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The Person You’re Trying To Reach...

The man who made the office of the Comptroller and Auditor General of India a force to reckon with tells all—from the 2G scam to CWG fiasco to Coalgate and the K-G Basin—in a damning memoir.

The Person You’re Trying To Reach...
Jitender Gupta
The Person You’re Trying To Reach...
outlookindia.com
-0001-11-30T00:00:00+0553
The Diary Of The Nation’s Conscience Keeper Not Just An Accountant
By Vinod Rai
Published by Rupa | Pages: 267 | Rs. 500

2G Scam

Mr Prime Minister, people wonder, if you were indeed convinced that spectrum allocation should be transparent, what prevented you from executing your wishes? Had you, in fact, stood steadfastly by your beliefs, the fate of UPA-II might have been different. In fact, the fate of the Indian economy itself might have been very different. Instead, you engaged in a routine and ‘distanced’ handling of the entire allocation process, in spite of the fact that the then communications minister, A. Raja, had indicated to you, in writing, the action he proposed to take. Insistence on the process of being fair could have prevented the course of events during which canons of financial propriety were overlooked, unleas­hing what probably is the biggest scam in the history of independent India.

It is obvious from the exchange of letters that the prime minister was indeed aware of Raja’s intentions as far back as November/December 2007. He chose, for reasons which can only be speculated about, to ignore the warning signals. He failed to direct his minister to follow his advice, the counsel of the ministries of law and finance, and the commerce minister Kamal Nath’s suggestion that the issue be brought to a GoM for threadbare discussion. Why, and under what compulsion, did the prime minister allow Raja to have his way, which permitted a finite national resource to be gifted at a throwaway price to private com­panies—private companies that, going by the minister’s own admission, were “enjoying the best results...which was also reflected in their increasing share prices”? If only Prime Minister Manmohan Singh had responded differently; if only he had instead said—“I have received your letter of December 26, 2007. Please do not take any precipitate action till we or the GoM have discussed this.” Such a letter would have changed the course of UPA-II.

***

 

Jairam Ramesh
Former environment minister

In all fairness, I cannot credit Jairam Ramesh with coining this casteist comment (“Bhumihar from Ghazipur”, in an interview with Aditi Phadnis of Business Standard). Let me give you the background. Jairam Ramesh was a regular visitor to the CAG headquarters for discussions on the audit of NREGA. His discussions did indeed lend value. In one of his conversations with me, he asked why N.K. Singh, the Rajya Sabha MP representing the Janata Dal (United), used to refer to me not only as a Bhumihar, but as “a Bhumihar from Ghazipur”. I told him that I did not know what it meant. Since my father had been in the army and we had moved all across the country, the significance of caste had been lost on us.... However, I told Jairam Ramesh that I could only conjecture that the word “Bhumihar” was not being used in any complimentary manner. To this, Jairam Ramesh said, “Obviously!” I wonder why.

***

There were strong interjections from the ministry of finance that clearly felt that applying a price determined in 2001, without indexation, was inappropriate. However, this was brushed aside. Giving finite spectrum to a private party for commercial exploitation, even if it enhances teledensity, requires a balance between revenue generation and achieving social objectives. Thus, the action of the DoT to take a price discovered in 2001, when the sector was still nascent, and apply it after a passage of seven years in spite of changes in market conditions, and in the face of contrary advice from the PMO and the ministries of finance and law, certainly does not pass any test of transparency.

The DoT constantly emphasised that its decision was taken to serve the twin objectives of providing cheap telephony and deeper teledensity. In fact, Raja, in his letter to the prime minister on November 15, 2007, writes: “I agree that telecom tariff in the country are [sic] one of the lowest in the world. However, these may be seen in conjun­ction with the lower input costs and per capita income in the country.” Doing a volte face in his next letter of December 26, 2007, to the prime minister, he writes: “It is needless to say that the tariff in India is not as cheap as claimed in terms of purchasing power parity and standard of living in the country since there is no tariff fixation.” Which one do we believe? Telecom tariff the “lowest in the world” or “tariff in India is not as cheap”? Contradictory statements in successive months.

The PM was aware of Raja’s intentions as far back as Nov/Dec 2007. Yet, he chose to ignore the warning signals.

