Cover - Feature

Performance of public enterprises is nose-diving at an alarming rate. So much so that several enterprises have closed down or are on the verge of closing. The operating profit of 39 public enterprises in fiscal year 1998/99 was Rs. 3026.2 million whereas the profit decreased sharply to Rs. 2397.1 million in the fiscal year 1999/2000. On the sectoral basis, industrial sector, social sector and financial sector are at loss while trading sector, service sector and public utilities are at some profit. The huge operating loss made by Rastriya Banijya Bank has turned the whole financial sector into loss.

Most public enterprises have very weak financial position and lack professional competence. Especially sector enterprises are bearing losses for many years. Major factors for such dismal performances are the low capacity utilization, poor competitive capacity, lack of professionalism, weak managerial capability, delay and untimely decision making, lack of risk taking capability to mention a few.

Other factor contributing to poor performance is the frequent change of management, political interferences that has further worsened the situation. Public enterprises have not shown any seriousness to even carry out day-to-day business. The account updating, final and internal auditing are rarely completed in time, which has given avenues for financial indiscipline and mismanagement.

The financial situation of public enterprises has been worsening day by day due to unbearable burden of liabilities created without reviewing its own position. Most public enterprise have not even booked their liabilities related to its employee such as leave, gratuity and other facilities and no provision has been made for disbursing such liabilities. Therefore, no clear financial picture and health of the public enterprise can be ascertained.

It is evident that public enterprises are not functioning in a business like manner, they are neither productive nor goal oriented. Hence, they are not able to deliver goods and services to the consumer as expected. However, they are wasting scarce nation resource and becoming a burden to the government and the treasury.

Analysts point out that there have been some contradictions in the government’s approach. "How can you talk of rehabilitating sick industries when the overall direction of the government has been guided by open and liberal economic policies?" ask Dr. Badri Prasad Shrestha, a senior economist. "The government should give emphasis on promoting competitiveness of the Nepalese industries and facilitating integration of our economy into the global one."

Similarly, the government has failed to identify problems related to implementation of the long-term Agriculture Perspective Plan and address them. The Agriculture Ministry lacks a full time minister for quite sometime now and there is serious lack of coordination between different ministries and departments, reports say.

Of course, there has been strong commitment on part of the government to implement the recommendations made by the Public Expenditure Review Commission (PERC). The government is planning to cut down the number of ‘unsustainable’ projects, scrap and integrate some offices at the regional and district level and cut down expenses on pension and gratuity, among others, officials said.

The most important task for the government, however, would be to improve deteriorating law and order in the country, contain Maoist insurgency and provide security to the industry and businesses. The future course of the country will depend very much on whether the government succeeds in these fronts. Of course, political instability and minimum consensus among the political parties will be equally crucial for the government to implement its own policy document.

Problems in the Management of Industrial Districts:

Managing the industrial districts is a tough job. Many industrial districts were established three decades ago. In the beginning, industrial districts were managed directly by the government or by Nepal Industrial Development Corporation. Later on, as the industrial districts grew in number and their activities expanded, the entire management of all industrial districts was formally handed over to the Industrial Service Center in 1975. Industrial Districts Management Limited was founded as a separate corporate entity in July 1988. It was entrusted with the overall management and supervision of the existing industrial districts. The industrial districts were managed by different organization at different periods.

Major Issues * Industrialists are indirectly forcing the privatization of industrial estates. * Unavailability of loans from financial institutions on the land and building of IDM * Disagreement on sharing of cost of repairs and maintenance of buildings, roads etc. * Selling of buildings to tenant. * Chances of labor being united. * Land occupancy * Sick or closed industries * Rent of land and buildings * Hiring of security persons. * Hesitation on the payment of service charges.

Problems * Some industrial districts are not running a profit. * More funds needed for repair and maintenance. * Shortage and loss of water distribution. * Demand for new and efficient services. * Trade liberalization policy of the Government. * Shortage of qualified manpower. * The relationship between management and industries.

Conclusion:

Looking through the aforesaid challenges and the poor state of the public enterprises, immediate and drastic reform measures cannot be ruled out. Management reform with the induction of professional, competent and experienced persons and a system of proper evaluation and monitoring of their performance is essential .The compliance of the prevailing rule and government directives must be emphasized so that administrative control and financial discipline could be maintained. Good working relation between the Public Enterprises and the concerned ministries must be established so as to achieve the goal of the enterprises.

Security Problems Scaring Away Foreign Investors: Acharya

Bhanu Prasad Acharya, Secretary, Ministry of Commerce, Industry and Supplies

BA: How do you evaluate the privatization process in recent years ? How many PEs have been yielding benefits to the national economy after they are privatized ? Do we have any example of PEs which have been closed down after the privatization ?

