Attracting Foreign Direct Investment in Nepal

The countries of Latin America, South-East Asia and Africa were initially reluctant toward foreign investment and consequently pursued a policy of import substitution until the 1970s. However, after the introduction of structural adjustment programs, many countries opened up their economies. The countries of Eastern Europe and the former Soviet Union have also liberalized their economies during the process of transition from state-controlled economies to market economies during the 1980s and 1990s. Many low income countries of the world have formulated policies to adopt Foreign Direct Investment (FDI) in order to increase economic growth and human development. Nepal also took some measures to allow FDI in the country for economic growth, such as formulating the appropriate policy and act in 1992. Nepal is in dire need of both market seeking and non-market seeking FDI because there lies a huge market for both kinds of FDI. However, the data taken from Department of Industry (DOI) shows that the flow of FDI in Nepal is not so impressive because only $95 million was attracted in the period of 21 years.

There are several factors that contribute to attracting such low volume of foreign investment in Nepal. Political and policy level instability is considered one of the main reasons because it is the pre-requisite for bringing any sort of investment. There are various bureaucratic hassles that discourage potential investors to start their business ventures in Nepal. It is even very difficult to register a company and get business visa. In addition to this, getting approval for FDI is also lengthy and cumbersome. That is why most of the Non-Resident Nepalese (NRN) bring money in the form of hundi and make investment in their projects. Although, it is illegal, they are compelled to do so to do business in Nepal. Brining money through these channels does not reflect the true financial position of a country. Besides this, financial institutions loose a large amount of money that can be earned in the form of service and other fees.

The recently introduced minimum threshold for FDI creates a hurdle for bringing such investment as investors want to start a small business in the beginning and if it works, then scale it up. Foreign investors have a hard time getting information as well because they cannot get comprehensive information from a single authority. The different officials of various ministries interpret policies and acts in different ways, either because they are unaware of the exact policies or so that they can find avenues for petty corruption. In addition, the process is very time consuming. Foreign investors have been known to lose patience during the approval process and have diverted their investment elsewhere even after getting approval. During the repatriation of profit, investors face similar administrative hassles and bureaucratic delays.

If the concerned authorities create an automated system wherever possible, the problem of delays and corruption will be resolved to some extent. It could accelerate rate of approval of FDI and also aid in repatriation of profits, consequently attracting further investment in future.

(This article was originally published on 30th May, 2013). 

ऊर्जा मीश्रण नीतिः आजको आवश्यकता

ऊर्जा अभावमा कुनै पनि देशको अर्थतन्त्र सबल हुन सक्दैन किनकी यो आजको आधुनिक समाजको आधारभूत तत्व हो । औद्योगिक, कृषि र अन्य व्यवसायिक गतिविधि सुचारु रुपले संचालन गर्नको लागि पनि ऊर्जा नभई हुदैन । नेपालले हाल हरेक दिन लामो समयाअवधिको लागि विद्युत अभावको समस्या झेलिरहेको छ । यसो हुनाको मूख्य कारण नदिमा पानीको वहाव कम भइ पर्याप्त मात्रामा विद्युुत उत्पादन नहुनु र अन्य ऊर्जाका वैकल्पिक स्रोतहरु जस्तै सौर्य, बायोमास, वायु आदिबाट पर्याप्त मात्रामा विद्युत आपूर्ति हुन नसक्नु नै हो ।

