National 4 (Spotlight Weekly)

'Nepal's Privatization Process Is Accountable And Transparent'

— Dr. RAM SHARAN MAHAT

Former finance minister and Nepali Congress leader Dr. RAM SHARAN MAHAT is a well-known economist-cum-politician. Known as the principal architect of economic reform program of the 1990s and the policy of privatization in Nepal, Dr. Mahat is one of the few experts who continue to see the benefits of privatization. As a central committee member of the Nepali Congress party, Dr. Mahat is still pleading the cause of privatization. He spoke to KESHAB POUDEL at his residence on Friday. Excerpts:

Privatization is a popular scheme in different parts of the world. Why it is controversial and unpopular in Nepal?

Actually, privatization is not controversial, but it has been made controversial, especially by those who either know nothing about it or those who are opposed to privatization on ideological ground. This also reflects the general atmosphere of negativism and cynicism in our society. The criticism comes from a group of intelligentsia who have no clue of what is happening in our public enterprises and those who are not familiar with how privatization takes place. People feel that the public enterprises, which were sold, were precious national assets and they were doing a great public service, which is not true. They were the burden on the tax-payers and living monuments of mismanagement and inefficiency. The process of privatization in Nepal is long and cumbersome which is not only accountable but also transparent. People think enterprises are sold out. to whoever the government wants at whatever the price. In fact, it is not so. Privatization is done in a very transparent manner and with the due process of law. There are others who are opposed in principle to the concept of privatization. Such people believe in state control over economic activities. I don't have anything to say about them. My only humble request is let the critics understand the situation very well and then and make judgment..

Don't you think there is anything wrong?

There is nothing wrong in the process. It is done within the due process of law. Improvements are always possible which of course have been made based on experience. There is scope for further improvements.

Why are public enterprises unable to make profits? Do you see any specific reason behind such huge losses?

Partly, public-sector enterprises are in general commercial undertakings and they should be run on commercial and business principles. There are management practices and theories, which must be followed. In Nepal, they are run like government offices. In fact, the way the public enterprises are run in Nepal is worse than public offices. There is mismanagement and excessive trade unionism. There is excessive staffing by several times. There is too much of interference from the ministers and bureaucrats and mismanagement. Efficiency and public management normally do not go together. This is more so in Nepal.

It is widely said that in the first phase of privatization, enterprises were sold out to families. How do you look at this criticism?

That is totally wrong. In fact, our privatization exercise has seen all models, viz management contract, public sale, sale to employees through stock options etc. Big houses have also won the bids. If these Public Sector Enterprises (PSEs) were not sold at that time, the burden on the country's exchequer would have been very huge. I am happy that they were privatized in time. If they had not been privatized a t that time the cumulative losses of these enterprises and liability of the employees would have further increased adding huge burden on the treasury. In the initial phase, the government made money by selling PSEs, but now the government has to incur huge losses even in privatization. There are huge liabilities incurred by many PSEs, which are candidates for divesture. People do not know that many PSEs do not earn revenue even to pay the salaries of their employees. Ultimately, the treasury will have to bear the burden.

Despite your claim, the first privatized PSEs are facing difficulty, and some of them are on the verge of closing down. Is this not failure?

This is an answer to those who said that PSEs were sold out rather cheaply. If they are not commanding good prices in the stock market, and the people who bought shares are disappointed, that means the privatized PSEs were not sold out cheaply. Even if they are making losses, due to bad management, the taxpayers do have not have to bear the burden. Previously, the taxpayers had to bear the burden. Now it is not the government but the private shareholders who have to bear the loss. Bhrikuti Papers and Pulps Industry increased the capacity by 10 times. Unfortunately, the international market situation did not help the paper industry. Harisiddhi Brick and Tiles and Factory also increased its capacity. But they had to compete with too many brick factories. There may be bad management also, which I do not know. Whether it is making loss or profit, it is not the concern of the taxpayers but that of the shareholders.

Privatization benefits some families who have been handed over the property of the state. How do you look at this criticism?

This is again nonsense. When there was government control, there was single ownership and they were making losses and all taxpayers were suffering. Now they are owned by thousands of shareholders, not just one family or two families. They are sold out to the public. If it benefits, it will benefit all shareholders. It is not a question of family ownership. People also forget the fact that the so called state property are not real assets but net liabilities to the government in view of the unpaid bills, non-serviced loans and unpaid salaries and other benefits of the employees.

It is also said that there was virtually no competition in the bidding process?

On the issue of competition, it has been the government policy not to sell the monopoly enterprises to the private hand. Monopoly in private hands will be much worse than in government hands. So only those PSEs, which work in a competitive market, are sold out. No PSEs with monopoly market have been privatized so far. When PSEs are offered for privatization, it is through open public tender. There are cases when we had only one or two bidders. In such cases bids were invited for the second and even third time to ensure better competition. The number of bidders is ultimately governed by the size of the capital market and the quality and future profitability of the enterprise concerned.

Studies and reports prepared by various organizations have revealed a lack of transparency. How do you see it?

There is total transparency in the privatization process. This criticism is baseless. I don't think anyone can really say that. You talked about BPC. In the case of Butwal Power Company, we issued the tender twice to ensure better competition. What does transparency really mean? We gave 60 days' public notice. We have a privatization committee comprising representatives from various ministries, members of parliament and representatives from the opposition party. There is representation from the Federation of Nepalese Chambers of Commerce and Industry. The privatization committee is a very representative body. There is a separate committee for evaluation of property. There is a committee to recommend and finally it is submitted to the cabinet. Even the parliamentary committees intervene. Many questions are raised in the committee. I don't think anywhere in the Third World has the process of privatization been as elaborate and transparent as in Nepal. That is the reason why privatization is so slow. I wish the process had been much quicker and simple as Kuber Sharma is proposing for RNAC . He says he is ready to handover the corporation to whoever comes up with a particular sum of money. I wish that could be true. Our process of law is too long and cumbersome, which was designed to make it transparent.

What do you suggest now?

The process of privatization must be simplified and it should not be as lengthy as it is now because the market situation changes. The mood of investors and capital market changes. If you prolong the process, the people will not be interested. After all, you need good investors in the process of privatization and investors' money. There must be quick decision process. But we are a democratic society and we have to satisfy all concerns and doubts involved in the process, which is bound to be long and cumbersome. Then it is not business like.