Acharya: Today the world is based on open and market oriented economy. It has been well proven that no country could survive under the control system as practiced during the 1950s and 1960s. Therefore, along with the change in the world economy, Nepal has also started to pursue progressively the policy of economic liberalization since 1980s. In the very context, privatization of the state owned industries and trading was initiated. Public corporations, which could be run more efficiently by the private sector, are being privatized. Seventeen such industrial, commercial businesses have been already privatized till this day. Out of these, all the industries or trading units are in operation except the Tobacco Development Board and Jute Development Board. Privatization cannot bring positive results to the national economy overnight. But we can be very much hopeful of the positive contribution to the national economy in the long-term through privatization if the sense of ownership is applied among employees. I do not think that there is any examples of closure of any unit because of privatization.

BA: The economy is passing through difficult times. In such a situation, how PEs are surviving and what amount they are gobbling up from national coffer monthly ?

Acharya: The economy of the country has been affected the most due to obstacles created in recent times. It is but natural that the public corporations are also being affected. Many corporations have been attacked. Physical infrastructures of many corporations have been destroyed. Industries have been closed due to problems in the supply of raw materials. Sales have also been affected adversely due to slackness seen in the economy. In this situation, most of the corporations, except a few, are passing through difficult period. Some corporations also have their internal problems. The government is trying its best to ameliorate the situation with the available resources and means. Let us hope this situation will be over soon.

BA: Investors are flying away due to deteriorating investment climate and worsening security situation in the country. How you are taking this ?

Acharya: In fact, the reason for the slackness in the foreign investment is not due to investment policy but it is due to the security problems in the country. However, there is no need to be hopeless. In the fiscal year 2058/59, fifty industries have been registered under foreign investment and technology transfer. Had the situation been as stated in the question, this figure should have been zero. Therefore, the situation is not so bleak. But the flow of foreign investment has been less compared to the expectation.

BA: How do you term the recently renewed protocol of Nepal-India Trade Treaty in New Delhi ? Does it really help Nepalese business sector to grow further with the new provisions inserted in the treaty ?

Acharya: In the recently concluded trade treaty, products manufactured in Nepal using Nepalese and/or Indian raw materials could enjoy the Indian market without any custom duty or any quantity restriction. Products manufactured using the raw materials imported from third country can be exported to India without any custom duty or quantity restriction in India. But for such product, a minimum value addition is required. The custom codes for the imported raw material and the finished products must also be different. Regarding certain goods namely the acrylic yarn, copper products, vegetable ghee and zinc oxide, annual quota has been fixed. The provision of value addition in the Trade Treaty has ensured the promotion of manufacturing industries and hence will have positive impact in the internal as well as export trade of the country. If the domestic industry of the importing country suffers due to the import, a provision of joint commission has been made to seek for the remedial measures. In case of any problem that could not be solved by the joint commission, the requesting country could take the appropriate remedial measures. This provision will control the closure of industries due to undesired competition. This will protect the domestic industries and this will have positive impact on the production as well as trade.

BA: The government is working on bringing new industrial policy soon. When it will be publicized ? Will new industrial policy help to revive slacking business sector to sustain economy in the long run ?

Acharya: The government is reviewing the industrial policy and formulating new industrial policy. For this, a task force has been set up and the task force has already conducted discussion, seminars and interaction programmes with industrialists, business professionals, and experts in the various parts of the country. A draft of the new industrial policy has been prepared after incorporating the comments and suggestions from these programmes. This draft is being circulated to various persons and organizations for comments. This will be finalized after getting the comment. It will take some more time. I believe this policy will support sustainable industrial development in the country in the days ahead.

BA: We have heard that the export of some commodities after the renewal of the trade treaty with India has been stopped. What is the solution of this problem ? Does HMG has worked out anything to resolve this problem and thinking new provisions with Indian government to get such items exported into India?

Acharya: It is not true that the export from Nepal to India has stopped after the Nepal India Treaty. Until 16 April 2002, the export to India is being continued under the earlier provisions. The provisions of the new treaty will be effective from 16 April 2002 and all required formalities are being completed to this effect. There will be no problem in the export of goods to India.

BA: The private sector is suffering from bad business and investment environment. Is the government working out any policies to encourage them ?