नेपालमा जलविद्युतको ठूलो सम्भावना भए तापनि कुल ऊर्जा उपभोगमा यस क्षेत्रले जम्मा २.३७ प्रतिशत मात्र योगदान रहेको छ । नेपालको हालको ऊर्जा उपभोगमा परम्परागत स्रोतहरु जस्तैः दाउरा, कृषि तथा पशु उपज आदि स्रोतहरुको सबैभन्दा ठूलो देन छ, तर यसको चर्चा भने असाध्यै न्यून छ किनभने यसको प्रयोग गैर औद्योगिक क्षेत्रमा भइरहेको छ । यथार्थ यस्तो हुँदा–हुँदै पनि नेपालमा बनेका अधिकांश नीति, नियम र नियमावलीहरु जलविद्युत विकासमा मात्र केन्दि«त छन । त्यसैले पर्याप्त सम्भावना भएर पनि सौर्य, बायोमास, वायु आदिको विकास हुन सकिरहेको छैन । यसका अलावा विद्युत उत्पादनको लागि एउटै मात्र स्रोतमा बढी आश्रित हुनु ऊर्जा सुरक्षाको दृष्टिकोणबाट पनि हितकर होइन । नेपालको कुनै एक ठूलो जलविद्युतगृह मर्मत संहारको लागि वा अन्य कुनै कारणले गर्दा बन्द भयो भने देशभरि नै ऊर्जाको ठूलो अभाव हुन्छ । ब्राजील र तान्जानियमा पनि खडेरीको कारणले जलविद्युतगृह संचालन गर्न नसकेको हुदा दुई वर्ष विद्युतको समस्या आएको थियो । त्यसपछि ब्राजीलले कुल विद्युत उत्पादनमा जलविद्युतको अंश घटाएर ८० प्रतिशतमा सिमित राखेको छ । त्यसैले नेपालले पनि सौर्य, बायोमास, वायु जस्ता स्रोतहरुबाट कुल विद्युत उत्पादनको २० प्रतिशत आपूर्ति गर्न सकियो भने घरायसी प्रयोजनका लागि यसलाई प्रयोग गरी जलविद्युतबाट निस्कने विद्युतलाई उद्योग धन्धा संचालन गर्नको लागि संचित गर्न सकिन्छ ।

त्यसैगरी जलविद्युत क्षेत्रमा प्रसारण लाइन, बजार, मूल्य, संस्थागत आदि जस्ता धेरै समस्याहरु छन जुन छोटो समयावधिमा समाधान गर्न सकिदैन । त्यसैले नेपालमा ऊर्जाको उचित मिश्रण नीति कस्तो हुनुपर्दछ भन्ने विषय छलफलमा ल्याउने उपयुक्त समय भएको छ । यसले नेपालको पेट्रोल, डिजेल, खाना पकाउने ग्यास आदि जस्ता तापीय स्रोतमाथिको निर्भरतामा पनि न्यूनिकरण गर्दछ ।

व्यापार तथा निकासी प्रवद्र्धन केन्द«को तथ्यांकलार्ई आधार मान्ने हो भने नेपालको हालको बजेटको लगभग १६ प्रतिशत पेट्रोलियम पदार्थ आयात गर्नमा नै खर्च हुन्छ । दुर्गम भागमा विकासको लहरसंगै बाटोघाटोको विकास तीव्र गतिमा बढेको हुनाले सवारी साधनको प्रयोग बढ्दो छ । यतिमात्र नभएर सूचना तथा संचारको तीव्र विकास संग–संगै ग्रामीण समाज पनि आधुनिकीकरणको बाटोमा लम्किरहेको छ जसले विद्युतबाट चल्ने सामानहरुको प्रयोग बढाएको छ । यसैगरी ऊर्जामा हाम्रो निर्भरता वाह्य स्रोतहरुमाथि बढ्दै जाने हो भने आउदो २० वर्षमा नेपालको कुल बजेटको लगभग ५० प्रतिशत ऊर्जा आयात गर्नमा नै खर्च हुने गर्दछ जसले भुक्तनी सन्तुलनमा नै नकारात्मक असर पु¥याउँदछ । हालको समयमा नै यदि विदेशमा काम गर्नेहरुले रकम नपठाउने हो भने हामीसंग विदेशी मुद«ाको अभाव भई पेट्रोलियम पदार्थ लगायत अन्य वस्तु तथा सेवा आयात गर्ने क्षमता हुदैन जसको कारणले गर्दा अत्यावश्यक वस्तु तथा सेवाहरुको अभाव हुनुका साथै राष्ट्रिय स्वाधिनतामा नै असर पार्न सक्ने सम्भावना छ ।

