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PPP IN INDIA & GOVERNMENT AUDIT OF PRIVATE COMPANIES
GROUP COMPOSITION
BRIG PANKAJ KAUSHIK
BRIG NAVNEET KUMAR
RAKESH GUPTA
A K CHAUDHARY
JITENDRA JOSHI
R A BABU
PREVIEW OBJECTIVE
PPP – MEANING, MODELS & FRAMEWORK IN INDIA
KEY LESSONS FROM PPPs & CHALLENGES
GOVT AUDIT AND PRESENT STATUS
SC JUDGEMENT ON CAG AUDIT
AUDIT FINDINGS REGARDING PPPs
CAG RECOMMENDATIONS REGARDING PPPs
CONCLUSION
OBJECTIVE
PPP – WAY TO BRIDGE GAP BETWEEN GOVT
FINANCES & DEVELOPMENT OF INFRASTRUCTURE.
PPP MODEL BEING FOLLOWED THE WORLD OVER.
GOVT STAKE IN THESE VENTURES PROMPTED
DEMAND FOR GOVT AUDIT OF PVT COMPANIES
INVOLVED IN VARIOUS PPPs.
COUNTER VIEW - INVESTOR APPREHENSIONS &
CONSEQUENT DECLINE OF PVT PARTERNERS.
AIM
AN OVERVIEW OF THE CONCEPT, ADVENT &
CURRENT STATUS OF PPPs IN INDIA AS ALSO TO
HIGHLIGHT KEY LESSONS FROM INDIA’S
EXPERIENCE IN PPPs.
PRESENT LEGAL STATUS & TO HIGHLIGHT VIEWS
AND COUNTER VIEWS ABOUT THE NEED TO CARRY
OUT AUDIT OF PRIVATE COMPANIES BY THE GOVT.
PART – IPPP IN INDIA
PPP - GEN
A GOVT SERVICE OR PVT VENTURE FUNDED & OPERATED THROUGH A PARTNERSHIP OF GOVT & PVT SECT COMPANY (S).
A CONTRACT BETWEEN A PUBLIC SECTOR AUTHORITY & A PVT PARTY- PVT PARTY PROVIDES A PUBLIC SERVICE OR PROJECT & ASSUMES SUBSTANTIAL FINANCIAL, TECH & OP RISK.
IN SOME PPPs THE COST OF USING THE SERVICE IS BORNE EXCLUSIVELY BY THE USERS & NOT BY THE TAXPAYER.
IN OTHERS CAPITAL - BY THE PVT SECTOR & COST OF THE SERVICES IS BORNE WHOLLY OR IN PART BY THE GOVT.
GOVT CONTRIBUTIONS - IN KIND – TFR OF ASSETS OR CAPITAL SUBSIDY (GRANT) OR REVENUE SUBSIDY / TAX BREAKS OR BY REMOVING GUARANTEED ANNUAL REVENUES FOR A FIXED PERIOD OF TIME TO MAKE IT ATTRACTIVE TO INVESTORS.
DRIVERS
CONCEPT OF PPP AROSE DUE TO RAPID GROWTH OF PUB DEBT
IN 70s & 80s & GOVTS SOUGHT TO INVOLVE PVT SECT FOR
INVESTMENTS IN INFRA DEVELOPMENT.
PUB SECT BODY DOES NOT INCUR ANY BORROWINGS – “OFF
BALANCE SHEET” METHOD OF FINANCING THE DELIVERY OF
NEW OR REFURBISHED PUB SECT ASSETS.
TO ENABLE PUB SECT TO HARNESS THE EXPERTISE &
EFFICIENCIES TO DELIVER FACILITIES THAT ARE PROVIDED BY
PUB SECT.
CURRENT STATUS
THE IDEA THAT PVT PROVN OF INFRA REPRESENTED
A WAY OF PROVIDING INFRA AT NO COST TO PUBLIC –
ABANDONED.
ENHANCED ROLE FOR THE PVT SECT TAKING RESP
FOR A GIVEN PROJECT - MAINT PUB ACCOUNTABILITY
FOR ESSENTIAL ASPECTS FOR SERVICE PROVN - IN
VOGUE.