Acharya: The suffering of the private sector in business undertaking is well realized by the government. However, the associated problems are not within the purview of the government alone. The exogenous and indigenous, both the factors have an influence on them. However, the government is doing its best to mitigate the hardships being faced by the private sector people. With a view to give the industrialization process a direction, the Industrial Perspective Plan in the final stage of its preparation. Likewise, Industrial Policy is in the process of review to prepare our industries to move towards this direction with competitive strength. With this we will design an attractive incentive package to industries having high domestic value addition and attract the investment to those areas, where we have comparative advantage. In addition, the government is working on the measures to support the export-oriented industries. The measures to provide the internal market to domestic industries are also in the agenda of priority of the Government. The forthcoming fiscal policy is also expected to bring relief to the hard hit industries and the export sector. In nutshell, the government is very keen and concerned to improve the industrial and businesses environment of the country and is working in different front in this regard.

BA: Business sector is complaining that industries are getting closed down day by day at an alarming rate. What is government doing in this regard ?

Acharya: To ameliorate the grim industrial and business situation, the government has announced the sick industries rehabilitation package recently to address the problems of sick industries in particular. With a view to prevent the industries form further fall-back, the government is working closely with the private sector associations to bring about the suitable measures and boost the private sector up.

Performance Analysis of Public Enterprises

On the basis of the data available from the concerned enterprises, the information for fiscal year 1999/2000 are real figures, those for fiscal year 2000/2001 are revised estimates and for fiscal year 2001/2002 are targets. Out of total 43 public enterprises, data for Hetauda Textile industry, Nepal Transport Corporation, Rastriya Beema Sansthan and Bhaktapur Brick Factory were not available. In these remaining 39 public enterprises, His Majesty’s Government has invested Rs. 17,943.4 million so far. Where as these enterprises have contributed only Rs.357.8 million to the government treasury as dividend in fiscal year 1999/2000 which is only 1.99 percent of the share investment.

The financial position of enterprises under different sector is as follows:

1 Industrial Sector : This sector has 12 public enterprises. Public Enterprise in this sector have received Rs.2, 109.9 million as share capital and Rs. 10,000.9 million as loan capital from HMG until fiscal year 1999/2000. Not a single enterprise provided any dividend to the government in this fiscal year. Excluding Janakpur Cigarette Factory and Nepal Rosin and Turpentine Ltd, all other enterprises are at operating loss. Royal Drugs Limited, which earned a profit in previous year, incurred a loss in fiscal year 1999/2000 and is estimated that it will continue to loose money in current fiscal year too. The same is the position of Hetauda Cement Industry Ltd. It incurred a loss in fiscal year 1999/2000 reversing its position as compared to the previous year. In the fiscal year 1999/2000 reversing its position as compared to the previous year. In the fiscal year 1999/2000, the total operating loss of this sector was Rs.409.0 million that is 8.4 percent of the total capital employed. It is estimated that such ratio would increase to 8.9 percent for current fiscal year. Since, Hetauda Textile has been closed, no data are available.

2 Trading Sector : There are six enterprises in this sector . This sector has slightly improved its situation by registering operating profit of Rs. 689.4 million in fiscal year 1999/2000 as compared to Rs 265.2 million the year before. It is a positive development as the operating profit is 72.4 percent of the total capital employed. The major contributors for this profit are Nepal Oil and National Trading Limited. Nevertheless, the position of other remaining four enterprises is miserable. Moreover, the position of the Trading sector as a whole would turn into red in the current fiscal year because Nepal Oil Corporation is likely to incur a loss of more than Rs.1, 219.7 million in this fiscal year. Therefore, the whole sector will incur loss in this fiscal year 1999/2000, which is 72.4 percent of the net capital employed.

3 Service Sector: Altogether six enterprises are included in this sector. The data from Nepal Transport Corporation was not available and since Agricultural Project Service Center is under liquidation no information for these enterprises could be found included. In fiscal year 1999/2000, all enterprises of this sector except industrial District Management Ltd. have earned operating profit, the amount totaling to Rs.26.9 million However, as per estimation, these enterprises would face a tough time in current fiscal year because of the deteriorating situation of Royal Nepal Airlines Corporation whose operation, which is a recurrent loss maker for quit a few years, were added to it. The share investment in this sector is Rs.381.8 million and the dividend received for fiscal year 1999/2000 is Rs. 0.6 million which is only 0.16 percent of the share investment.

4 Social Sector : A total of five enterprises are operating in this sector .In fiscal year 1999/2000 three enterprises leaving Gorkhapatra Sansthan and Janak Education sector into red . Estimates for the current fiscal year reveal further disappointing situation. As a return from HMG’s investment of Rs. 704.9 million as equity in this sector, only Gorkhapatra Sansthan has distributed Rs. 0.6 million as dividend in fiscal year 1999/2000. The operating loss of Cultural Corporation and Gorkhapatra Sansthan would likely to increase further in current fiscal year as compared to the previous fiscal year Whereas, Janak Education Materials Center Ltd. would incur an estimate loss of Rs.24.7 million in current fiscal year reverting its position of registering an operating profit of Rs. 6.2 million in the fiscal year 1999/2000. Hence, the financial efficiency of social sector enterprises seems worsening every year.