यस्ता भयावह स्थिति सृजना हुनसक्ने सम्भावना हुँदा–हुदै पनि हालसम्म पनि नवीकरणीय स्रोतहरुको विकास एवं विस्तार हुन नसक्नाको एक मुख्य कारण उचित विद्युत खरिद दर कायम हुन नसक्नु हो । यसको अभावमा धेरै स्वदेशी तथा विदेशी लगानीकर्ताहरु सौर्य ऊर्जामा लगानी गर्ने इच्छा भए तापनि लगानी गर्न सकिरहेका छैनन् । त्यसैगरी वायु ऊर्जाको हकमा पनि सोहि कुरा लागु हुन्छ । यसका अतिरिक्त, नेट मीटरीङ्को व्यवस्था हुन सकेको भए मानिसहरुले आफ्नो घरमा प्रयोग गरेर बढी भएको ऊर्जा राष्ट्रिय प्रसारण प्रणालीमा आपूर्ति गरी अतिरिक्त आम्दानी गर्न पनि मद्दत पु¥याउछ । यसबाट नेपाल विद्युत प्राधिकरणलाई थप विद्युत उपलब्ध भइ ऊर्जाको संकट समाधान गर्न थोरै भए पनि सहयोग मिल्दछ भने आपूर्तिकर्ताहरुलाई थप रकम आम्दानी भइ अनुदानको पनि आवश्यकता पर्दैनथ्यो । शहरी क्षेत्रमा यसमा दिइएको अनुदानले बजारको विकासमा नकारात्मक असर पु¥याएको छ भने सरकारले अन्य अत्यावश्यक पर्ने क्षेत्रहरुमा लगानी गर्न सकिरहेको छैन । यदि सरकारले नेट मीटरीङ्को व्यवस्था गर्न सके र नेपाल विद्युत प्राधिकरणले विद्युत खरिद दर तोकेमा यस्ता नवीकरणीय ऊर्जाको राम्रो विकास हुन सक्थ्यो । जापान, जर्मनी, चीन र अन्य विकसित देशहरुमा यस किसिमको व्यवस्थाले नै सौर्य, वायु जस्ता नवीकरणीय ऊर्जाको विकास गर्न मद्दत पु¥याएको छ ।

विश्व बैंकको अध्ययन अनुसार नेपालको लगभग ६३ प्रतिशत भूभागमा नेपाल विद्युत प्राधिकरणको विद्युत पुग्न सकेको छैन । यी क्षेत्रहरुमा ग्रीडको विद्युत पु¥याउन भौगोलिक, प्राविधिक र बजारको कारणले गर्दा कठिन पनि छ । त्यसैले गर्दा यस्ता ग्रामीण वस्तीहरुमा बायोग्यास, सौर्य, वायु र लघुजलविद्युतबाट विद्युत निकाली घरायसी र व्यवसायिक प्रयोजनका लागि प्रयोग गर्न सकिन्छ । यी क्षेत्रहरुमा विद्युतको माग बढी कतिपय गाउँ विकास समितिका मानिसहरु ऊर्जा उपलब्ध भएमा प्रति एकाई रु. ७० सम्म पनि तिर्न तयार छन किनकी ऊर्जाको अभावमा सो ठाउँका मानिसहरुले स–साना व्यापार–व्यवसाय संचालन गर्न सकिरहेका छैनन् । कतिपय ठाउँहरुमा मानिसहरु मोबाइल चार्ज गर्नको लागि मात्र दैनिक दुई घण्टा पैदल हिडि तापीय ऊर्जाको स्रोतबाट चार्ज गर्नुपर्दछ । यसले ती व्यक्तिहरुको मात्र नभएर राष्ट्रिय अर्थतन्त्रको क्षमतामा नै गम्भीर असर पु¥याएको छ ।

