CAG versus CAG

The risk for which a borrower in the tourism sector will have to compensate the lender will be much greater than a borrower would have to in the aluminium sector. The risk for which a borrower in the steel sector would have had to compensate a lender five years ago was much higher than it is today 8212; the demand from China having raised steel prices to levels inconceivable five years ago.

Nor can recent trends or current levels be projected into the indefinite future. Today petroleum prices have reached unprecedented heights. Should a lender advancing money to a company investing in the petroleum sector assume that these levels will continue, or reach 100, or fall back to 50? Judgments will differ.

The CAG himself would be aware of this, as I shall soon show. With equally keen insight he says the cost of equity was taken at 9.9 per cent instead of 9.3 per cent8230; Each figure was worked at length by the Advisors, and debated by two levels of officers 8212; an Inter-Ministerial Group headed by the Secretary of the Administrative Ministry concerned, and the Core Group of Secretaries headed by the Cabinet Secretary himself.

But I am dwelling on the fine details! On the fact that the CAG builds so much on 9.9 per cent versus 9.3 per cent, etc. Assume that he is entirely justified in all this. Let us, therefore, see what he does in the case of the Delhi Vidyut Board 8212; I will come to an even more scrumptious case soon and request you to ask whether a CBI inquiry is not warranted into that.

The CAG reports that the distribution enterprise of Delhi Vidyut Board was valued at Rs 3,160 crore. On what basis? The CAG writes that he asked the Delhi Government for the basis of the valuation, and that the Government told him that it did not know the basis. It said that this lay in 8216;8216;the computer modeling8217;8217; that was available only with the Advisor. The easiest thing would have been to ask the Advisor to supply the details from this black box of 8216;8216;the computer modeling8217;8217;. Did the CAG ask for it? Not at all. The Government, he records, told him that 8216;8216;normally8217;8217; Advisors do not disclose 8216;8216;the computer modeling8217;8217;, 8216;8216;as they regarded it as their business secret8217;8217;. Even the Government had only said that the Advisors regard the model as their business secret 8216;8216;normally8217;8217;. Was this such an insuperable bar for the CAG? The answer is clear as can be. And it lies in nothing less than the Act under which the CAG is appointed and functions 8212; The Comptroller and Auditor General8217;s Duties, Powers and Conditions of Service Act, 1971.

Section 181 of the Act recalls the duties of the CAG, and specifies the powers he has to discharge those duties. In view of what the CAG did in regard to the Delhi Vidyut Board valuation, the section deserves to be read with some care. The section lays down that the CAG 8216;8216;shall8217;8217; 8212; not 8216;8216;may8217;8217;, not 8216;8216;subject to Advisors normally regarding their computer modeling as their business secret8217;8217; 8212; the CAG 8216;8216;shall in connection with the performance of his duties under this Act8217;8217; have the authority 8230;. 8216;8216;to require8217;8217; 8212; not 8216;8216;to request8217;8217;, not 8216;8216;to plead for subject to what the Advisors normally regard as their business secret8217;8217; 8212; 8216;8216;that any accounts, books, papers and other documents which deal with or form the basis of or are otherwise relevant to the transactions to which his duties in respect of audit extend, shall be sent to such place as he may appoint for his inspection.8217;8217;

Again 8216;8216;shall8217;8217;, not 8216;8216;may subject to what the Advisors normally maintain,8217;8217; nor subject to what the Government says they normally maintain. This being his duty, these being his powers, what did the CAG do when he was told that the details of valuation 8212; the equivalents of those 9.9 per cents versus 9.3 per cents 8212; lay concealed in the computers of the Advisors and the latter 8216;8216;normally8217;8217; regarded these as their 8216;8216;business secrets8217;8217;?

He got, and was happily content with 8216;8216;a note setting out the methodology adopted in asset valuation8217;8217;. That this note contained nothing is obvious from what he states in the next paragraph of his report on the privatization of the Delhi Vidyut Board.

He says, 8216;8216;A scrutiny of the note indicated that while the general methodology had been explained, the basic figures adopted, the weightages given and assumptions made were not indicated and hence the basis of arriving at the final figure of Rs 3,160 crore could not be verified.8217;8217; Is the CAG so helpless in the face of the claim 8216;8216;normally8217;8217; made by Advisors?

Is he not duty bound to pursue the matter and demand and get the details?

