National 6 (Spotlight Weekly)

Privatization Panacea?

Fresh proposals to rescue the national flag carrier spark a new wave of controversy

By KESHAB POUDEL

RNAC aircraft : Waiting to take-off

Is privatization the answer to Nepal's ailing public enterprises? Not really, if experience is any guide. Over the last decade, privatization in Nepal has meant the dismantling of public entities by selling them at throwaway prices. From Bansbari Leather and Shoe Factory to Harrisidhi Brick Factory to Bhrikuti Paper and Pulps Mills, all most all privatized state enterprises are on the verge of collapse.

What, then, prompted the government to propose the privatization of the Royal Nepal Airlines Corporation (RNAC), which has a central role to play in a land-locked country? Since Nepal does not have direct access to the sea, the national flag carrier would be the only link with the outside world in case the country is locked in dispute with its neighbours. Moreover, India, which is privatizing almost all other public-sector undertakings, has decided to keep the national flag carrier under its control with disinvestment in the market.

"Monitoring Privatized Enterprises", a report brought out in 1999, shows that out of 16 privatized enterprises, three have been closed. The performance of another half a dozen enterprises has been dismal. Disregarding this reality and undermining the importance of RNAC in the national context, the Ministry of Culture, Tourism and Civil Aviation has proposed two options to rescue the national flag carrier from a deepening financial crisis.

RNAC is not like a leather, brick or paper factory. The carrier serves as a vital lifeline for land-locked Nepal. "The country must retain the airline under its control," says a tourism analyst. "In the past, too, the management of RNAC was handed over to Air France. The government can still hand over management to the other parties."

Unfortunately, Minister of Culture, Tourism and Civil Aviation Bal Bahadur KC seems to have concluded that the current problems of the national flag carrier can be solved once it is privatized. "We don't have many choices. Either we can completely privatize it or divide it into domestic and international wings," said KC. "At a time when the government is unable provide guarantee for the purchase of new aircraft, the airline does not have any other option."

With the restoration of democracy in 1990, Nepal's public-sector enterprises have witnessed rampant political interference in day-to-day affairs. Many profit-making public-sector enterprises sudden collapsed and closed down. More than a dozen chairmen have been appointed to head the RNAC board.

In the last nine months, the airline has seen two general managers. How can politicians, who are responsible for RNAC's sorry plight, see better prospects under private management? The record of the private airlines is not satisfactory and many are on the verge of declaring bankruptcy.

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Others see matters differently. They maintain that there is no alternative to selling shares to the private sector or going for all-out privatization. "RNAC requires huge investments. Who will come to invest such money?" asked a member of the committee on condition of anonymity. When the government cannot stand as a guarantor and is in no position to invest more money, the airline has very limited choices.

In case RNAC is privatized or split, the people will return to situation of the early 1970s when they had to walk for days to reach their destinations. "If we start determining the fate of institutions like RNAC, one can question the utility of many organizations, including the cabinet," said a political analyst. "Even if the government is determined to sell RNAC, it must invest some money and make it more lucrative to prospective buyers."

Under the first proposal, according to a document, the domestic company will be operated with the sole investment of the government and the international company will be formed with public-private partnership. Under the second proposal, the government will retain majority shares and the remainder would be distributed to strategic partners like airlines, tourism entrepreneurs and RNAC staff.

Except in western countries, governments still control the national flag carrier. A country like Nepal, whose economy is based on tourism, needs a reliable and strong airline under the government control. Only the national flag carrier can support the tourism sector at times of crisis.

When many international airlines are deciding against operating flights to Nepal, RNAC has helped to maintain tourist flows. In 1999, when Indian Airlines suspended flights to Kathmandu following the hijacking of its aircraft, RNAC supported tourism linked to that sector.

RNAC : Preparing for change ?

The fresh proposals came following RNAC's demand for Rs.2 billion to pay its liabilities. Although the government is yet to take a decision on the two options proposed by a high-level task force led by National Planning Commission member Dr. Shanker Sharma, RNAC is already mired in uncertainty. The two employee unions of the airline have opposed the government's privatization moves, but their voice will have minimal effect on the final decision.

At a time when tourist arrivals are plummeting, revival of the industry would be determined by, among other things, the reduction of ticket prices. Nobody can understand the rationale behind destabilizing the airline at this juncture. As long as politics continues to interfere in the day-to-day activities of the airline, splitting it into two will hardly produce any different results.

Under pressure from political leaders, the parliamentary Public Accounts Committee (PAC) and the Commission for Investigation of Abuse of Authority (CIAA), the country's only flag carrier has been pushed to the brink of bankruptcy. In the last 12 years, the airline has seen more than 12 general managers and five dozen board members. Every time they initiated aircraft deals, they have been summoned by the CIAA and PAC. Some senior officials have been jailed.

Privatization will kill the carrier, which is still flying to New Delhi, Bangalore, Mumbai, Dubai, Hong Kong, Bangkok, Shanghai and Osaka. The government can make it profitable not by selling it but by leaving it to an efficient management.