नेपालमा वायोमासबाट पनि ऊर्जाको माग धान्ने ठूलो सम्भावना छ किनभने धेरै नेपालीहरु ग्रामीण भेगमा बस्छन र उनीहरुले पाल्ने वस्तुभाउ, कृषि तथा अन्य कार्यको लागि प्रयोग गरिन्छ । त्यसैगरी धेरै ग्रामीण भेगमा बस्ने मानिसहरु ऊर्जाको लागि काठ र दाउरामा भर पर्दछन । वायोग्यास प्रविधिमा जैविक मललाई मूख्य स्रोतको रुपमा उपभोग गरिन्छ र यो ग्रामीण भेगको लागि सबैभन्दा उत्तम ऊर्जाको स्रोत हो । वन जङ्गलको विनाशसंगै दाउराको दिन–दिनै अभाव हुदै गइरहेको छ । त्यसैले वायोग्यास ग्रामीण क्षेत्रको लागि उपयुक्त ऊर्जाको स्रोत हो जसले बालबलिका र महिलाहरुको स्वास्थमा पनि नकारात्मक असर गर्दैन ।
नवीकरणीय ऊर्जाका यी विविध स्रोतहरुबाट प्रचुर मात्रामा ऊर्जा उत्पादन भई आत्मनिर्भर हुने सम्भावना हुँदाहुँदै पनि नेपाल सरकार, दातृ निकाय र अन्य सम्बन्धित निकायहरुको ध्यान यी स्रोतहरुको लागि आवश्यक पर्ने नीति निर्माण गर्नमा जान सकेको छैन । मुख्यत यस विषयलाई लिएर राजनीतिज्ञ, नीति निर्माता, ऊर्जा विद एवं शिक्षित नेपालीहरुलाई पनि यसको पर्याप्त ज्ञान भएको अनुभव गर्न सकिन्न । यस्ता नवीकरणीय स्रोतहरुबाट कुल ऊर्जा उपभोगको २० प्रतिशत उत्पादन गर्न सके कम समय एवं लगानीमा नेपाल र नेपालीलाई दिनानुदिन विकराल बन्दै गएको ऊर्जा संकटबाट धेरै हदसम्म उन्मुिक्त दिन सकिन्थ्यो जुन ऊर्जा सुरक्षाको दृष्टिकोणबाट पनि उपयोगी हुन्थ्यो ।

(This article was originally published on 10th March, 2014). 

Why should we develop local currency bond?

Around 67 percent of the annual national budget is spent for meeting regular expenditure that includes mainly salary as well as allowance of government employee and 15 percent is used for paying loans of national and international financial institutions. And as a consequence, the remaining portion is invested in development of projects as capital expenditure; this amount is very minimal. It causes insufficiency of capital in various development programs that leads to delay in construction of infrastructure. Sikta Irrigation Project which is under construction with domestic investment can be cited here as an example. After the restoration of democracy in 1990, budget should have been allocated fairly to all constituencies in order to meet the growing economic aspiration of people. But the uneven allocation of the budget hampered the smooth development of mega projects because such projects required sufficient funds for several consecutive years and this did not happen. Therefore, Nepal needs to depend on foreign loans and foreign direct investments to run its development activities in the needed scale.

