In the days of the shortage economy and the licence raj, there used to be regular references to the “unholy trinity”. This term was used to refer to the corrupt businessman, the greedy politician and the pliant bureaucrat acting in concert. In the era of public private partnership (PPP), two constituents of this trinity, the politician and the bureaucrat, belong to the “public” part of the PPP environment. So, the Comptroller & Auditor General of India’s (CAG’s) move in this direction is as much about protecting the aam aadmi from the government as it is about checking recalcitrant businessmen. In this context, it is important to ensure that the award and administration of large PPP projects do not deprive the exchequer of large sums of money.
This point deserves to be highlighted. Crony capitalism today finds convenient grazing grounds in the infrastructure-PPP pasture-lands. Such grazing is carried out as much by politicians as by the much-maligned business fraternity. The telecom auctions scenario, “fixed bids” masquerading as “transparent”, convenient definitions of what constitutes revenue-sharing (or more conveniently, does not !), post-award change of bid conditions et al are not necessarily the handiwork of businessmen only but these include the combination of the politicians and the bureaucrats who are hand in glove with one another. If this cancer is not nipped early in the game, India’s ambitious PPP programme stands to be seriously jeopardised.
It is in this context that the government is planning to introduce a new Bill in the next session of Parliament to empower the CAG to audit accounts of PPP entities. The CAG will also come under the ambit of the Right to Information Act following the new law. This new Bill seeks to replace the CAG Act, 1971, so as to enable it to handle the “new models of administration”, and “new delivery channels” to bring them into its legal mandate.
In its foreword to the well-reasoned document on Public Auditing Guidelines for PPP Projects, the CAG has a clear perspective on the matter. It observes: “PPPs, while bringing in private capital and experience, also involve transfer of valuable public assets as well as foregoing future revenues in the form of concessions. To ensure that such arrangements always enjoy high credibility in the public eye, due diligence, transparency, objectivity and probity of the entire decision-making process are all paramount if these arrangements are to succeed and continue for future projects. The role of public auditors, therefore, becomes critical in assessing whether such arrangements are truly in public interest and are also fair and balanced in sharing of risks as well as rewards. Audit of such entities poses a huge challenge and requires a change in the audit methodology as also the approach of public auditors. The audit, while promoting accountability, should not discourage private sector involvement, investment and innovative management techniques.”
Thus, the argument that PPP special purpose vehicles (SPVs) have statutory auditors does not cut much ice. Statutory auditors are empowered to dig into the books of accounts of the auditee company. They do not have the mandate to delve into governmental processes that ultimately award bids, or change or modify or suitably interpret concession agreements.
The next argument against the CAG getting involved in PPP projects is that sector regulators oversee aspects of governance, implementation and adherence to concession agreements. This expectation from sector regulators reflects a high degree of naivety. In many areas, like roads and highways, sector regulators do not exist. In others, like the Tariff Authority for Major Ports (TAMP), they have a limited mandate. Some have been recently created (airport regulator); or just proposed (coal regulator in the last Union Budget). In more mature sectors, like telecom and electricity, combinations of “ministerial capture” (as distinct from “private sector regulatory capture”) or insufficient “teeth” lead to a lack of faith by the general public in these regulators. The overall feeling is that they do not currently have the independence, backbone and empowerment to strictly and unfailingly uphold the interests of the public at large. It is to address the weaknesses of the existing regulatory system that the planning commission has suggested new legislation to create truly “independent” regulatory authorities in the infrastructure space.
Then, there is the “efficiency versus accountability” argument advanced by those against CAG involvement in PPPs. At the extreme, this group offers the point of view that the 5 C’s (read CBI, CVC, CJI, CIC, and CAG) are singly and collectively responsible for a “decision paralysis” at all levels and, therefore, by extension, are the reason for lack of India’s quick move up the development ladder. If a PPP concessionaire is assumed to be just another instrumentality of the state, on a par with a PSU, then such a treatment may lead to disinterest among the private players and stall infrastructure growth in the country.
This point of view errs on two counts. One, it raises serious “moral hazard” issues that, left unattended, would embezzle thousands of crores of taxpayers’ money under the garb of speedy development.
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Two, it focuses on unfettered and speedy decision-making processes at the level of the operating company or the implementing SPV. The truth is that the real mischief is unlikely to be at the operating company’s level (which certainly can be unearthed by reputed statutory auditors), but lurks in the processes leading up to the award of the concession and its interpretation and renegotiation over the life of the award. No statutory auditor can review that; only a body like the CAG can.
Critics of CAG’s functioning point out that it is a 150-year-old institution with roughly 50,000 officers and a staff that carries out about 60,000 audits every year; and that it is already creaking, over-burdened and unable to make much of a difference in probity in public life. The executive and legislative arms of the government, including the Public Accounts Committee and the Committee on Public Undertakings, are notorious for slothful responses and tardy action. Thus, critics would emphasise that adding PPPs to the list of tasks is quite meaningless.
There is no denying the fact that the output of the CAG needs to be far more visible in the public eye in terms of follow-up action. However, arguing against the CAG oversight is like asking for the winding-up of our judicial system, because justice takes so very long to get delivered.
The CAG, in fact, is the only credible watchdog around in a scenario where India is poised for a $1,000-billion infrastructure spend in the 12th Plan, 50 per cent of which, the prime minister hopes, will come from PPP.
The author is the chairman of Feedback Ventures Views expressed are personal