PART –IIMODELS & FRAMEWORK OF
PPPs IN INDIA
MODELS OF PPP IN INDIA
USER-FEE BASED BOT MODEL
ANNUITY BASED BOT MODEL
PERFORMANCE BASED MANAGEMENT/ MAINTENANCE
CONTRACTS
MODIFIED DESIGN-BUILD (TURNKEY) CONTRACTS
FRAMEWORKS OF PPP IN INDIA
WELL DEFINED INSTITUTIONAL STRUCTURE IS
CORNERSTONE FOR DEVELOPMENT OF A SUSTAINABLE
PPP PROGRAMME
IT NURTURES AND ENCOURAGES NEW MODELS AND
INNOVATION
DEVELOPS CAPACITIES TO SUCCESSFULLY DISCHARGE
CHANGING ROLES AND RESPONSIBILITIES
THE PPP CELLS EST AT STATE OR SECTOR LEVEL
DECISION MAKING PROCESS
PPP APPRAISAL COMMITEE SECRETARY, DEPARTMENT OF ECONOMIC AFFAIRS (CHAIRMAN) SECRETARY, PLANNING COMMISSION SECRETARY, DEPARTMENT OF EXPENDITURE; SECRETARY, DEPARTMENT OF LEGAL AFFAIRS SECRETARY OF THE DEPARTMENT SPONSORING THE PROJECT
PART –IIIKey lessons from India’s
experience in PPPs & Challenges pertaining to PPP
in India
Learning across the PPP Process
Robust Market Assessments
Realistic and robust traffic / market assessment studies are an important step in the project preparation stage for a PPP project
Clarity in Determination of Tariff
1. The tariff is a key determinant of returns for the private entity.
2. It is important to have a clear understanding of the tariff determination process
3. It should be fair to enable the private operator to earn a reasonable return.
4. Lack of clarity can result in potential disputes between the private and public entity
Learning across the PPP Process
Robust and Simple Bid Criteria:
1. Bid evaluation criteria need to be simple and robust so that capable entities are identified for the project.
2. Bid should not be speculative and we should have capability to identify speculative bid.
3. Speculative bids have the potential to derail a project during the operations stage if the private entity is unable to sustain its overstated commitments.
4. Ambiguities in the bid criteria, can lead to disputes between the private and public entity during the operations stage.
Learning across the PPP Process
Handling of Land Acquisition
1. The land acquisition process for PPP projects is no doubt the most challenging predevelopment activity in India.
2. In most cases, the government commits provision of land free from encumbrances for the project before actually completing the necessary formalities.
3. This lead to inordinate delay in completion of Project.
Learning across the PPP Process
Well Defined Scope of Work1. It is essential that the concessionaire’s scope of work is
well defined, prior to the launch of the bid process.
2. Scope of work should not be modified except in the case of unavoidable and unforeseen circumstances.
3. Changes in scope of work, result in time and cost overruns and have the potential to derail PPP projects.
Challenges pertaining to PPP in India
There are very few private investments in Social infrastructure sector such as Healthcare, Education & water Supply.
Infrastructure financing i.e ability of domestic financial system to feed the sector with enough financial capital.
FDI is allowed in most infrastructure sectors, but foreign equity participation is about one per cent of total investments on PPP projects. It is a challenge is to make PPP projects attractive to foreign investors.
A more robust regulatory environment, with an independent regulator is essential.
Lack of comprehensive data base.
PART –IVGovernment Audit and present status of Government Audit of
Private Companies in India
Government Audit
The Comptroller and Auditor General (CAG) of India:Established by the Constitution of India Audits all receipts and expenditure of the Government of India and the state governments.The external auditor of Government-owned corporations.Conducts supplementary audit of government companies .
Present Status - CAG audit of Private Companies
The existing mandate of CAG The Comptroller and Auditor-General's (Duties, Powers and
Conditions of Service) Act, 1971 Only provides for audit of receipt and expenditure of Government
entities, autonomous bodies and public sector undertakings. Audit of the PPP arrangements PPP arrangements cannot comprehensively be audited under
the existing framework of audit provided in the Act. In most of the PPP agreements already signed by the
Government, there is no clear and specific provision made to provide for audit by the CAG.
Present Status - CAG audit of Private Companies
Present status of CAG Audit The Act does not provide any access to records of private
players or power to assess and comment on the performance of a private entity.
So far the CAG has given its audit findings in respect of PPP projects by auditing the accounts of Government departments/ companies only.
Following the recent Supreme Court judgment clearing the way for audit of private telecom companies by the CAG, it is expected that first audit report will be ready before the year-end.
