CAG audit of private companies running public utilities is good in letter and spirit
Apr 20 2014, 2024
The Supreme Court’s decision allowing the comptroller and auditor general to audit the account books of private telecom companies has drawn flak from various quarters. Opinions have been expressed that such a move will open a Pandora's box, and going forward, CAG will be able to interfere in the workings of private companies in public utilities. This, they say, is undesirable. We tend to agree with the notion that government must not have a role in the affairs of private sector companies. But the question here is whether telecom operators are actually private companies. We believe they are not. First, under present laws, private telecom operators are bound to share part of their revenue with the government, making the Indian government a partner of sorts with these companies. This automatically gives the national auditor the mandate to examine if the government’s interests are being protected or not. Hence, whether the telecom operators are reporting correct revenues without shortchanging the exchequer must be the CAG’s legitimate purpose. We say this because there is every likelihood of private players misusing one or another minor sub clause of the telecom policy to underreport revenue in certain segments, leading to substantial losses to the exchequer. Secondly, and more importantly, spectrum which is used as the basic resource by telecom companies is a national asset. So the CAG must be duty bound to check whether the government has utilised a public asset in the most efficient manner. Getting CAG to audit telecom companies is in the national interest. In making CAG audit of telecoms mandatory, the recent spectrum controversy cannot be ignored. Audits, therefore, are necessary to thwart corruption and the possibilities of future foul play. When the policy of revenue sharing was being worked out, telecom companies insisted that government should not look at revenue maximisation, but at deeper perpetration and broader growth of the telecom sector. The government too rightly accepted their contention, and in the process, sacrificed certain financial gains. For companies that boosted their bottomlines on account of the government sacrificing its potential revenue cannot now argue against a CAG audit, especially when their revenue models are highly opaque and usurious towards the consumers. Finally, if telecom companies are to be taken at their word for not indulging in unfair practices, then they have little reason to resist independent audit. In the long term such audits will only help companies and win customer loyalty. On a larger point, the principle of CAG audit should be applied to all public utilities managed under the public private partnership (PPP) model involving sacrifice of revenue by the government for the sake of a larger public good. The PPP model has boosted the bottomlines of several private companies in the roads, airports, oil and gas and power sectors by exploiting public resources. The underlying principle of the PPP model enshrines that both private companies and the government should bring their respective competencies to the table so that a business can be run for the benefit of all stakeholders, be it a private company, government or the public at large. Yet, the fact remains that a majority of PPP projects have not delivered even a fraction of what was expected out of them. Instead, on a number of occasions, private companies have attempted to wriggle out of bad business decision by blaming the government back. There is ample reason to bring all such PPP projects under the CAG’s audit. While this might be considered a contentious issue for existing PPP ventures, and might have to be eventually settled by parliament or the Supreme Court, there is no reason why such audits should not be built into all future negations involving private sector participation in public utilities.