FEATURES NEWS THE RISING NEPAL (DAILY)

Privatisation Of Public Enterprises
Need To Bring It Back On Track

By Uttam Maharjan

THE concept of public enterprises (PEs) emerged after the Great Depression of the 1930s, when it was felt that such PEs were necessary to meet the growing needs of the consumers. In fact, the private sector had not developed fully at that time and so government management and ownership of enterprises was the only option left.

The situation took a dramatic turn in the early 1980s when the world economy underwent a sea change, and open market economy and liberalisation came to the fore. The winds of such a change also influenced Nepal. And since the re-advent of the multi-party democracy in Nepal in 1990, privatisation has been given prominence as part of the economic liberalisation.

The role of the government has changed now. It should not directly involve itself in commercial transactions; rather, it should act as a facilitator. However, it behoves the government to engage itself in social and public welfare activities. This new notion has now ensconced itself in the minds of both the government and private sectors.

To give a boost to privatisation, the government established a privatisation unit under the Ministry of Finance and formulated privatisation policy after the restoration of democracy in the country. Similarly, the Privatisation Act was enforced in 2050 BS so as to reinvigorate the privatisation process. As a result, 16 PEs, have, so far, been privatised.

Soon after being privatised, some companies recorded improvements in investment, production, sales, technical aspects and so on.

The purpose of privatisation is to reduce government expenses and help develop the private sector, with the government assuming the role of coordinator and facilitator. But the privatised companies have not been able to give benefits to the general public. Worse still, some have even been closed down.

The markets of our country are small and limited. The capital market has not developed to the desired extent. Similarly, lack of transparent policy on privatisation, lack of accountability, rampant corruption, financial irregularities and the like are a major setback for the initiation of the process of privatisation.

In a similar vein, bureaucratic red tape and procrastination in decision-making would hamper the process of privatisation. Furthermore, there is no clear-cut agency responsible for effecting privatisation. To expedite privatisation, decision-making should be confined to a single agency, the responsibilities of the parties having a role to play in privatisation clearly defined and a timeframe fixed for the completion of the process.

It does not seem to be fair on the part of the government to wash its hands off the privatised companies. The government should regularly monitor the performance of such companies, giving them guidelines whenever needed. In fact, it is the responsibilities of the government to act as coordinator, facilitator and supervisor of business companies and industries so as to encourage commercial and industrial development in the country.

Although the current Ninth Plan has a target of privatising 30 PEs, the pace of privatisation has been dead slow. However, the current budget has given continuity to privatisation of those companies that do not require government involved and that may attract private sector investment. To encourage private sector investment, an investment-friendly environment is a must. Economic stability, development of markets, including the capital market, security of investment and satisfactory law and order are some of the pre-requisites for attracting investment, both local and foreign. The government has a pivotal role to play in this regard.

Privatisation may be an effective tool for accelerating industrial development if judiciously carried out. So a competent analysis and evaluation of the performance of a PE to be privatised is required to make it viable after being privatised.

Not all PEs need to be privatisation; only those that can be better handled by the private sector should be privatised. Therefore, it would be prudent to stop subsidising loss- incurring companies that may foster better in the hands of the private sector. On the other hand, the companies working in the interests of the public should be retained by the government itself.

The government should show a strong commitment to privatisation by reforming the procedures, and rules and regulations. In fact, the process of privatisation should be simplified and made transparent. What is more, the government should try to attract foreign investment to the private sector.

There is no doubt that the various PEs scattered all over the country should be overhauled. And those that are fit for privatisation should be done so without any delay and the sick companies reformed and rehabilitated so as to gear them up for privatisation.

The performance of the existing PEs in the country leaves a lot to be desired. In a sense, such PEs have changed into white elephants for the government due to their inability to keep abreast with the changing times. Moreover, political interference, raising corruption and lack of strategic vision have crippled the PEs.

The financial condition of most of the PEs is found to be unsound due to under-utilisation of their capacity, inability of their products to compete with similar products in the competitive markets, lack of commercialisation, poor management and accounting systems, increasing liabilities, antiquated rules and regulations and so on. The loss-incurring companies are losing each year and the profit of the profit-making companies too is declining over the years. In fact, the PEs have become a financial burden on the government.

The privatisation of the PEs burdensome to the government will also make it possible to divert funds to the social sector for the benefit of the general public. Therefore, the time has come to gradually privatise the PEs by properly studying their performance and their contributions to society in a manner to give momentum to the overall economic development of the country.

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