This document discusses public-private partnerships (PPPs) in India and the government audit of private companies involved in PPPs. It provides an overview of PPP models and frameworks in India, key lessons from India's experience with PPPs, and challenges related to PPPs. It also examines the status of government audits in India, the Supreme Court judgment allowing the audit of private telecom companies, and the impact of this ruling in strengthening oversight of companies doing business with the government while potentially adding difficulties for businesses.

1. PPP IN INDIA & GOVERNMENT
AUDIT OF PRIVATE COMPANIES

2. GROUP COMPOSITION
BRIG PANKAJ KAUSHIK
BRIG NAVNEET KUMAR
RAKESH GUPTA
A K CHAUDHARY
JITENDRA JOSHI
R A BABU

3. 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

4. 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.

5. 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.

6. PART – I
PPP IN INDIA

7. 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.

8. 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.

9. 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.

10. PART –II
MODELS & FRAMEWORK OF
PPPs IN INDIA

11. MODELS OF PPP IN INDIA
 USER-FEE BASED BOT MODEL
 ANNUITY BASED BOT MODEL
 PERFORMANCE BASED MANAGEMENT/ MAINTENANCE
CONTRACTS
 MODIFIED DESIGN-BUILD (TURNKEY) CONTRACTS

12. 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

13. 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

14. PART –III
Key lessons from India’s
experience in PPPs &
Challenges pertaining to PPP
in India

15. 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

16. 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.

17. 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.

18. Learning across the PPP Process
 Well Defined Scope of Work
1. 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.

19. 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.

20. PART –IV
Government Audit and present
status of Government Audit of
Private Companies in India

21. 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 .

22. 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.

23. Present Status - CAG audit of Private Companies
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.

24. 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.

25. PART –V
Supreme Court Judgment on
CAG audit and its impact

26. 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.

27. Supreme Supreme Court Court Judgment
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.”

28. Impact Impact of of Supreme Supreme Court Judgment
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.

29. Audit findings regarding PPP projects
 Railways
1. 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

30. 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.

31. PART –VI
CAG Recommendations
on
Public-Private Partnership

32. 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.

33. CAG Recommendations
 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.

34. Conclusions
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.

35. 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.

36. THANK
YOU