Section 181 of the CAG Act proceeds to say, 8216;8216;The Comptroller and Auditor-General shall in connection with the performance of his duties under this Act, have authority8230;. to put such questions or make such observations as he may consider necessary, to the person in charge of the office and to call for such information as he may require for the preparation of any account or report which it is his duty to prepare.8217;8217;

That is his duty. Those are his powers. And the most delectable detail: the Advisors were not some foreign company that could, Bofors-like, take shelter behind some 8216;8216;customer-confidentiality8217;8217; clause; the Advisors were SBI Caps, a public sector company! But, what does the CAG do? He just records, 8216;8216;The Government had evidently relied solely on the report of the consultant.8217;8217; And lets the matter rest in peace!

That this abdication by the CAG helped not just the Congress-I Government of Delhi, that it helped two private companies 8212; Reliance and TATAs 8212; is manifest from the very next paragraph of the CAG8217;s own report. And remember, each of these two companies was the sole bidder in the circles that were handed over to them.

Recall that the enterprise was valued at Rs 3,160 crore. The CAG is constrained to record in the very next paragraph that there was 8216;8216;a difference8217;8217; 8212; note the delicate words, 8216;8216;a difference8217;8217;! 8212; in the balance sheet that was used by the Advisor for valuation and the actual balance sheet! The amount that was due to the company 8212; hence, an important part of the value of the company 8212; as assumed by the Advisor differed from the amount that was actually due by Rs three thousand one hundred and seven crore sixty two lakhs! Total value of the company? Rs 3,160 crore. A difference in this one component of the assets of the company? Rs 3,107 crore. And our friend leaves the matter at that! Discharging his duty? Exercising his powers? Or throwing another blanket over what is already a massive cover-up?

And by his decision not to do his duty, by his decision not to exercise the powers that have been given to him by law, huge benefits accrue to two private companies as well as, to use the current phrase, 8216;8216;unknown persons8217;8217; in Government. Not worthy of a CBI inquiry?

And yet that is just the beginning. The next part of the very same paragraph reveals an equally astonishing 8216;8216;difference8217;8217;. For purposes of valuation, the accounts that had to be used were of June 2002 8212; that is, when the Board8217;s operations were privatized. Instead, the accounts that were used were of a year later. Not just that, there was a convenient way of estimating the amount that the Board was to receive from various quarters, specially the bulk-consumers, the big fish that the Marxists are always concerned to catch.

The CAG reveals that, instead of using the figures that were available in the ledger, the valuation was done by a most innovative method: 8216;8216;the amount was calculated,8217;8217; reports the CAG, 8216;8216;by adding the arrears on 31 March 19948217;8217; 8212; yes,1994, remember that the privatization was being done in 2002 8212; 8216;8216;to the arrears of June 2002 as shown in the bills of June 20028230;.8216;8216;Why, pray? I don8217;t find the Marxists asking their usual questions: By whom? For whom?!

8216;8216;The fact remains8217;8217;, the CAG records, that it was the responsibility of the Delhi Government8217;s 8216;8216;holding company8217;8217; to recover the amounts from the two single bidders to whom the Board had been given. Yet, 8216;8216;the erstwhile DVB/Government had failed to finalize the accounts for the period April 2000 to June 2002 even after 18 months of privatization. The Holding Company had failed to recover any amount of bulk supply arrears from DISCOMs that is, Reliance and TATAs, the victorious single-bidders till 31 March 2003 the closing date for the CAG8217;s report and was also not in a position to provide details of arrears of DVB consumer-wise as on June 2002. Moreover, the opening Balance Sheet of the Holding Company did not depict the complete picture as old debts were not shown in the Balance Sheet since the opening Balance Sheet was in statement form only.8217;8217;

No stricture? No CBI inquiry into who helped who benefit?

But even that is just a glimpse of what else the CAG found. To take one illustration, there were stores, he records. These were valued at Rs 77.47 crore. They were transferred to the two private companies 8212; those victorious single-bidders 8212; 8216;8216;however, no payment was received.8217;8217; In simple words, they were made over to the two private companies free! And then there were things that were conveniently labeled 8216;8216;scrap8217;8217;. Again, nothing was taken for making these over.

This little discrepancy 8216;8216;has resulted in a blockage of funds of Rs 105.71 crore as well as a consequent loss of interest of at least Rs 3.48 crore calculated at minimum bank rate of interest of six per cent.8217;8217;

Now that the CBI is to examine why no interest was charged from the winner of the Juhu Hotel bid for the period for which the hotel was not handed over to him, I will be watching with baited breath what the CBI does about the interest that was not charged for items that were actually handed over to these two private companies, and for the amounts that were allowed to remain blocked.

But even these are mere tidbits, as we shall soon see.

To be concluded tomorrow