Would CAG's involvement help or hurt PPPs?

Here is Sunil Jain's article in Business standard on this tricky issue of government audit on PPPs. Any audit which helps achieve the objective of PPP should be helpful but audits which act as deterrent to positive action which is the key principle behind adoption of PPPs maybe unwelcome for all practitioners of PPP.

Few Excerpts :

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.

More at Source :  http://www.business-standard.com/india/news/sunil-jain-getting-ppps-backtrack/383531/