Sunday, July 31, 2016

The Antrix-Devas self goal

The Antrix-Devas case should be a teachable moment for India's trigger-happy government auditors. 

In brief, Antrix, the commercial arm of Indian Space Research Organization (ISRO), signed a contract in 2005 with Devas Multimedia, a firm promoted by two retired ISRO scientists, whereby Devas acquired a 12 year lease of two ISRO satellites to be operated in the S-band spectrum (which was reserved for defence sector, though India does not possess the technology to use it) to broadcast high speed internet on mobile devices. Devas was to pay $300 million over the contract duration. A CAG report in 2010 found the deal vitiated. In response to the public outcry and media trial, in 2011, an embattled government cancelled the deal saying that the spectrum was necessary for defence purposes. Devas initiated two international arbitration proceedings against the contract cancellation. The International Chamber of Commerce tribunal in Paris imposed a penalty of $855 million, and the UN Commission on International Trade Law at Hague imposed another penalty. The latter ruled that the cancellation constituted "expropriation" and India breached its Bilateral Investment Treaty (BIT) commitments with Mauritius to accord "fair and equitable treatment" to foreign investors. 

The CAG in its report says it is a ‘classic case of public investment at private profit.’ It finds conflicts of interest, disregard for rules and procedures and Cabinet apparently being misled into approving the agreement... When CAG said the Devas-Antrix deal was vitiated, the beleaguered Manmohan Singh government gave in to pressure from the Opposition and baying TV channels to abruptly cancel the contract citing strategic interests... The CAG has been wrong earlier too. In 2005, it faulted the sale of two hotels of Hotel Corporation of India ─ Juhu Centaur and Airport Centaur – to single bidders. It had pointed fingers at Arun Shourie, then minister for disinvestment in the Vajpayee government. The CAG alleged the government had suffered losses because the company that won the bid for Airport Centaur for Rs 83 crore had sold it a few months later to the Sahara Group at a profit of Rs 32 crore. The bidder of Juhu Centaur could not pay the full fee of Rs 153 crore and the hotel was shuttered in 2005. An investigation by the Central Bureau of Investigation was ordered, but in 2008, the investigative agency told the government it could not find any irregularities.

The CAG had also said the treasury had been put to a loss of Rs 10.8 lakh crore by the allocation of coal blocks between 2004 and 2009. In 2015, the Modi government claimed it earned more than that amount by auctioning 20 of the 204 coal blocks whose allocation the Supreme Court had cancelled. The claim is misleading because the money will flow in over 30 years if the mines are worked to rated capacity. These cash flows have to be discounted at an interest rate to arrive at their ‘present value’ (because today’s money will not buy the same amount 30 years later).
In all these cases, the CAG has sought to expand its jurisdiction on performance audit and passed judgement on the merits of public policy actions. This is surprising since the National Audit Office (NAO) of UK, which is the model for India's CAG, has this to say about its remit
We do not comment on the merits of policy but aim to conclude on whether value for money has been secured
Consider the Devas case where the CAG definitively describes it as a "classic case of public investment at private profit". Consider the leap. It has found procedural lapses, may be even conflicts of interest. But, how does it establish malafide? Or more specifically, how does the auditor establish that these lapses are not genuine omissions or those dictated by exigencies of decision making? In any case, isn't this the jurisdiction of vigilance officials and investigators? If the CAG is competent to pronounce guilty, what is left for the departmental proceedings and criminal investigators? Finally, it is surely an extremely sweeping conclusion to describe it as a "classic case" of crony capitalism. 

The CAG is plagued by the same disease that afflicts the Chief Information Commission, the Central Bureau of Investigations, the Chief Vigilance Commission, and most disturbingly the Judiciary. All these regulatory institutions, none of which have to take any decisions on managing a public agency, have been swept into populist grand-standing. In the process, they have compromised professional integrity, eroded their own long-term institutional credibility, and paralyzed public policy decision making. The lack of leadership in these institutions has never been so missing. 

1 comment:

akshay saxena said...

As most of the concepts of modern governance did not develop in India and were mostly imposed by the British, the core spirit in understanding the mandate boundaries is many times missing. Audit, like post mortem, is an exercise in future and is never expected to change a government decision or a contract. Similarly, the role of Judiciary in a contract is merely that of lawful enforcement in case a dispute arises in between the two parties to the contract. The audit noting should remain advisory for future corrections and should not interfere with the current governance or executive decision. At the best one can think of an appellate executive body to decide upon any challenge in award of contracts made within a time limit of 15 days with decision of the appellate body should being final. If external institutions like Judiciary, CAG, CVC start interfering in the outcome of a contract, it will create a huge market uncertainty which is never good for a countries economy.