The order of Delhi High Court (DHC) to let the Comptroller and Auditor General’s office (CAG) to conduct audit of 5 major private telecom companies has led to consternation in corporate circles as also within the ruling UPA establishment.
FICCI President has observed that ‘CAG was constituted to be answerable to Parliament in respect of businesses owned by the Government. There is no place for CAG interfering in to a private company’s books. It can happen only if there is a contract between a private company and Government in this regard’.
The apex industry body is either oblivious of the background and developments culminating in the current order of DHC or conspicuously ignoring facts as that could cause it embarrassment besides undermining its stance.
Under the terms of the agreement signed by telecom companies with the Government, they are required to pay spectrum usage charge @ 3-8 percent of annual gross revenue (AGR) – depending on the quantum of spectrum held – apart from the annual license fee @ 10% of AGR.
The most critical determinant of usage charge flowing in to Government coffers is AGR. In this regard, an audit conducted by private audit firms in 2009 – at the instance of telecom ministry – for 5 leading operators viz., Bharati Airtel, Vodafone, Tata Teleservices, Reliance Communications and Idea Cellular revealed that they had understated revenues to the tune of around Rs 10,000 crores during 2006-07 and 2007-08.
Based on these audits, the department of telecommunications (DoT) imposed penalty of Rs 1600 crores on the five operators. Meanwhile, DoT/TRAI roped in CAG to do the audit. The operators challenged this on the ground that jurisdiction of CAG is limited only to companies owned by the Government.
The order of DHC paves the way for CAG to do audit thereby ensuring that ‘full’ amount due to Government by way of spectrum usage charge and license fee reaches exchequer. The verdict has much wider implications for economy and well being of public at large.Let us put things in perspective.
Ever since, liberalization and reforms started in 1991, Government has increasingly involved private sector in all vital areas that were earlier reserved exclusively for public sector undertakings (PSUs). These include inter alia exploitation of natural resources viz., oil & gas, coal etc and infrastructure viz., roads, telecomm and utilities such as water and power.
Accordingly, it entered in to agreements for instance, license agreement with telecomm companies or production sharing contracts (PSCs) with private oil & gas companies outlining the obligations/responsibilities and sharing of benefits.
The sheer fact that private companies have been authorized to commercially exploit natural resources – a national property – for benefit of people of India imparts a public character to such activities. This cannot be brushed aside simply because entity carrying our these activities is incorporated as a private company.
It is perfectly legitimate to subject these entities to the same degree of monitoring and scrutiny as a PSU especially those activities that have a direct bearing on revenue flowing to Consolidated Fund of India (CFI). In the instant case, operators were indulging in understatement of AGR that resulted in less revenue collection.
Likewise, in oil & gas sector, an audit done by CAG revealed ‘gold plating’ resorted to by RIL in regard to exploration and development cost for D1 & D3 fields in Krishna-Godavari (KG) basin on the east cost. The investment of US$ 8.8 billion corresponding to production of 80 mmscmd was found to be inflated.
Under extant agreement, operator is allowed to first recover entire investment cost from sale of gas and only thereafter, net proceeds are shared with Government as ‘profit petroleum’. When, there is padding of cost, this is bonanza to former at cost of latter.
In power sector, Mr Arvind Kejriwal, CM, Delhi has alleged irregularities viz., un-metered sales, inflated O&M cost, ‘gold plating’ of equipment cost etc in functioning of three power distribution companies (PDCs) viz., BSES Yamuna Power/Rajdhani Power and Tata Power Delhi Distribution.
To buttress his point further, he cites a Draft order by Delhi Electricity Regulatory Commission (DERC) which estimated that the 3 PDCs had a revenue surplus of Rs 3577 crores in 2010-11 and recommended a 23% cut in tariff. Far from reduction, then Government slapped hikes on hapless consumers.
Opining that these irregularities are the root cause of high power tariff faced by residents in Delhi, the new Government under Mr Kejriwal has ordered an audit of PDCs by CAG. They have been directed to cooperate failing which their licenses will be cancelled.
Following footsteps of telecomm companies, PDCs were trying to take shelter under the nomenclature ‘private’ to block auditing of their accounts. The judgment of DHC upholding jurisdiction of CAG over private companies removes the legal hurdle.
Pending completion of audit, Delhi Government has already granted a 50% cut in tariff for households consuming up to 400 units per months. It proposes to reduce rates for ‘all’ users. That would mean forgoing revenue of around Rs 9000 crores.
Mr Kejriwal exudes confidence that CAG would unravel the massive irregularities in functioning of PDCs and it would be possible to garner resources from within the system to support 50% cut in tariff across the board.
Most of the sectors where private sector is involved in implementation and running of projects are dogged by irregularities. The consumers are made to pay for these by way of high cost of power, gas, coal, toll charges etc.
To mitigate burden on public, these higher cost have to be subsidized. Proliferating subsidies on fertilizers, LPG and power lead to stress on budget and rising fiscal deficit. This in turn, leads to endemic problems like inflation, high interest rates, sluggish investment, slow growth and so on.
To ensure that resources are conserved for development and public is spared cascading burden of price hikes, it is imperative that all such companies where use of natural resources and public interest is involved, are brought under scrutiny of national auditor.
Government must take follow up action on its findings.