Now let us examine Raja’s assertion that there had been “no single deviation or departure in the rules and procedures contemplated in all decisions taken by my ministry and as such full transparency is being maintained....” The DoT had decided to continue with the so-called existing policy of FCFS for processing applications. The minister also confirmed that an unprecedented number of applications had been received by the cutoff date of October 1, 2007. This is the date which was announced by a press release issued on September 24, 2007, after being personally approved, indeed amended, by the minister himself. However, despite making a public announcement along these lines, Raja arbitrarily advanced the cutoff date to September 25, 2007. Why?

No credible explanation was offered. Though Raja clearly indicated this to the prime minister in his letter of November 2, 2007, the PMO chose not to object. Why it chose not to remains unclear. It was bec­oming clear that the minister was shooting off letters to the prime minister and others from his personal office, rather than on behalf of the department. In fact, the DoT was in the dark. My doubt was confirmed when I looked closely at the letters: while correspondence emerging from the department stated FCFS to be “first-come-first-served”, that emerging under the signature of the minister mentioned FCFS as “first-cum-first served”. This clearly established the fact that the department and the minister did not appear to be in sync.

What is even more illuminating than the correspondence between Raja and the prime minister and the press release of January 7, 2008, is the examination and notings on the files within the PMO on the letters written by Raja, which were not made available to audit, but came into the public domain after the files were given by the PMO to the JPC. These show detailed internal examination, but not leading to any output from the PMO to the DoT.

Letters written by A. Raja were examined in the PMO and it was concluded by the joint secretary, Vini Mahajan, that there was a perceptible difference of opinion between the ministry of communications and the ministry of law. According to the ‘Transaction of Busi­ness Rules of the Government of India’, “cases in which a difference of opinion arises bet­ween two or more ministries and a cabinet decision is desired, shall be brought before the cabinet”. Officials in the PMO advised that this norm be communicated to the ministry of communications, but the prime ministerdes­ired that a deeper examination be made of the action proposed by the DoT. This was on November 7, 2007. Was time being gained?

Pulok Chatterji, then the additional secretary at the PMO, went into the issue in greater depth. In a note to the prime minister on January 6, 2008, he concluded that, as had the ministry of finance, that “ideally in a situation where spectrum is scarce, it should be auctioned”. By the time this note reached the prime minister, the DoT had issued licences. A noting on January 11 by Vini Mahajan quotes the prime minister as stating that the DoT had issued licences on that day and the prime minister wanted the note to be accordingly modified.

Modified for what now? Clearly the stable doors had been opened and the horses had bolted. What was the prime minister seeking to do with a modified note? When Raja had clearly indicated his intention in his December 26 letter and the PMO felt his action required a consultation in the cabinet, why was there so much hesitation? Even after the so-called modified note was put up to the prime minister by Pulok Chatterji on January 15, Vini Mahajan recorded that the prime minister still wanted this to be “informally shared with the Dept”. Informally, still? Why? Vini Maha­jan went on to record that “(the prime minister) does not want a formal communication and wants PMO to be at arm’s length”. How can the office of the prime minister distance itself from such major decisions? Arm’s length from the action of his own government?


Kalmadi’s game: That was the CWG. (Photograph by Sanjay Rawat)

CWG

In May 2003, the Indian Olympic Association (IOA) submitted a formal bid to the Com­monwealth Games Federation (CGF). After the Government of India, the lieutenant governor of Delhi and the chief minister of Delhi gave guarantees to underwrite any shortfall between revenue and expenditure in Sep­te­mber 2003, the CGF voted to allot the XIX CWG to Delhi. The Host City Contract was signed in November 2003. The May 2003 bid document had detailed the nature of the organising committee as a non-profit, government-owned and registered society; the exe­cutive board was to have a chairman, a government appointee, and the vice-chairman would be the IOA president. Very categorical.

Congress MPs walked up to me at lunch time and said, “We have to ensure the PM’s name does not get dragged into it.”

