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"Nepal must have clear framework of rules"

Sverre Nygaard, Senior Vice President, International Division of Statkraft, the Norwegian consortium that has invested in Nepal’s Khimti hydro-power project, was in Kathmandu with his country’s business delegation when Norwegian Foreign Minister came here recently in connection with his visit to some South Asian countries. During his stay here, the Norwegian FM declared open his country’s Embassy in Kathmandu. Nygaard talked to Madan Lamsal at the sidelines of a round-table that FNCCI organized with the Norwegian business delegation. Excerpts:

How has your perception about Nepal changed from this visit?

I think you have absolutely improved in many areas. You have developed very quickly over the time since I have been here last.

I was here two and a half years ago. I am the largest investor in the Khimti Project from Statcraft. And therefore I have been following it very closely from the beginning and I have been very pleased to come here two and a half years ago and seen the progress of the project then and I am here now in the year 2000 - the year we are going to complete it and start commercial operation.

What are the specific achievements so far?

Well, so far we have been studying the Khimti Project and developed that into, what we think, a model of hydropower project in Nepal. And for this reason I am very pleased to see that we are now coming close to the completion.

What specific program do you have for Nepal in future?

Well, the future for us now is the immediate future, and that is the next few months. We have to see to it that we get the line of electricity to the consumers. We are so concerned about getting it done that we are waiting for that to complete before we make any new moves.

How are you viewing Melamchi and other projects?

We have looked at Melanchi and we are waiting other decisions on that before we make a move. We have been studying other hydropower projects or ideas to speak of. But we haven’t come so far in this planning that we have any decision made yet.

How has been your experience on Khimti?

We got involved into it from the early 90’s in not only investment but also in terms of building and completing it. Because it is a rather large project in Nepal compared to what had developed before, so it took some time for us to realize that this was an interesting project. Because we at that time, did not have much knowledge about the Nepali business structure and investment framework. So we discussed it in the board and decided that we would go for it. And we were surprised to find that there were so many willing helpers in this country. But there were so many obstacles to counter. The accessibility to the site was not easy. We had to build some roads. We had to take the material and construction equipment upto the site. We had to take the bulldozer and actually cut them in pieces so that we could lift them in helicopters, and then build them up again before we could use them. We had gathered experience from mountains around the world. But we were surprised to find that there were a lot of difficulties related to this mountain we were in. We had to build concrete walls inside most of the tunnel, for example. In Norway we have very very hard granite, so we don’t need to do that. But we were so impressed with the people that helped us build it – the people that were transporting the goods to the site, the ones who were doing the works. So it has been a tremendous experience for us in a positive way.

What is the recent trend of Norwegian investment effort?

That is very difficult to answer. But for our company, we have invested outside of Norway close to a billion American dollars. Though most of that has been in out neighboring countries like Sweden, Denmark, Germany and Holland, we have also invested outside of Europe. In addition to Nepal, we are participating in a hydropower plant in Laos. And we have been studying other areas in Asia as well.

How do you find the investment environment in Nepal? Do you have any suggestion for improvement?

Well, that is a large question you have placed. The investment climate in Nepal is obviously dependent on many aspects. One thing that we feel is very important – and there has been some progress in that sense – is that there should be an open and transparent situation in relation to all aspects of business investments. There must be rules and regulations – in other words a framework to work within. And that should be very clear for everybody. Obviously there must also be predictability; you must know what is going to happen in the years to come. Otherwise a business decision will be highly uneconomical at times and not so interesting. So we believe that you have to come a long way towards these goals of business frameworks.

Business Built on Relationship

Though a leader in all the markets around Nepal, Pepsi is still trailing far behind its global rival Coke here in terms of the market share held. By adding a PET bottling line recently, Pepsi Cola Nepal Pvt. Ltd. – the bottler of Pepsi range of soft drinks
here – has indicated that after a decade of its presence in this market, Pepsi is now in a position to put a real challenge to Coke.

Installed at a cost of Rs. 100 million, the PET bottling line of Pepsi Nepal almost doubles its production capacity here. Now Pepsi range of products are available in 1.5 litre and 500 ml PET bottles in addition to the 300 ml glass bottles.

