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VOL. 27, NO. 6, September 21, 2007 (Ashwin 04 2064 B.S.)
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INFRASTRUCTURE DEVELOPMENT BANK
Promising Venture
Reputed Nepali bankers have joined hands with prestigious international financial institutions to explore opportunities in infrastructure development
By SANJAYA DHAKAL
At a time when its two neighbors China and India are achieving jaw-dropping rate of economic growth, Nepal is just preparing to break itself free from decade-long conflict and political instability.
Although it is still in the throes of uncertainty, Nepal is looking forward to overcoming the political conflict and marching on to the path towards prosperity.
But it has been said by everybody that total lack of infrastructures is going to become primary problem that can obstruct Nepal's attainment of high growth, which is crucial to attain poverty alleviation.
The cash-strapped government of Nepal cannot be expected to invest in costly infrastructure projects. As such, only capable private sector can come to the rescue of the people of Nepal.
And that is what the recent agreement between leading Nepali bankers and international financial institutions is all about. In a historic ceremony on September 16, India's Infrastructure Development Finance Company, along with the Asian Development Bank, DEG-KfW, and the International Finance Corporation signed a Memorandum of Understanding with a private equity group in Nepal and a consortium of all the leading Nepalese banks and financial institutions to jointly incorporate an Infrastructure Development Bank in the country.
Quality infrastructure is essential for economic growth and prosperity. Nepal has critical requirements for international airports, urban development, needs to set up and upgrade education, healthcare and transportation infrastructure and meet the growing demand for power, cement to promote industrial growth.
In this context, a dedicated institution to fund and promote infrastructure projects will play a critical role in the economic advancement in one of the developing countries of the South Asian region.
"Continuing availability of infrastructure throughout Nepal is vital for economic growth. We have little choice but to invest prudently in infrastructure development," said Prithivi Bahadur Pande, Chairman and Chief Executive Director of Nepal Investment Bank Limited representing the Private Equity Group.
Finance Minister Dr. Ram Sharan Mahat said that private sector can finance in infrastructures like hydropower projects, toll ways, health and educational institutions. "On behalf of the government, I would like to assure you of full support," he said.
"In fact, apart from different hydropower projects, there is one proposed Kathmandu-Terai toll way in which the private sector can immediately invest," said Dr. Mahat. "We have favorable policy regime. We will now need to create conducive environment," he added.
KB Manandhar, acting governor of Nepal Rastra Bank (NRB), also promised support to the venture. "The central bank is ready to provide all kinds of necessary support to help this venture. We are aware of its importance and need," Manandhar said.
Rajiv B. Lal, Managing Director and Chief Executive Officer of Infrastructure Development Finance Company, elaborated, "Coming from an institution that was founded with the same objectives and has successfully led many reforms in India, there is indeed much that the Infrastructure Development Bank will be able to achieve in Nepal. He further added that "IDFC is delighted to be working alongside Nepalese banks and financial investors to encourage private capital to help meet the Nepal's infrastructure demands."
"This partnership presents a unique opportunity to all participating institutions to contribute radically to Nepal's development," added Radhesh Pant, CEO, Bank of Kathmandu and President – Nepal Banker's Association, representing the consortium of Nepalese financial institutions.
The main objectives of the proposed Infrastructure Development Bank are to develop and provide a comprehensive range of financial products and services for the development of infrastructure projects and facilities in Nepal; engage with and support the government of Nepal on policies to facilitate private and public sector investment in infrastructure by sharing international best practices; manage and arrange debt and equity funds to promote infrastructure related projects; and provide advisory services to project developers and companies regarding technical, commercial, financial, legal, and environmental viability of infrastructure development projects in Nepal.
IDFC will be taking the lead in supporting the Nepalese Private Equity Group and the consortium of Nepalese financial institutions with the requisite managerial, technical, legal, and financial resources. The consortium of the Nepali banks and financial institutions involved in this venture include Bank of Kathmandu, Development Credit Bank Limited, Everest Bank Limited, Global Bank Limited, Machhapuchchhre Bank Limited, Nabil Bank Limited, Nepal Bank Limited, Nepal Investment Bank Limited, NIC Bank Limited, and Siddartha Bank Limited.
ADB, DEG-KfW and IFC are considering conducting a feasibility study that will determine the economic viability of such an institution. The conclusions of the feasibility study will help these institutions determine the kind of support that will be offered to the Infrastructure Development Bank.
"We hope that the feasibility study will be completed within six months, after which we can start the operation," said Pande.
William Willms, Director, Capital Markets and Financial Sector Division, Asian Development Bank, said: "We are pleased to be able to partner with Nepal in this important initiative, as it seeks to remove a significant bottleneck to development. Establishment and support of a designated infrastructure finance institution will make a valuable contribution towards the longer-term objectives of sustainable economic growth and poverty reduction in Nepal."
"As a founder investor in Nepal's infrastructure development bank, we are committed to doing more in this country," said Turan Caglayan, Head of Asia Department of DEG KFW Bankengruppe.
"IFC is keen to deepen its engagement in Nepal to make a difference to its economy and promote sustainable development. By participating in this important initiative, there is potential for us to contribute significantly," explained Per Kjellerhaug, IFC Country Manager Nepal, Bhutan and Bangladesh.
