CAG gears up to audit books of 5 private telcos, Delhi discoms

The Comptroller and Auditor General’s office, with its across-the-spectrum audits in recent times, has ruffled many a feather in the political and corporate establishments.

But its status as the trusted auditor and the cases on its plate seem to be only growing with time.

On Monday, while the Delhi High Court allowed CAG to conduct audit of five major private telecom companies, the auditor also moved a step closer to inspecting the accounts of Delhi’s three private power distribution companies (discoms) and sought from the state government all available financial records of these firms.

According to Chief Minister Arvind Kejriwal, who had last week announced a historic subsidy scheme to make electricity 50 per cent cheaper for 82.4 per cent of the capital’s consumers, the audit will expose financial irregularities and make a case for reduction in power rates.

Even as the discoms opposed the audit, Delhi’s Lieutenant Governor Najeeb Jung on Monday said the companies must cooperate or face cancellation of licences.

“A CAG audit of electricity companies is being carried out since power distribution was privatised. Licences of those not cooperating in the process may be cancelled,” he said in his address to the Delhi Assembly.

He added the government would not be a ‘silent bystander’ on the issue and would not hesitate in taking decisions.

Jung had requested CAG for the audit after a meeting with Kejriwal last week.

The auditor has now written to the state government seeking appointment of a nodal officer to coordinate between the two parties for the audit.

A senior CAG official told Business Standard the letter did not clearly mention the objectives and extent of the audit. It did not specify whether CAG had to examine the profit & loss of these companies or power rates.

The two parties -- the auditor and the government -- will soon hold a meeting to understand the specific purpose of the audit.

Besides, the Delhi High Court’s decision to allow CAG to audit the books of private telecom companies is seen further strengthening the stand of Kejriwal’s Aam Aadmi Party that discoms’ financials be audited.

However, unlike Delhi discoms, the telcos have a revenue-sharing arrangement with the government, under which these pay the national exchequer more than Rs 20,000 crore (Rs 200 billion) annually.

The issue of a CAG audit of Delhi discoms is currently before the high court, which will hear the case on January 22.

In its order on audit of telecom companies’ financials, the Delhi High Court has stuck to only receipts (or revenue earned) of the companies, and not the expenses, as the government’s income from telecom operators is linked to telcos’ revenues.

The bench of Pradeep Nandrajog and V Kameswar Rao said: “A small caveat by way of reminder to CAG. In relation to the accounts of the telecom service providers, the audit has to be only an audit pertaining to the receipts and no more.

The Comptroller and Auditor General would not confuse himself with his wide all-embracing power under Section 14(2) of the Comptroller and Auditor General (Duties, Powers and Conditions of Service) Act, 1971 which includes inquiries into aspects like faithfulness, wisdom and economy in expenditures.”

At present, telcos pay 1-8 per cent as

spectrum usage charge, apart from the annual licence fee.

Besides ensuring the government’s actual earnings from telcos, the audit would enable the government to see the telecom operators were not underreporting revenues, said an industry analyst.

The court rejected separate petitions filed by telecom industry bodies -- Association of Unified Service Providers of India and Cellular Operators Association of India -- against the decision of the Telecom Disputes Settlement and Appellate Tribunal on the issue in 2010, arguing CAG couldn’t audit private telecom companies’ accounts.

Both COAI and Auspi did not respond to calls from Business Standard for comments on the issue.

Following the Delhi HC order, stocks of telecom companies tumbled on the BSE.

Shares of Tata Teleservices Maharashtra plunged 4.4 per cent, while Idea Cellular closed 1.8 per cent weaker.

Among others, Reliance Communications was down 0.5 per cent and the Bharti Airtel scrip ended marginally down.

The telcos refused to comment but senior CAG officials said they were happy with the court’s order.

The Federation of Indian Chambers of Commerce and Industry appeared unimpressed.

On Monday, it said there was ‘no place for CAG interfering into private companies’ books”, as the auditor had the mandate of looking into the government’s business only.

“As far as audit through CAG is concerned, we believe CAG was constituted to be answerable to Parliament in respect of businesses owned by the government.

“So, to my mind, there is no place for CAG interfering into a private company’s books.

“It can happen only if there is a contract between a private company and the government in this regard,” Ficci President Sidharth Birla told the media.

“In his power-rate announcement last week, Kejriwal had limited the mega subsidy to the domestic category, which accounts for 80 per cent of the city’s 3.4 million consumers but contributes only 20 per cent to the discoms’ Rs 18,000-crore (Rs 180-billion) annual revenue.

Had the subsidy covered the remaining 20 per cent consumers as well, the state’s annual subsidy burden would have jumped 11 times, to around Rs 9,000 crore (Rs 90 billion).

Reliance Infrastructure holds a 51 per cent stake in BSES Rajdhani and BSES Yamuna, which cater to 75 per cent of the city’s population.

Tata Power holds 51 per cent in Tata Power Delhi Distribution Ltd, which provides electricity to the rest. The Delhi government holds the remaining 49 per cent through its holding firm, Delhi Power Company Ltd, in each of the three companies.

WIDENING THE AMBIT

Private companies audited by CAG

DELHI INTERNATIONAL AIRPORT PVT LTD

When: June 2012

Outcome: CAG alleged DIAL could earn Rs 1.63 lakh crore (Rs 1.63 trillion) over 60 years from the land leased out for a mere Rs 100 per year.

It criticised the civil aviation ministry for allowing DIAL to charge airport development fees from air passengers in violation of agreement

RELIANCE INDUSTRIES LIMITED

When: In November 2007

Story so far: CAG was requested to conduct special audit of production-sharing contracts for eight blocks from where revenue was generated.

In May 2012, it was decided CAG would undertake audit for the years from 2008-09 to 2011-12