen CAG reports where, for instance, yearly “losses” for 15-20 years have been simply added without even simple discounting; such examples can be multiplied manifold. But what needs to be kept in mind is that, equally often, the CAG does bring out huge scandals — indeed, the scandal here is that the legislature blithely ignores most CAG reports. The CAG report on how the VDIS black money scheme was badly abused, for instance, is a masterpiece of investigation. Similarly, in the case of the privatisation of the Delhi Vidyut Board (DVB), the CAG pointed out there was a Rs 3,108 crore difference between the figure of total receivables depicted in DVB’s balance sheet and that worked out by the consultant! Neither report was used by legislators. But this is not the time to examine the CAG’s record — those interested can read business-standard.com/210204/ for a fuller exposition.
The issue here is different. It is of how PPPs have become a byword for crony capitalism of the worst type. Whether it is the airports at Delhi or Bangalore, or the Nhava Sheva port, the DVB privatiation … the same sets of issues of poor tendering, allowing tender conditions to be changed at will and allegations of massive padding of costs crop up regularly. This is what it is hoped the CAG’s audit process will help fix.
Even though corruption is not something to be ignored, if the matter was “just” a moral one, it could be ignored. The problem, however, is that the kinds of deals being struck are so blatantly one-sided, it has begun to slow down the projects themselves. How many years after the Enron scandal was unearthed did it take for the country to start putting back its faith in private power developers? How many state electricity boards got privatised after the DVB scandal where it was found, despite everything, power tariffs just kept going up. Essentially, after the scandals get unearthed, this frightens both officials and politicians from pressing too hard on new PPP projects — how do you push an airport privatisation if you see, as in Bangalore, that the owners of the project are awarding contracts to themselves and that these costs are resulting in significantly higher tariffs for passengers? The high level of favouritism also results in the better players staying away.
The guidelines issued by the CAG indicate it is conscious of not taking just the narrow audit perspective. The guidelines, for instance, talk of the PPP audit being similar to “performance audits” done by CAG as opposed to financial audits: “the important principle is to bring out … what have been achieved rather than how it was achieved.” In other words, the CAG is promising to look at the big picture, the costs and benefits at the overall level instead of the minutiae of each sub-component of a project. The CAG audit of the Reliance Industries’ KG Basin project, for instance, is going to focus on tendering procedure, related-party transactions and things like that instead of looking at the per piece price of each equipment.
Of course, as in all such projects, the devil lies in the details and success lies in ensuring the CAG doesn’t kill PPP. One guideline, for instance, talks of how auditors need to see if the project was justified — on whether there was enough demand or whether the project could have been better executed departmentally. Since demand estimates for most major projects — airports, expressways, ports — have been understated by a huge amount, and no one can ever prove a project couldn’t have been done departmentally, this can ensure the CAG audit will block off all PPPs. Perhaps one way out, for starters, is to get the CAG to audit projects already given out — this will help it figure out what kind of issues it needs to focus on, and which are equivalent to the proverbial drain inspector’s report.