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Kathmandu Wednesday January 10, 2001 Paush 26,, 2057.
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DFID warns to withdraw hand from privatization
By Ameet Dhakal
KATHMANDU, Jan 9 – The Department for International Development (DFID),
the British government’s international development agency and a major donor in
Nepal’s privatization project, has warned the government to withdraw its assistance
from the project if the government fails to show clear commitment to the privatization
process.
According to a highly-placed government official, the British development
agency has refused to renew the project for next year citing the government’s inept
handling of the privatization process. DFID’s three-year old privatization assistance
project expired on December 31. The source said, DFID has for now, extended the project
for only one more month ending January 31 as a "warning sign" of exit.
"If the government fails to assure the British of its renewed commitment
to privatization, they would retreat from the project sending a negative message to the
donor community," said the official.
The DFID Office in Kathmandu confirmed that it has renewed the project for
one month only. Chris Jackson, Economic Advisor at DFID, who oversees the privatization
program said, "Further support will depend on clear government commitment in
implementation of its privatization policy."
According to the official, DFID’s frustration is basically linked to the
slow pace of the privatization process. In 1997, while negotiating technical assistance
with DFID, the government had identified a list of seven Public Enterprises (PEs) as
potential candidates to go into private hands by the end of 2001. However, only one PE
– the National Tea and Development Board - has been privatized so far. Worse still,
the cabinet has yet to sanction the privatization of other PEs.
"We understand that the list of seven State-Owned Enterprises that are
potential candidates for privatization has been agreed by the Ministry of Finance and the
Ministry of Industry, but is yet to be sanctioned by the cabinet," said Jackson.
Privatization of non-performing PEs has featured as one of the major agendas
of Nepal’s economic reform and has been tied up by number of bilateral and
multilateral donor agencies to their lending. The World Bank in its Country Assistance
Strategy (CAS) prepared for 1999-2001 has categorically tied up the bank’s lending
with privatization. Privatization of at least seven PEs, including tangible progress in
the hand-over of Royal Nepal Airlines Corporation (RNAC) and Nepal Telecommunication
Corporation (NTC) to private operator, are among the major conditionalities for Nepal to
qualify for the Bank’s high-case loan scenario. CAS, which for the first time tied up
the Bank’s loan to performance said Nepal could get anything from zero to US$ 400
million depending upon the pace of economic reform.
DFID’s move has come at a time when Nepal is preparing to enter into
Poverty Reduction and Growth Facility (PRGF), the International Monetary Fund-sponsored
reform program. DFID’s possible withdrawal could send a wrong message at this
critical juncture to International Monetary Fund, says an official of a leading
multilateral donor agency in Kathmandu.
Privatization has remained a messy business since the then Nepali Congress
government initiated an ambitious reform program in 1992. During the last eight years, 16
PEs have been given off into private hands but not without controversy. And the remaining
over three dozen PEs continue to fare hopelessly in their business. According to a report
published by Ministry of Finance, the government has invested Rs 19.73 billion rupees in
shares of PEs and Rs 33.82 billion in loan to PEs till 1998.
Out of the investment in shares, the government has received returns of only
0.24 per cent. And the average returns for PEs on capital investment is just 0.55 per
cent, according to the report
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