Most mysteriously, in the course of the CAG’s performance audit subsequent to the games being completed, the audit team discovered an “updated” bid document which was datelined December 2003. No one could explain the source of this document. There was no logic or relevance to an “updated” bid document. Its irrelevance notwithstanding, the document was significant in that there was a marked difference in the nature and structure of the organising committee from what appeared in the May 2003 document: while the original document described the organising committee as being a government-owned registered society, the “updated” document showed it as a non-government registered society. Moreover, whereas the former document had indicated that the chairman would be a government appointee and the vice-chairman would be the IOA president, the latter document omitted any references to the chairman necessarily being a government appointee or the vice-chairman being the president of the IOA. No one took responsibility for this document. And yet it turned out to be the foundation for the final organisational structure—the most credible document.

In fact, this document formed the basis of a letter that Suresh Kalmadi, president of IOA, wrote to the prime minister on October 23, 2004, stating that the then sports minister, the late Sunil Dutt, did not have the correct perspective on the role of the IOA in the games. He also observed that the games had been allotted to the IOA and, as such, the association was responsible for ensuring the successful conduct of the games. Extending this logic, Kalmadi went on to apprise the prime minister that the organising committee had to be formed by the IOA and approved by the general assembly of the IOA. The prime minister chaired the first meeting of the GoM—a core group constituted under the late Arjun Singh, the former (Union) human resource development minister, to coordinate the work related to the organisation of the games—on October 25, 2004. The next day, Kalmadi wrote to the prime minister again suggesting that he (Kal­madi) should chair the organising committee, and that the sports minister could chair the ‘steering committee’—a totally new creation.

***

T.K.A. Nair

Former principal secretary to PM

While auditing the telecom department, two exit conferences had already been held, as against the standard practice of having only one conference. The then secretary of the telecom department, P.J. Thomas, who of course was only a recent entrant to the department, came to see me. He expressed the concerns of his minister, and also mentioned that the minister had gone to meet the principal secretary to the prime minister (Nair) on the issue. Just as an aside, I asked him why the minister chose to meet the principal secretary and not the prime minister. Thomas’s response conveyed so much: “My minister believes it is not enough to appease the deity, you have to appease the pujari [priest] also.” A remarkable hypothesis, isn’t it?

***

Sunil Dutt wrote to the prime minister expressing surprise at Kalmadi’s assertions. Even more interestingly, he expressed opposition to the minutes of the GoM of October 25, 2004, asserting that the minutes of this GoM meeting did not fully reflect the trend of the discussions. His assertion was found to be true since, as per government procedure, draft minutes of the GoM minutes have to be submitted by the ministry; what came back from the cabinet secretariat after being app­roved by the prime minister was divergent.

In December 2004, the PMO wrote to the ministry of sports stating that “institutional arrangements” had been evolved for the conduct of the games and that Suresh Kalmadi should be the chair of the organising committee and the executive board. This was endorsed by the GoM meeting of January 2005. On February 10, 2005, the organising committee was registered under the Societies Registration Act of 1860, with Suresh Kalmadi as the chairman by name, and not as the president of the IOA.

A few months after the original CWG bid, an ‘updated’ bid appeared, modifying the organising committee structure.

Suresh Kalmadi had arrived.

Let me explain the model of governance formulated to deliver the games. The organising committee, the apex body, had 484 members (though this number was later reduced to 454), with Kalmadi heading it. Twenty-three subcommittees were carved out of the organising committee to extend advice in functional areas. There was another 18-member executive board of the organising committee. This had only two government nominees, and Kalmadi chaired it. The day-to-day financial and administrative decisions were taken by yet another body, the executive management committee, chaired by Kalmadi, which had as members Randhir Singh, Lalit Bhanot (secretary general) and A.K. Mattoo (treasurer).

The organising committee thus became a parallel non-governmental entity with no accountability to the government or concomitant controls to ensure propriety and transparency, despite full funding from the government. This, in fact, proved to be its undoing, as subsequent events revealed.


Dark matter: Doubtful coal block allocation

Coalgate

The PMO finally communicated to the Ministry of Coal on November 1, 2004, that, as decided by the prime minister on October 14, 2004, all applications received till June 28, 2004, would be considered by the extant policy and, thereafter, allotment of coal blocks for captive mining would be made on the basis of competitive bidding. This fact had to be suitably incorporated in the cabinet note proposed to be submitted for the approval of the council of ministers. This decision of the prime minister as the coal minister should have set to rest all opinion on the issue. However, this was not to be.

