Telecom lobby must let the auditors in

Tags: Opinion
Telecom lobby must let the auditors in
Bloomberg
HARD TALK: The very fact that our private sector giants are opposed to the CAG merely checking that they have paid their due share to the government does raise some suspicion
One fails to see why the Cellular Operators Association of India (COAI) and the Association of Unified Telecom Service Providers of India (AUSPI) are up in arms against the proposed audit by the Comptroller & Auditor General of India (CAG) into the revenue receipts of mobile service providers. The revenue earnings recorded by cellular service providers is the basis for computing the adjusted gross revenue share of the central government. The two industry lobby groups, egged on by their constituent members, first challenged this before the Telecom Disputes Settlement and Appellate Tribunal and then the Delhi high court. In both instances, they lost and yet they have now challenged the same before the Supreme Court.

Of late, there has been a tendency for corporate India to oppose any moves for a CAG audit of any company that is either a contractor for the government or performing a task that normally the government would have performed, but as part of the privatisation drive, is outsourced or awarded to a private party. At the same time, India Inc wants government to get out of the business of business and pursue large-scale public private partnership (PPP) projects. But PPP projects will have to be supervised by the national auditor to check whether the job outsourced to the private sector is being performed as per plan. After all, the CAG’s role is to give an independent report based on its audit of the actions taken.

The very fact that our private sector giants are opposed to the CAG merely checking that they have paid their due share to the government does raise some suspicion whether they have something to hide. Indeed media reports suggest, when DoT hired CAG empanelled auditors in 2009 to audit the books of Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications for the years 2006-07 and 2007-08, it was able to issue notices to recover almost Rs 1,600 crore in ‘unpaid dues’ as revenues were purportedly under-reported by more than Rs 10,000 crore for the two fiscal years. Telecom firms have been very savvy in hiving off activities into various parts such as dedicated value-added service firms and telecom tower firms, all of which were subject to a lower gross revenue share by the government than that applicable on revenues from voice calls, for instance.

The hiving off of activities that are part and parcel of the business of mobile companies definitely seem to have impacted the government’s revenue share and boosted the consolidated profitability of mobile companies. Telecom sector experts such as Mohammad Chowdhury, telecom sector leader at PwC India, argue that “Towers form part of the many ancillary services that support the industry but like few others are not part of direct service provision.” But there’s no denying the fact that when permission was given by the authorities to hive off these ancillary activities into separate legal entities ostensibly on grounds of lowering costs and increasing efficiency, it should have been done in a revenue-neutral manner in so far as the government was concerned.

In the oil and gas sector too, the CAG has roundly criticised the government’s approval to Reliance Industries to almost double its capex spend, ostensibly to boost gas production from the KG-D6 block only to find production well below the original budgeted-for amount. This has in effect reduced the government share of profits from the block while materially benefiting RIL shareholders. (The author holds shares in RIL.)

The judgement of the Delhi high court appropriately points out the need for a truly independent third party oversight of PPP projects. “The affairs of the company are treated as affairs concerning the shareholders and the directors answerable only to the shareholders,” said Justice Pradeep Nandrajog’s order. He noted, “the reciprocal obligation by the corporate entity to perform its public obligations or recognising some restraints over corporate behaviour in the wider public interest” are not prescribed by company law.

If the CAG seeks to do an audit of that wider interest that the government is answerable to, is it asking too much of the state’s private contractors to comply?

(The author, a former journalist, is an independent corporate watcher)

ypitalwalla@gmail.com

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