To inaugurate the new PET bottling line, PM Sinha, General Manager of Pepsi’s South Asia Business Unit, was in Kathmandu. On the sidelines of the inaugural ceremony, Sinha talked to Editor Madan Lamsal about Pepsi’s business in Nepal and South Asia. Excerpts:

Do you have any more expansion plans? Say for example, you have a factory here but not in the terai region.

Probably the next factory would be in the terai region. As soon as our capacity here gets utilized, we will have to put up another factory. But I don’t think that is on the plans for the next two years.

We have just put in 100 million rupees and let us see. If our volumes grow faster, then we have to accelerate our investment in either a new plant or expansion of the existing one.

Why is it that the management of Pepsi changes so frequently in Nepal?

The management has not changed. We’ve changed the ownership over Pepsi’s bottler that was started by Agrawal family. Thus one part of its share has been taken over by one of our franchise partner, Mr. Ravi Jaipuria. So it’s change of ownership more than of management.

Why is Pepsi far behind Coke in Nepal while it is ahead in the entire region?

Primarily because we have not provided enough support and concentration here. And I think now that we are ready, we are investing in additional plant and equipment and new packs. And I think we will have to concentrate more on marketing and distribution. Our distribution is not up to the mark.

Was it because you did not see potential market here?

No, we did see the potential in the market. But we did not have the quality of manpower and management, we were not able to get that together in the last three years. We have now managed to get that together. And we have found the right distributors and distribution system. And now we hope to get our act right.

Why is Coke considered to be more successful than Pepsi in cola business on the whole?

That’s not true. In cola business in India, we have a higher share than Thums-up and Coke put together. Thums-up is the number two brand and Coke is the number three brand. So I do not think that it is right to say that Coca-cola is bigger. In fact Coca-cola cannot feel very happy about being the number three brand.

Why have you not brought here the snacks that you have in other parts of the world?

The investment in snacks is very high and you need a much bigger market. At the moment I don’t think the Nepali market would justify the investment of that size. At some stage, if the market grows we will probably look at snacks as well. We are already beginning to send here our snacks from our production centers in India.

How did you find the trade and consumer behavior in Nepal in comparison to other markets?

Well the consumer behavior is no different from any part of the world. The consumer responds to good advertising, to promotion, and to the quality of the product. As far as the trade is concerned, it is tough. They are always demanding more and are always negotiating very hard, particularly if you are the number two player. And that we are. We have a tough time distributing.

How are you going to break this trade dominance?

Through our relationship. Our entire business is built on relationship. We have better quality people who will hopefully build better relations. Obviously we will have to invest in infrastructure which we are doing. And we think that overall, we now have the beginnings of putting our act together so that the retail trade will respond positively – which it has already begun to do. And as you see, for instance we have a juice, which our competitor does not have. That gets us entry into the market because people will keep it. So these are the ways by which we will establish better relations. After all, every time a shopkeeper sells a pack like this, he makes more money. So that is our business of giving him new products, new packs so that he makes more money. And therefore he will become my partner.

What innovation in marketing are you introducing here?

Like I said, the innovations are the packs – 1.5 l pets, 500 ml pets. We will be launching cans in a big way. We have slice, which is a juice variant, which is doing exceedingly well in Nepal. So we think we have a whole range of products to support our link with the consumer as well as with the trade.

What do you estimate the growth potential for Pepsi and soft drink businesses as a whole in Nepal?

You have a 14 ltr. per capita consumption here, Thailand has 102, US has 766. So you can see it from 14 to any level upward. I think that there is an enormous growth potential in our part of the world for the next 30 years.

You have recently increased your price and this is winter. Is this the right time?

It’s the escalation in costs. I think the last price increase in Nepal was three or four years back. And costs have gone up in everything. Diesel prices have gone up enormously and we have to bring all our raw materials, transport finished goods and we have to bring the empties back. So costs have gone up and we had to increase our price. We still don’t make money here.

How do you evaluate the capacity of Nepali managers since you have Indian nationals in most of the top positions?

Most of our prople are local Nepalis. All our sales managers are Nepalis. In fact some of our Nepali managers are now working in India as well, as plant managers and so on. We look at people on quality. I think the Nepali managers are good. They need training, and if they are motivated they perform as well as any other manager. They are as good as anyone in the world.