Soon, the regular coal minister, Shibu Soren, got back to his job. When the decision taken by the prime minister, albeit in his capacity as coal minister, was presented to Soren, he commented on February 25, 2005: “I have gone through the entire issue. As minister of coal, I am in complete agreement with the views expressed by minister of state, coal (Dasari Narayana Rao) in his note dated 4.10.2004 and as such the proposal need not be proceeded further.”

***

Palaniappan Chidambaram
Ex-finance minister

In June 2005, a piquant situation arose. Bank of Baroda had decided to cha­nge its logo to one which represented energy and dep­endability—a rising sun, bra­nded as ‘The Baroda Sun’. The logo was in vermilion, akin to one of the colours in the national flag, and was launched by the bank’s brand ambassador, Rahul Dravid. However, some mischief- mongers wrote to those high up in the Congress party, and said that the bank had adop­ted the saffron colour which was the colour of the principal opposition party, the Bharatiya Janata Party (BJP). Rather far-fetched, but it set tongues wagging. The viewpoint being touted was that public sector banks should take government clearance to change logos. This put pressure on P. Chi­dambaram. It required considerable convincing on the part of the bank’s CMD Dr A.K. Khandelwal to thw­art a concerted effort to seek the withdrawal of the logo. Once the finance minister was convinced, he also lent his weight to the effort, and a rather embarrassing and retrograde action was aborted.

***

The minister was thus clearly overturning the decision taken by the prime minister and concurring with his minister of state for coal. Both seemed keen to continue with the extant procedure. It was, of course, purely fortuitous that Shibu Soren had to step down once again and that the prime minister held charge of the ministry of coal (yet again). The secretary, at that point, was still struggling to get the draft cabinet note, seeking change in the allocation procedures, approved. He sought approval of the note, clearly stating that the decision on all applications received by June 28, 2004 (namely, the cutoff date approved by the prime minister earlier for allocation through the extant procedure) would have been taken by March 2005, and if the revised procedure was not put in place quickly, pressures would again mount on the government for continuing with the then prevalent procedure; this would not be desirable in the interest of generating total transparency in the allocation of coal blocks. The prime minister lent finality to the decision taken by him earlier and recorded his approval of the cabinet note seeking sanction of the competitive bidding system on March 24, 2005.

M.S. Gill was living in a makebelieve world and applauding one of the most regrettable aspects of our psyche—jugaad.

The tenacious Dasari Narayana Rao, however, had still not given up. He continued to put his weight behind the existing system. Even as late as July 4, 2005, he argued that the full implication of a bidding-based system of allocation needed to be carefully considered by the cabinet as there was a general reluctance on the part of the power utilities to participate in bidding due to cost implications. It is strange that the secretary and the prime minister (as the coal minister) were oblivious to such fears and pressures. Nevertheless, Dasari Narayana Rao’s efforts did bear fruit. What was even more significant was that, fearing a change in the system, a spate of applications had been received and these applicants particularly were putting pressure, demanding status quo in the system. Their efforts, too, succeeded. In a landmark meeting in the PMO on July 25, 2005, it was decided that a new procedure for allocation could be introduced only after the Coal Mines (Nationalisation) Act, 1973, was amended.

However, amending the act would take some time. Equally, the interest of power generation and fuel linkage would be adversely affected if allocation of coal blocks was to be stopped. Hence, in the interest of power generation, the landmark decision was that the MoC would continue to allot coal blocks for captive mining through the extant (screening committee) procedure till the new competitive bidding procedure became operational.

Since I have called this a landmark meeting, I need to focus a bit on it. (P.C.) Parakh, the secretary of coal, mentioned in the meeting that with the passage of time, the number of coal blocks available for captive mining were declining, while the number of applications were growing. This had made the selection of an applicant for the allocation of a coal block for captive mining vulnerable to criticism on grounds of a lack of transparency and objectivity. It is in this context, he explained, that the MoC proposed to introduce competitive bidding for the allocation of a coal or lignite block for captive mines.

