Privatization Niti

Chanakya

If at all there is some learning for us from the events of Argentina during the last couple of weeks, it seems it is now time for Nepal to pursue a reform program that has an agenda of its own, not merely being driven by funding agencies. An issue back I had discussed on this page the perils of liberalization and Nepal’s perspective. And what has emerged in Argentina was a vivid picture of the damage that emerges from an unplanned pursuance of liberalization policy.

As one of the key issues under reforms has been privatization which is being propagated so vigorously. The situation in the mid-nineties was such that all the countries that did not pursue privatisation were regarded as medieval. In the last years of the decade however, the world witnessed the great fall of Asian tigers and realised what a mess privatised corporations can be if in wrong hands. There are definitely many more lessons to learn.

This of course does not mean that Nepal will have to live up with the inefficiencies of bleeding State Owned Enterprises (SOEs) and taxpayers financing the squandering in SOEs. What it entails in fact is that one needs to focus on privatization more with a macro perspective of the economy rather than looking at it only as a means for getting rid of a loss making corporation just because some consultants advised to do so.

For privatization to succeed, a mere transformation of the ownership from the state to the private sector is not sufficient, the attention has to go much beyond that. The issues that need to be addressed range from the selection process of the enterprise to their monitoring after they have changed hands. Unfortunately, Nepal’s track record in this count has been a dismal one. The repeated tendering for Butwal Power Company Ltd. has made a mockery of what has been used worldwide as an important tool of reform.

Nepal needs a privatization niti that suits itself, not one that is a mere replication of some success stories in some other country. This niti should encompass a cross-section of issues derived from the learning in various countries.

One needs to realize that the private sector in Nepal is not mature enough, therefore, one of the primary requirements for privatization is not in place as yet. Therefore, it is important to focus on the issues of regulation of privatised enterprises very similar to the process of privatization itself. Privatization may be best achieved without radical changes in the shareholding structure, i.e complete government divestment may not be that important condition. The issue of management contracts needs to be delved upon more seriously. In terms of the process, it is to be borne in mind that the privatization process itself has to be different from the functioning process of SOEs. There has to be accountability and deadlines for the privatization agency to meet. If not even a single corporation is privatized in four years, some heads have to roll.

This does not mean putting the blame squarely on the government. Nepali government has limited knowledge of processes and therefore it heavily depends on a lot of external expertise to undertake such complicated tasks as privatisation. But there must be both moral as well as contractual obligations of such advisers.

The reality is that SOEs are eating away money meant for education and health in a country where poverty has always been a challenge. For the limited resources to be used effectively, government should get away from living with inefficiencies of SOEs, be it through any means of privatization. However, the pursuance of this initiative has to be planned, or else you need not have to visit a soothsayer to know what is going to happen in the near future.