Present Status - CAG audit of Private Companies
Demand for CAG audit of Private Companies
Electricity Distribution There are three private Electricity Distribution Companies
(Discoms) in Delhi. Demand has been raised by various political outfits for their
Government Audit as it has been alleged that they are falsifying their accounts to charge high tariffs from consumers.
The companies should not fear such audit if they have nothing to hide.
On the flip side concern has been expressed by some experts that CAG's staff does not have the specialized knowledge necessary to audit a wide range of companies.
PART –V Supreme Court Judgment on
CAG audit and its impact
Supreme Court Judgment on CAG Audit
After the 2G spectrum allocation scam, the CAG was asked to audit the accounts of Private telecom companies. The Telecom Operators had challenged a Delhi High Court decision upholding the validity of laws, empowering the CAG to conduct revenue audits of private telecom firms.
On April 17, 2014 the Supreme Court upheld that the CAG can audit the accounts of private telecom service providing companies.
Supreme Court Judgment
The Supreme Court noted that
“…CAG’s function is only to ascertain whether the Union of India is getting its due share, while parting with the right to deal with its exclusive privilege to the Service Providers, who are dealing with a national wealth … but the service providers are bound to make available all the books of accounts and other documents maintained by them … so as to ascertain whether the Union of India is getting its full share of revenue.”
Supreme Court Judgment
Impact of Supreme Court Judgment
1. The Supreme Court order, while technically limited to telecom companies that share revenue with the government, raises the possibility that the same logic could be extended for enabling the Government Audit of the books of power, oil, mining and other companies with similar arrangements.
2. On the business environment front, this ruling would add to the perception that India is a difficult country to do business in and there is more government than warranted.
3. On the political front it can be said that the decision strengthens oversight of companies that do business with the government.
4. On the social front, the order is likely to have far reaching impact as the order could help reduce corruption in government contracts with private companies.
Impact of Supreme Court Judgment
Audit findings regarding PPP projects
Railways1. The CAG in its report on PPP in Indian Railways found
inconsistencies in the execution of eight public private partnership (PPP) projects undertaken by the railways, ranging from loopholes in the contractual agreements and irregularities in estimating the rate of return and traffic numbers to a weak monitoring mechanism.
2. In its recommendations, the CAG said the railways needs to frame a model concession agreement for execution of its projects within a stipulated time frame, adopting a uniform approach to all railway PPP projects. Other recommendations include streamlining the approval process to avoid delays, setting definite timelines for achieving financial closure and strengthening monitoring mechanisms
Airport (Mumbai International Airport Pvt. Ltd.)
The CAG in its report on implementation of PPP at Chhatrapati Shivaji International Airport Mumbai has asked the government to review the operator’s performance because when project cost had doubled, the gap was filled by asking passengers to shell out a development fee though such levy was not provided in the Operation, Management, Development Agreement (OMDA).
CAG has pointed out that absence of review clause and re-negotiation appears to virtually allow MIAL the right to operate the airport for a period of 60 years with the terms and conditions frozen in OMDA. CAG has recommended that MOCA may continuously and critically review the financing pattern of MIAL and ensure that finance risk for the project as allocated in the agreement to private partners is duly observed.
PART –VICAG Recommendations
on Public-Private Partnership
CAG Recommendations
The Comptroller and Auditor General of India (CAG)
wants the government to insert relevant clauses
in PPP contracts for comprehensive audit of public-
private partnership projects (PPP) by it.
The CAG has asserted that limiting the scope of
CAG's audit in projects implemented by PPPs would
amount to restricting the scope of oversight by
Parliament over such projects, which is neither
desirable nor intended by the government.
The CAG noted that there are risks in estimation of
revenue streams of projects under the PPP
arrangement, which could significantly impact the
exchequer or the public at large.
CAG has also suggested that action should be
initiated against the persons responsible for the
irregularities and deficiencies caused intentionally as
pointed out in audit scrutiny.
CAG Recommendations
CONCLUSION
International experience suggests that the success of PPP
projects requires a single objective of better services for the
public at a reasonable cost.
Easy availability of long-term private capital is an essential
requirement.
Selection of right PPP model for a right project at a right time
through realistic planning would go a long way in providing
meaningful and hassle free infrastructure development.
Conclusions
Principle of accountability and parliamentary control
cannot be ignored on account of the objections and
opposition by the private stake holders.
The need for Government Audit of private
companies cannot be overemphasized.
At the same time this does not mean that CAG
should take up audit of PPP projects routinely.
Conclusions
THANK YOU