Friday, August 12th, 2022 03:27:53

Impending Need For CAG Audit Of PPP Projects

Updated: January 28, 2016 12:58 pm

In the era of liberalisation Public Private Partnership (PPP) have been growing at a very fast speed. Consistent with the requirements of development in the country and lack of public funds, private sector participation requirement in infrastructure development cannot be denied. Road, bridges, airport, sea ports or power projects, today many Public Private Partnership projects have been completed and construction is going on in many others. Since handsome fee is charged for the service provided and private partners get a sizable share in the same private partners are more than willing to participate in the same.

According to rough estimate, government’s contribution in the projects run on PPP basis is substantial. But there is no constitutional mechanism to inspect or audit the accounts of these projects. We know that according to the Constitution all government departments and social welfare projects fall within the purview of the Comptroller and Auditor General of India In this way government departments and programs are accountable to the people of the country through parliament.

For the purpose of a particular project with government and private parties as partners,a Special Purpose Vehicle (SPV) Company is created.

All activities starting from construction to administration after the completion of the project are carried out by this SPV.

Passenger tariff and other types of income in Delhi Metro go to this company’s account, collections from Airport Passengers Fee, go to the airport company’s account and toll imposed on roads and bridges go the concerned SPV company. After that this revenue is divided between private partners and government .We must accept that the government has also invested heavily in these projects and without the support of the government these projects wouldn’t have completed and become economically viable. In fact these projects get different types of approvals without any hassle, as they are considered government projects. After the completion of the projects private partners get their share in revenue very easily. Because of these facilities, private partners are desperate for investment in such projects.

But it is unfortunate that despite the revenue sharing and heavy public investment, there is no provision of compulsory audit of these SPV companies by Comptroller and Auditor General of India (CAG). Recently Department of Telecommunications ordered for enquiry of some such companies after complaints of bungling in their accounts. Many years ago due to large-scale rigging by Enron Company, agreement with the company was cancelled. After global bankruptcies of the company its accounting fraud was more firmly established. After the exposure of fraud by the CEO of Satyam Computers of more than rupees 7000 crores, all his companies who were involved in public private partnership infrastructure projects, have become doubtful and no wonder that we may be getting into a much bigger fraud in these projects also.

Under the circumstances the office of Comptroller and Auditor General of India (CAG) has asked the Government that it should be allowed to institute audit in all such ongoing projects in Public Private Partnership companies (SPVs). This is important to note that `CAG ‘is only allowed to investigate this matter that these projects have been approved on the basis of competitive bidding or not. Since there is an involvement of public funds in these projects and SPVs are involved in revenue sharing, CAG should legitimately be allowed to investigate and audit accounts of these SPVs.


In addition to this, doubts have been raised from time to time that these companies try to escalate costs to fetch greater share from the government and demonstrate lower returns from these projects. This gives another argument for CAG’s audit of these projects.

In this context, private sector companies involved in these projects, whose interests are rooted, are against any such move. They say that government’s audit would cause a delay in such projects and thus cost may increase. They also argue that since the availability of finance is a major issue, government auditors may not appreciate that problem appropriately.

But on the basis of these objections, one can’t ignore the issue of accountability and parliamentary control of the projects where there is huge involvement of public funds and where private parties are sharing revenues. Public funds can’t be left on the whims of private companies. We know that in all those sectors, where ever the new private sector investment is allowed regulators have been created, to regulate their functioning. Telecom Regulatory Authority of India, Insurance Regulatory Authority, Electricity Regulatory Commission, etc. are some examples. In addition to them securities market is regulated by Securities and Exchange Board of India (SEBI) and banks are regulated by Reserve Bank of India. But the irony of the situation is that despite billions of rupees of public investment and with much bigger revenue potentials these Public Private Partnership projects don’t have any provision for constitutional audit and inspection. If one says that officials from respective ministries can take care of inspection, it would lack prudence, as the very justification of the institution of CAG would be lost.

Thus need of the hour is that all Private – Public Partnership projects be subjected to audit by Comptroller and Auditor General of India and in all future contracts, this be included as an essential condition.

By Ashwani Mahajan

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