It is important to ensure large PPP projects don’t cheat the exchequer of large sums of money. But the challenge lies in doing this without causing the kind of delays that plague all public sector projects.
Rajeev Chandrasekhar
Member of Parliament, Rajya Sabha
My gut feeling is that most existing PPP projects would fail to satisfy the guidelines outlined by the Comptroller and Auditor General.
The last article I wrote in 2009 was about the need to rethink public private partnerships (PPPs), and I start 2010 after discovering the Comptroller and Auditor General’s (CAG’s) guidelines on public private partnerships — a fine document published in late 2009 hasn’t received the visibility and debate that it deserves. I must admit that I wasn’t aware of the existence of this document. There’s a message in this for the Comptroller and Auditor General as well, which must ensure better visibility, especially among media and parliamentarians, of its efforts at ensuring better oversight and administrative conduct. The old axiom of good work alone isn’t the solution; it’s good work being put to use that’s important!
The foreword of the Comptroller and Auditor General, Vinod Rai, lays out the importance of the role of public private partnerships in national infrastructure creation, and establishes the primacy of need to encourage more and more such projects, but defines precisely what public private partnerships ought to be about — “whether these arrangements are truly in public interest and are also fair and balanced in sharing of risks as well as rewards”. This is truly the best way to assess a public private partnership.
The objectives for public private partnerships , as laid out in the guidelines, are clear and unambiguous. They include, among other things, the following:
- Encourage private sector involvement in public infrastructure and services, where “value for money” for the government could be clearly demonstrated;
- encourage innovation in the provision of infrastructure and services;
- clearly articulate accountability for outcome.
Further, on page 16 — in a section called “Role of private sector partners in public private partnership projects” — the document spotlights the tendency to “over-engineer” and pad the capital costs of public private partnership projects. The key principles have been, therefore, understood by the Comptroller and Auditor General and the guidelines are the best litmus test for every public private partnership to pass.
The crux of the need for this reformed approach to public private partnership is simple — it is about the costs and money! While it is agreed that there is a need to develop infrastructure, the focus now must be on the best and lowest-cost way to get this infrastructure. The approach so far has been “at any cost” (take Enron or Bangalore International Airport, for example), and these guidelines seek to move us away from that approach.
It would be interesting if someone — from the media, perhaps, or even the Comptroller and Auditor General, maybe — takes a sample set of infrastructure public private partnerships like airports, gas, mines etc and sees how they measure up against these Comptroller and Auditor General’s guidelines. I will not prejudge the results, but I have a gut feeling that most existing public private partnerships would fail these guidelines — if true, that would be the case for reforms/improvement in commercial terms for public private partnerships.
In any event, now that the Comptroller and Auditor General has established the principles of public private partnerships in the form of these guidelines, it is for the government and ministries to ensure that all public private partnership proposals comply with these guidelines, and a start would be that all government approvals for public private partnerships should be subject to these guidelines. The finance ministry should ensure this, and also use its financial allocation powers to make sure these guidelines are followed by various state governments as well. The Comptroller and Auditor General should further have special audits of all public private partnerships and place them in the public domain to ensure better visibility and transparency around these commercial public private partnership contracts.
On my part, after discovering this document, the first thing I did was to officially send it to the chief minister, chief secretary and industries secretary of my state, Karnataka, with a request and hope that they would follow these guidelines for public private partnerships. Our country needs infrastructure and this decade needs to be a push for massive investments in infrastructure — and with these guidelines, this push for infrastructure and public private partnerships can be through a more cost-effective and balanced partnership approach as well.
Shailesh Pathak
Managing Director, PE Indian Infrastructure Fund
There has to be oversight for all PPPs. This is best done by sector regulators. CAG audits will get us back to the days of analysis-paralysis
A senior Comptroller and Auditor General (CAG) official once told me two myths about audit: one, the auditor says to the auditee, “We’re here to help you!”; two, the auditee says, “You’re welcome!”
The tragedy is that 5Cs are responsible for “analysis paralysis” at all levels in the government. These include, in no particular order, CAG, the Central Bureau of Investigation (CBI), the Central Vigilance Commission (CVC), the Chief Justice of India (CJI) and the Central Information Commission (CIC). One major reason trotted out in support of PPPs is faster execution. Do we want to get PPPs into the 5Cs’ scenario, leading to risk-averse decision making? All we need to see is competing businesses in the private and public sector, to understand the delaying impact of the 5Cs. Airlines, anyone? Telecom? Universities? The quality of talent in government/PSUs is usually better than private competitors. But, totally misaligned incentives and the spectre of the 5Cs ensure that there is a MAFA syndrome (mistaking articulation for action), now referred to as the MAFIA syndrome (mistaking articulation for intended action), prevalent at most levels in the government.
Most serious PPP observers appreciate the excellent definition of PPP projects evolved by the finance ministry in 2006-07. However, justified criticism of initial, so-called PPPs is less about “audit” and more about favouritism, either before the bid is awarded, or increasingly, at the time of renegotiation after award. There are egregious examples where private concessionaires have prepared the concession agreement to suit their own ends. I would classify the early greenfield airport PPPs into this half-baked category. The lacuna was not “audit” but a non-transparent award process, and not enough robust model documentation. Thankfully, we are moving to better designed PPPs on both counts. Today, sweetheart deals are giving way to transparent, competitive bidding. Concession agreements are far more balanced to ensure public welfare as well as early project execution. Capacities within public officials to manage PPPs have been developed over the last few years. However, rent-seeking by various elected and appointed officials is leading to some distortions in the pre-award or renegotiation process.
Oversight on PPP projects is a must. The projects invariably should be for public good, and so, verifiable. However, such oversight is best done by the sector regulator concerned, with independent professional auditors. Every sector needs an independent regulator with sufficient technical expertise in exercising oversight over the long-term concession agreement between the public and the private sectors. One would argue that sectors lacking such regulators shouldn’t even try to carry out PPPs.
But, such oversight should certainly not be from the CAG’s staff. Junior officials who actually carry out the audit, apart from honourable exceptions, usually possess negative attitudes. They are used to cash book audits of single-entry bookkeeping, suited to government bodies, but not PPPs. There is usually an audit team of three to four people, led by a senior audit officer. This team, typically lacking technical knowledge about the auditee’s functions, spends two to four weeks on this special task, and produces a draft audit report. All irregularities are highlighted in “audit paras”. The report, including the “audit paras”, is shown to the auditee, for comments, if any. If satisfactory explanations are forthcoming, relevant “audit paras” are dropped. Else, they are incorporated in the CAG audit report. The final report is sent to the auditee’s parent department, and also placed before Parliament or Assembly, where the Public Accounts Committee (PAC) takes up only a few selected paras, after a lag of several years. By the time any serious action is proposed on irregularities pointed out in audit paras, most officials concerned have retired, or transferred to other assignments.
PPPs certainly deserve much better and technically-qualified oversight. The sector regulator can focus on outputs better. A CAG auditor usually would not appreciate PPPs as an emerging mechanism for speedy infrastructure for our country.
One would argue instead for freeing up priority projects from the 5Cs. We have seen what E Sreedharan has achieved with Delhi Metro. India needs 50 Sreedharan-like CEOs, chosen carefully and assigned the 50 most important social and physical infrastructure projects, with specific immunity from the 5Cs. Such CEOs, given a five to ten year empowered mandate, would show output in all these projects — and none of them needs to be in PPP.