***

Veerappa Moily
Law minister, UPA

The minister went on to state that the “government expressed dissatisfaction on the working of the CAG”. How does one react to such situations—when ill-informed comments besmirch a credible institution? It did not make much sense taking up the issue with the minister. Incidentally, all these public utterances were made even before the 2G report had been placed in Parliament!.... However, there was a saving grace. The Indian Express carried a marginal news item on October 26, 2010, titled, ‘Moily to PM: Didn’t Mean to Belittle CAG’. The item went on to state that the minister, while explaining his recent remarks about the functioning of the CAG, had written to the prime minister that he had no intention of indicting or belittling the CAG. The news item stated that this was in response to the prime minister’s query to him after “CAG Vinod Rai protested against the minister’s observations”.

***

Being convinced of the benefit and objectivity of the new procedure, the PMO pressed for a follow-up to the decision taken in the July 25 meeting. However, the minister of state continued to hold a different opinion. When the PMO’s urgency was brought to his notice, he maintained any amendment to the act would be time-consuming and that the PMO had allowed the department to proceed with allocation of mine blocks under the extant procedure. Twenty coal and eight lignite blocks had already been put on offer, for which applications had been received and were under process. Hence, he mai­n­tained there was no exigency to pursue the cabinet note seeking approval of the council of ministers for a change in procedures, and the note be submitted at another appropriate time.

Here, we have a classic case in which the department and PMO are convinced of the need for a change and such an amendment has been ordered by the prime minister. However, the minister of state continues to hold another opinion. The issue does not end there.... The earlier decision to amend the Coal Mines Act was not considered app­ropriate, and in a meeting convened in the PMO in April 2006, it was felt it would be more appro­priate to amend the Mines and Minerals (Dev­elop­ment and Regula­tion) Act, 1957, to cover all minerals under competitive bidding. So it was back to square one.


The Mukesh Factor: Captive waters

K-G Basin

In the entire process of protracted correspondence, RIL’s proposal right from April 2004—that it would not relinquish any area and instead retain the whole contract area as “discovery area”—appeared to have been accepted, and RIL moved to Phase III. By now, the management committee, with only one DGH (Directorate-general of hydrocarbons) representative, permitted the retention of the whole area. This issue was also examined by MoPNG (ministry of petroleum and natural gas) who, after seeking a lot of clarifications, accepted the contractor’s claims in July 2008. The final result of all this correspondence, including references to the ministry and clarifications from the DGH, permitted RIL to retain the entire 7,656 sq km as “discovery area” without digging wells in it, in direct contravention of the PSC (product­ion-sha­ring contract) contractual conditions. This militates against the spirit of the NELP (New Exploration Licen­sing Policy), which seeks to maximise the exploration efforts and minimise hoarding of exploration acreage.

RIL retained 7,656 sq km as ‘discovery area’, neither digging wells nor letting others do so, contravening the PSC.

The efforts of RIL were aimed at retaining the entire area without themselves exploring it and without letting another contractor do so either! Irrespective of any technical argument, how they were allowed to breach contractual provisions merely on their assertion that there was “a strong likelihood” of the presence of hyd­rocarbon in the entire area is not understood. After five years of correspondence, the contractor merrily proceeded with his own scheme of development, with the government toeing the line.

Now let us proceed to the procurement- related activities of the contractor, which would require us to examine yet another aspect of the PSC implementation. Every procurement activity, especially when it is of large-value equipment, needs to push for the most competitive of prices. This is normally done by generating competition among suppliers. When such high-priced equipment is procured based only on a single financial bid, the element of competition is obviously lost. The concerned provisions in the PSC also do not provide adequate assurance that government interests are indeed being protected.

***

Dayanidhi Maran
Former telecom minister, UPA

In 2006, the then telecommunications minister, Dayanidhi Maran, objected to spectrum pricing being included in the terms of reference of the GoM. He wrote to the prime minister stating that it was his ministry’s prerogative to decide on spectrum pricing, and asked for the pricing clause to be removed from the terms of reference of the GoM. No meeting of the GoM was held till the PMO acquiesced. Revised terms of reference for the GoM were issued in December 2006, excluding the spectrum pricing clause. Surprisingly, no one pointed out that this revision of the terms of reference was contrary to the cabinet decision of October 2003, which had given an equal role to the ministry of finance in spectrum pricing. Maran’s insistence on retaining spectrum pricing within his own ministry came under tremendous adverse scrutiny in 2007.

