Public – Private Partnerships (PPPs) are the most reliable format for all developing nations these days moving towards infrastructure growth. Considering that India too with its ambitious plans of world class infrastructure, has a broad playground for PPPs and has also been exploiting it generously while seeking more in future. Consequently lack of transparency and accountability in these projects is bound to gain attention. More so, because of the huge public resources involved along with the social & consumerist angles to these projects. Public audit (by a body akin to CAG) of a government entity is aimed at providing unbiased and objective assessment of whether public resources are being used and managed responsibly and optimally. The evaluation is towards whether the intended results are achieved by these entities. Reports of such evaluation help the government to bring in more accountability, instilling greater confidence in the public in general and stakeholders in specific, adoption of better procedures and operations for future initiatives and lastly but most importantly recognizing the need for shelving or updating schemes/policies when results don’t satisfy.

Why we need a public auditor

A public auditor aims to evaluate whether the government entities/bodies are taking the right decisions, making right choices and employing right procedures and if those have been result oriented at all, simultaneously detecting corruption through these audits. Audit reports being independent assessments are expected to also bring out the legislative, political and executional challenges encountered by the project. Audits of PPP projects however, differ from conventional audits of government entities in many ways.

The Partnership between public and private is a curious case of joining the two poles, two opposite intentions and substantially differing approaches towards the product/result. The Government is burdened with the welfare state responsibilities, providing goods and services to public at reasonable or at times, no costs. While on the other hand, the private entity runs with a profit motive. The aim of this partnership is to bring together the authority and regulatory skills of the public sector with the management and technical expertise of the private sector. The common objective is to achieve ‘Value for Money’ (VFM). Audit of a PPP project would thus be aiming at evaluating the efficiency of the arrangement between the parties belonging to these two sectors, that whether bringing in the private sector entity led to VFM or any value addition to the project.

CAG’s authority to audit PPPs

Auditing PPP projects involves access to the records of private parties, and thus the controversy around whether a public auditor should be assigned powers to such an audit. Involvement of public resources and public money makes the contention stronger for the Comptroller and Auditor General (CAG) to have legitimate authority to audit such projects under PPP arrangements. There have already been many cases where the CAG had been asked to audit the private partners of PPPs in the likes of Delhi Discoms on the request from Delhi government , GMR for Delhi airport development project and Reliance for the KG Basin project to name a few.

The Public Accounts Committee (PAC) has been batting for long to bring all the transactions in PPP projects under the ambit of CAG’s auditing powers. Last year in September, PAC had set up a sub-group to suggest ways to empower the CAG in this aspect and called the CAG before it to examine two aspects mainly:

  • Whether CAG has constitutional rights or statutory power under any existing laws that allow it to audit accounts in PPP arrangements?
  • If answer to the above question is ‘no’, in that case which authority/guidelines decide who will audit parties in a PPP arrangement.

CAG had then confirmed that it has powers to examine any expenditure from the Consolidated Fund of India and of States; and since PPP projects involve such expenditure, it should specifically be made the public auditor for such projects. CAG had also pointed out towards the lack of resources that it faces while auditing these projects, and to that PAC ordered setting up of a sub-committee.

This sub-committee shall further guide on how CAG can be given full freedom to audit all investment as well as expenditure transactions in these projects. The panel last year also examined the report made by CAG after audits of some PPP projects including the Reliance KG basin project. It pointed out that private parties are rarely willing to share revenue and profit with the government. As a  consequence, they oppose the move of making CAG the official auditor of all PPP projects alike. The biggest weapon of threat is that such an audit practice would discourage foreign investment in India and hence limit the flow of investment to various big ticket projects. Also treatment of concessionaires at par with government bodies would discourage private sector participation as a whole.

There are anomalies and hence doubts also arise when there is possibility  of two statutory auditors for a project. There are agencies in some sectors that have auditing powers over the projects, like DoT, TRAI, CCI, SEBI etc. To be specific, the sector regulators oversee concession agreements. But factually, not every sector has a regulatory body. Thus, irregularities have gone undetected. Some sector regulators have limited powers of audit, some face political interference and lack complete independence and similar reasons which fail the purpose.

What the CAG Act says

Currently, CAG is argued to have power to audit PPP arrangements only till the stage when Memorandum of understanding is arrived at and conditions are set for the project. This means that the public auditor can examine issues of the nature whether competitive bidding was done before assigning the contract, a due process being followed and valid conditions being put under the contract. While on a little evaluation of the CAG’s (Duties, powers and conditions of service) Act 1971, some hope emerges. Judiciary has also now and then been stressing that CAG has the power to audit any project that has government funding involved. Delhi High Court in the Delhi Discoms case[1], despite rejecting Delhi Government’s plea to let CAG audit the private power distribution companies, had very clearly defined the contours of a case where CAG would have powers to examine. Despite the fact that Supreme Court has taken up the appeal challenging HC’s decision, though only to hopefully reiterate its view fundamentally that CAG has powers under the existing Act itself to audit private partners of PPP arrangements.

The High Court order defined the powers of CAG to audit private companies as empowered by the Article 149 of the Constitution and under Section 20 of the CAG Act. Article 149 empowers CAG to exercise its powers “in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by the parliament…”[2] The HC held that the CAG Act under its Section 20 empowers the CAG to audit “any other authority or body” as mentioned in the Article 149 above. Section 20 empowers the CAG to audit accounts of any body or authority (including private firms) that has not been entrusted to CAG by or under any law made by parliament only if:

  • It is directed to do so by the President of India or the Governor of a State or Administrator of any UT; and
  • On such terms and conditions as may be agreed upon between him and the concerned Government; and
  • No such request shall be made by the President/ Governor/ Administrator, except after consultation with the CAG itself; and
  • No such audit shall be directed to the CAG by the President/Governor/Administrator except where satisfactorily ensured that it is expedient to do so in the public interest; and
  • Before directing CAG to conduct such an audit, the concerned authority or body subjected to audit shall be given a reasonable opportunity to make representations with regard to the proposal for such audit; and
  • CAG in such a case shall have, for the purpose of such audit, right of access to the books and accounts of that body or authority.

According to the Delhi HC, in the discoms’ case, point (c) was not satisfied. Also, the expedient ‘public interest’ quoted while directing such audit is subject to judicial review, held the HC. Section 20 also on the other hand empowers CAG to propose to the President/Governor/Administrator that it may be authorized to undertake the audit of accounts of any body or authority, the authority of whose audit has not been entrusted to CAG by law. CAG shall make such a proposal under Section 20 only if he is of the opinion that such audit is necessary because a substantial amount has been invested in or advanced to, such a body or authority by the Central or State or UT Government. On such request being made by CAG, the President/Governor/Administrator of the territory may empower him to undertake the audit subject to the conditions (d) and (e) above. Therefore the provision talks of the powers of CAG to propose audit of even private bodies in cases where he feels that substantial amount has been invested.


Therefore, the apex court too, as has been previously favoring the idea of assigning powers to CAG for audits of private concerns involved in PPP arrangements with government, will rule accordingly and maybe even more favorably. What still is ambiguous and will remain until definitions are clarified and amendments made to the CAG Act (some proposed and pending), is mainly around the term “any body or authority”. Some clarity towards what this term includes and excludes and some definite powers to CAG avoiding any clashes with sector regulators, added to this Act (in fact making it an empowering Act instead of spelling out merely duty and conditions of service) will prove better while talking of putting CAG to task of PPP audits.

(A follow-up post on recommended changes to the CAG Act coming soon!)

[1] Find the HC judgment dated 30th October 2015 here; last seen on 28th Jan 2017.

[2] Article 149, Constitution of India.