5 Public Utilities: Three enterprises consist in this sector. Except Nepal Drinking Water Corporation, other two enterprises-Nepal Telecommunication Corporation and Nepal Electricity Authority – are operating at profit. Nepal Drinking Water Corporation has incurred a operating loss of Rs. 80.8 million in fiscal year 1999/2000 as compared to Rs 4.1 million in the previous year. In current year fiscal the loss is estimated to reach in the tune of Rs. 140.4 million. Nepal Electricity Authority has increased its operating profit from Rs.360.8 million in fiscal year 1998/1999 to Rs.1146.9 million in fiscal year 1999/2000. Obviously, this profit is an increase from 0.7 percent to 2.0 percent of net capital employed. Nepal Telecommunication Corporation has earned an operating profit of Rs. 2,344.0 million in fiscal year 1999/2000 which is 17.9 percent of net capital employed as compared to 16.1 in the previous year. The sectoral performance of this shows positive by increasing the profit to net capital employed ratio of 3.8 percent and 4.7 percent for fiscal years 1999/2000 respectively.

6. Financial Sector: Of the total eight public enterprises operating in this sector, Rastriya Beema Sansthan did not provide any information , Due to the operating loss made by Rastriya Banijya Bank , which is Rs.1220.1 million, the whole sector’s performance has become negative in fiscal year 1999/2000 .Nepal Industrial Development Corporation and Deposit Insurance and Credit Guarantee Corporation have also incurred losses. The total operating loss this sector in fiscal year 1999/2000 has been Rs. 1,288.3 million, which is 43.6 percent of the net capital employed in this sector.

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NATIONAL PRIORITY INDUSTRIES
(AS PER INDUSTRIAL ENTERPRISES ACT, 1992)

1. Modern Sugar and Khandsari Mills.

2. Modern Oil Mills Processing Local Oilseeds.

3. Integrated Dairy (Including Animal Husbandry) Industry.

4. Fruit and Vegetable Seed Production Industry.

5. Tea and Coffee Farming and Processing Industry.

6. Fruit Processing Industry.

7. Herbs Farming and Processing Industry.

8. Baby Food and hygenic Food Producing Industry.

9. Cotton, Woollen and Silk Yarn Industry and Textile Industry based thereon.

10. Leather Processing and Leather Goods Producing Industry.

11. Commercial and Professional Tools and Equipment Industry.

12. Slate Stone and Concrete Blocks Producing Industry.

13. Paper Industry (Writing, Printing and Newsprints).

14. Educational Materials and stationery Industry.

15. Pharmaceutical Industry.

16. Medical Equipment and Tools Industry.

17. Engineering Industry (Including Agricultural and Industrial Tools and Equipment Producing).

18. Pesticides Industry.

19. Chemical Fertilizer, (Excluding Blending and Mixing) Producing Industry.

20. Industry Manufacturing Fuel saving Devices.

21. Industry Manufacturing Pollution Control Devices.

22. Solid Waste or Waste Product Processing Industry.

23. Hydropower generation and Distribution.

24. Hotel, Resort.

25. Road, Bridge, Tunnel, Ropeway, Flying Bridge, Railway, Trolley Bus, and Office and Residential Complex etc.

26. Mineral-Based Industry.

27. Caustic Soda, Chlorin, Aluminium Smelter etc. industry which utilizes electricity as its main component.

28. Hospital, Software Industry.

29. Computer, Nursing Home.

30. Export-Oriented Agro-Based Industry.

31. Precision Goods.

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Highlights of the Govt’s Policy and Programs:

— Poverty alleviation will be given top priority on the basis of mid-term review of the Ninth Five Year plan.

— Recommendations of the Public Expenditure Review Commission (PERC) will be gradually implemented.

— Foreign aid will be utilized in an effective way.

— Banks and financial institutions will be strengthened; their restructuring and reforms programs will be continued.

— The use of goods manufactured within the country will be encouraged.

— Special program will be implemented to rehabilitate the sick industries.

— Industries will be provided with adequate security.

— Implementation of Agriculture Perspective Plan will be made effective.

— Special program will be introduced for the promotion of tourism.

— Foreign employment program will be expanded.

— Development of Information Technology will be given priority.