***

This observation is being made on the basis of the fact that typically PSCs around the world have uniform provisions. However, a comparison of the procedures under PSCs, say in Bangladesh, reveals that high-value procurements, namely those exceeding $5,00,000, require a prior approval of the management committee. Such a clause is non-existent in the Indian version of the PSCs. In fact, the procedure laid down for such procurement in Indian PSCs merely entails providing the management committee members with a list of pre-qualified entities/vendors as approved by the operating committee.

It does not stipulate any prior approval of the management committee. Thus, the contractor is free to make any large-value procurement, no doubt on government account, without as much as getting the approval of the management committee.

Such laxity towards the government’s financial interests is observed in the following procurement. RIL issued a request for proposal (RFP) for charter hiring of a floating, production, storage and offloading (FPSO) facility. A vendor qualification criteria (VQC) was prepared and was approved by the operating committee, which had no government nominee in it. A company called AKER Floating Production (AFP) of the AKER Group was one of the companies selected for issuing the RFP. Following due process, it was declared as the single acceptable bidder; this was after rejecting the bids of the seven others on technical grounds. It is rather strange how AKER was selected as it suffered from the following inadequacies:

  • It had no experience of operating and monitoring an FPSO facility.
  • It had not submitted any technical or commercial checklist.
  • It had not attached the preceding three years’ financial audited statements. As an alternative, it had merely submitted its parent group’s (AKER Group) annual report and that too for the preceding two years (2004, 2005).
  • In fact, the most surprising fact was that AFP was only inc­orporated on March 14, 2006, which was after the expression of interest (EoI) being issued in January 2006 and the VQC analysis in Sep­tember 2006. So much for the three years’ experience criterion!

These were the CAG’s findings in the audit report. It is not that audit came to its own fancy conclusions, as is normally the argument trotted out for all audit findings. We elicited replies from the contractor and the ministry a number of times. In fact, in this particular case, the contractor argued that AFP had indeed submitted audited financial statements for the two years, as required in the RFP [101]—a rather stra­nge argument as AFP was formed only in 2006. What they had enclosed, as mentioned earlier, was the financial statement of the parent company for two years.

In permitting foreign airlines to fly out passengers from interior cities, we are denying growth to domestic airlines.

As you may recall, a total of eight bids from vendors had been received by RIL. Out of these, six were rejected. While those six were rejected outright, two vendors, namely AFP and SBM, held discussions with RIL and submi­tted revised bids which were entertained. Clearly such facility for revisions should have been given to all or else it would be against the spirit of the tender. Also, in whose presence the bids were opened is not known. The price bids of the technically non-qualified bidders were neither sealed nor intact, thereby provi­ding no assurance that these were not opened. On the other hand, the price bid of AFP was not even signed. They had submitted price quotes for optional items, but left them blank ostensibly for ‘open book’ cooperation with RIL.

***

R.P. Singh
Former DG (P&T)

R.P. Singh was a valued teammate. He met me often and we conversed more as colleagues than as CAG and DG. We discussed his move from Chandigarh to Delhi to facilitate the marriage of his daughters—this transfer had been granted. He even discussed strained personal relations with some of his seniors. What was unexpected, therefore, was for him to claim that he was being compelled to draw conclusions which were unacceptable to him. I do not think he can ever make that claim, and in fairness to him, he has not made the claim that I ever pressured him or that if there was ever pressure on him from any other quarter he brought it to my notice.... R.P. Singh, after retirement, seemed to have second thoughts about the report which he had signed and submitted. He challenged his own findings and made much about being forced to approve a report which he claimed was thrust on him. Fair enough. Anybody can have a change of heart and conscience pangs.

***

Why am I, and indeed even audit, labouring over the selection process? Because the full cost of the procurement is recoverable by the operator from the government. In pursuance of such provisions in the PSC, it is only fair for the operator to take all steps to provide assu­rance to the government that the cost is being minimised and that its interests are being protected. Since the management committee had no say in the procurement procedure, there was all the more reason for exhibiting extra care to ensure transparency, competition and cost-effectiveness.

