CAG audit: For better or worse?

Delhi govt's decision to audit power firms can raise more questions than answers

Even before proving its majority on the floor of the house Aam Aadmi Party (AAP) has implemented two of its poll promises. It is commendable simply because we are used to promises not being fulfilled even after five years of a government.

But giving away subsidies is often the easiest thing to do, political gains are far too much than the small economic burden. Tax payers are at the receiving end of such subsidies.

In the case of reduction in power tariff in Delhi, the entire cost will be borne by the government. Neither the power generating company nor the distribution companies will have to take a hit. What have been slashed are rates paid by the consumer and not the tariff. Distribution companies will now receive part of their money from the consumers and the remaining part will be given by the government.

But unlike other political parties, AAP has used the corruption and theft logic for reducing power tariff and giving free water. Their point is power companies are over charging the consumer by at least 50% and hence the reduction is justified. In order to prove the point they have asked the books of these companies to be audited by the Comptroller and Auditor General (CAG).

In Delhi, the power tariff is fixed by Delhi Electricity Regulatory Commission (DERC) after a detailed exercise. DERC in turn relies on the figures given by the auditors of the companies and announces a tariff based on ‘reasonable return’ to the cost incurred the by companies. By asking CAG to carry out an audit, AAP wants to prove that the auditors of the distribution companies (Reliance Energy and Tata Power) have helped pad up cost.

But mandates of CAG and an external auditor are different. Unlike the true and fair nature of evidence basis on which audit firms conducts their audits, CAG goes in the proprietary and accountability angle of auditing. It goes through the process involved in incurring an expense.

In any case the conclusion that will be reached through the CAG audit will be nothing short of catastrophic. If CAG proves that there is large scale padding of costs by the distribution companies then, AAP can rightly claim a big moral and political victory.
This would however, open the Pandora’s Box as consumers for other states would demand a similar review.

In fact, the Mumbai Congress Member of Parliament Sanjay is already asking why Maharashtra government cannot do the same. The problem: If the CAG audit report finds that the pricing isn’t unfair, reversing a subsidy is politically suicidal, especially for a new party.