The Hindu Business Line : Validity of E&Y, PwC reports for carbon trading questioned

THE Centre for Science and Environment (CSE) today questioned the validity of project reports prepared by international auditors such as PricewaterhouseCoopers and Ernst & Young for Indian companies wanting to trade carbon credits.

The project design document (PDD) reports are usually prepared by consultants and are a part of the procedure followed by companies aiming to trade carbon. The Indian Government refers to the PDDs, among others, to give host country approval to these projects.

These PDDs are further validated by another set of international auditors called designated operational entities (DoEs) to check if the projects meet the UNFCCC criteria. The UNFCCC refers to the PDDs and validations by DoEs, among others to approve the projects.

According to the CSE, four different PDDs prepared by E&Y have "an entire important section copy-pasted". This section refers to the comments from local community as recorded by E&Y in the PDDs.

"For both Gujarat Fluorochemicals Ltd (GFL) and SRF, the same questions are asked during consultations. The answers are also verbatim. Thus, even if consultations were held, their record in the documents does not seem credible," stated the CSE in its magazine referring to the PDDs prepared by PwC. The GFL project is already registered and SRF's project has requested for registration at the UNFCCC.

Moreover, the CSE called for reforms in clean development mechanism (CDM) procedures as it feels they are skewed in favour of the developed world and the rich, private parties. "CDM has been designed deliberately to make it a bilateral business deal, a private-private partnership, which will give rich countries a cheap deal. These procedures must be reformed by the UN agency," said Ms Sunita Narain, Director, CSE, at a conference on Tuesday. "The consultants and auditors are hired and paid for by the parties that want to trade carbon credits. The selling parties want the funds, the buying parties from developed countries also want low priced carbon credits through CDM," she said, pointing out that the consultants and validators are hired by "interested parties". She also called for a tax imposition on the earnings from carbon credits since they are like foreign direct investment.

Govt's reply:Speaking for the Government, Mr S.K. Joshi, Joint Secretary, Environment Ministry, said, "We agree that Kyoto mechanism is ineffective. Only 35 per cent of greenhouse gas emissions are covered under this mechanism. Even the countries that promised to achieve reductions are finding it difficult to meet their commitments."

On the issue of flawed CDM procedures, he said, "Interest of developed countries lies in making the process as tedious as possible so that developing countries have problems getting the carbon credits. But, we have the best talent for this sector in our country, including experts and consultants." I would reserve my comments on PwC and E&Y, he said.

On the issue of tax, Mr Joshi said, "These earnings are more like export earnings rather than FDI. We promote exports... It was a conscious decision by us not to add a domestic cost. Further, the companies are anyway required to pay corporate tax."

Consultants reaction: Reacting to the charges made by the CSE, Dr Ram Babu, Associate Director, PwC, said, "CDM Executive Board has set an institutional process to validate and verify facts and figures presented by project proponents, for whom we are advisors. We strictly adhere to these processes." E&Y, meanwhile, stated that its role has not been accurately represented. "It is likely that projects of a similar type and region" would have much in common.

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