What was the cost of this acquisition? $1.094 billion! Indeed, there were, in all, eight acquisitions from the AKER group, all on single financial bids. The total value of the acquisitions, including the FPSO, was $2.1 billion. The auditor can hardly be blamed for trying to ensure that the


DIAL C for corruption IG international airport. (Photograph by Narendra Bisht)

Aviation

On August 2, 2004, the civil aviation minister had a meeting with the secretary, civil aviation, and the CMD of Air India. At this meeting it was decided that on the basis of the revised requirements, Air India would revisit the proposal for the purchase of aircraft and submit a fresh project proposal to the government at the earliest.

At this meeting, the CMD of Air India stated that although the existing proposal for acquisition did not fully cater to the airline’s fleet, the additional requirement could be projected separately, after due evaluation, through a supplementary proposal. This view notwithstanding, the minister and the secretary stated that it may not be advisable or prudent to go through the pre-Public Investment Board (PIB) and PIB exercise in two separate stages, with two different sets of proposals for such capital-intensive projects. The CMD was thus directed to take a total and comprehensive view on the fleet of Air India, keeping in mind its plan and growth for the next fifteen years or so.


Flying high: A fleet without finances. (Photograph by Narendra Bisht)

I am tempted to write about a very curious phenomenon that unfolded concerning audit’s observation on the August 2, 2004, meeting. In the draft audit report which had been sent by the CAG to the ministry for its comments, audit had used an expression “in the meeting the minister nudged (emphasis mine) Air India to revisit its proposal”. The moment this draft audit comment was read in the ministry, all hell broke loose. Bureaucrats of all hues—serving and retired—including Air India officials, started approaching us to drop the use of the word. The funny part was that just about every person despatched to plead with us against usage of that word also acknowledged that, that meeting, in fact, was the turning point. (Indeed, a serving executive director perceived the so-called ‘nudge’ to be an order!) Yet, they had been commissioned to make the plea for removal. How did one word cause such discomfiture?

***

Anil Ambani
Chairman, ADAG

In yet another remarkable case, the principal director of audit (economic and service ministries), while conducting an audit of an Ultra Mega Power Project (UMPP), faulted the change of commercial conditions of Sasan UMPP (Anil Ambani’s Reliance Power). His audit memo to the ministry of power quantified the quantum of financial benefits based on the successful bidder to be Rs 1,80,731 crore over 25 years. This audit memo also found its way to the press. During the finalisation of the report in the headquarters, this financial benefit could be justified to only Rs 29,033 crore. The principal director was upset that his viewpoint had not prevailed. Not only so, he recorded his disagreement strongly. Would you still insist on believing that the department does not permit dissent?

***

The pressure was immense. What could one do? We deliberated. Ultimately, we did drop that word from the final report, but not because of any external coercion. And here I highlight the robustness of the auditing process, in that every word/sentence in the report must necessarily be backed by a key document (KD).The word ‘nudge’ was not in the KD and was merely our interpretation—which could be faulted. Hence, it was decided to drop the word.

Leaving it to AI to enhance its fleet factoring in the next 15 yrs, 50 aircraft were approved, financial burden be damned.

After the August 2, 2004, meeting, the CMD was then left with no other option but to take the proposal back to his board, which met on September 13, 2004. The very same board which had recommended only twenty-eight aircraft earlier now revised its stance. Some members opined that in light of the advice of the ministry, the fleet acquisition programme needed to be revisited in its entirety. The board, however, not totally clear about the ministry’s advice, sought a clarification from it, and received the following response: “Strictly speaking it is for the AI board to take a view in the matter. As far as Ministry’s adv­ice is concerned, there is a suggestion that AI needs to take a total comprehensive view on its fleet, keeping in mind its plans and growth for the next fifteen years or so.”

This clarification further reiterated the earlier direction that Air India ramp up its fleet acquisition proposal “keeping in mind its plans and growth for the next fifteen years or so”. What is significant is that it was entirely silent on how such a massive acquisition exercise would be funded. I emphasise this as we see Air India being encouraged to purchase a huge number of aircraft, regardless of the financial implications of this purchase and the financial crisis it would create for the carrier. The board of Air India finally met on November 24, 2004 and approved a revised long-term fleet plan for 50 aircraft. In addition to this was a proposal to buy 18 aircraft for Air India’s low-cost subsidiary, the Air India Express. This was the huge commitment that Air India was getting itself into.

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