After the successful completion of second round of Constituent Assembly Elections, domestic as well as foreign investors are very much optimistic as it brings much needed political stability with policy level consistency. Such optimism was clearly observed in the recently concluded Nepal Economic Summit (NES) and Nepal Business Conclave (NBC). Over hundreds of possible investors participated in those events from all around the globe to invest in niche markets that would allow them reasonable return and further open new avenues for investment. Additionally, local currency bonds could be developed by triple ‘A’ rated international financial institutions which is used for investing in mega infrastructure projects such as hydropower, airports, cold storage and so on. The investment in these growth sectors would create the new job opportunity for all kinds of human resources ranging from unskilled to highly skilled. This could possibly stop the mass movement of Nepalese people to gulf nations and other countries like Malaysia, Macao and South Korea for employment opportunities. Furthermore, the creation of bond in local currency saves national economy from the risk of currency mismatch as it has better absorption capacity from external shocks. It gives commercial banks an opportunity to manage their liquidity and thus, making the capital market more vibrant. Realizing these importances, Ministry of Finance (MoF) has already prepared guidelines regarding issuing bond in Nepalese currency and international financial institutions such as International Finance Corporation (IFC) and Asian Development Bank (ADB) have shown keen interest in this. IFC has gone one step further by giving application in concerned ministry to seek permission. According to news published in various national dailies, it has planned to issue bond of around US$ 500 million within the time period of five years which would be used for long term financing.

Till now, Nepal Rastra Bank, the central monetary authority of Nepal has issued bond for Nepalese financial institutions mainly for maintaining liquidity in the money market. It has once issued bond targeting remittance receivers, but it could get good response because the coupon rate was not so attractive and Nepalese people were not familiar with this kind of new practice. However, with the involvement of globally renowned financial institutions such as IFC and ADB, the scenario would be much different as this would be starting point to developing the broader and longer tenure fixed income market.

In case of an emerging economy like Nepal, better economic policy with low level of inflation is required for successful operation of bond market in local currency. It also needs better legal framework with strong implementing institutions for attracting more investors. And formation of a new government with fairly comfortable majority and successful demilitarization of Maoist combatants give hope that all these prerequisites will be met even during the period of political transition.

(This article was originally published in Econity on 3rd April, 2014). 

Power Trading Between Nepal and India

There is a free flow of electricity in Nordic countries and prices are determined by free interaction of supply and demand. This mechanism has helped new players to enter the market which eventually reduces the price and brings new innovation. Additionally, it has created energy security in the region. Learning from the success of the Nordic region, East African countries like Rwanda, Tanzania, and Kenya are also reforming their energy policies so as to aid the formation of a common market for energy exchange. All this has been possible in the South Asian region because various sources of electricity are available in different countries—Nepal and Bhutan have rich hydro resources, Bangladesh has a substantial amount of gas reserve and India generates vast amounts of cheap energy from coal.

Power exchange seems much more favorable in case of India and Nepal as there exist a complementary relationship in demand and supply of electricity in these neighboring nations. Electricity production in Nepal is high during summer season due to maximum flow of water in the rivers. Additionally, majority of the projects which are under construction are also run-of-the-rives as such requires low cost and has lesser environmental impacts. As a consequence, there is energy surplus in Nepal during the wet season. At the same time, the demand for energy in India may be higher due to use of refrigerators, coolers, air conditioners, and other electrical appliances that are used for lowering temperature. Moreover, the hydropower potential of Nepal is substantial than its population size and expected needs. On the other hand, energy demand in India is growing at the rate of 9 percent due to rapid economic transformation. Therefore, electricity trade between these countries can be beneficial for both the countries.

Nepal’s hydropower potential which is concentrated in far western region is difficult to harness if it is used only for domestic purpose because demand of electricity in that area is relatively low due to sparse population and less availability of industries. Therefore, lengthy transmission lines should be constructed to bring power to the load center. Building such transmission lines, however, is very costly and sometimes costs more than the construction of hydroelectric project itself. Additionally, it significantly increases technical losses. In this case, it is beneficial to export power to various adjacent parts of India, including Uttarakhand, Uttar Pradesh and even Haryana which makes more economic sense. However, for the execution of such a plan, Nepal needs Power Trading Companies that exchange electrical power in commercial manner considering water as a market commodity instead of a political good. This mechanism will further facilitate buying and selling of electricity at different times of the day. Prices will be fixed according to market signals and this is very essential for the development of hydropower.
Power Trading Companies like Power Trading Company-India were established in India as its energy market was liberalized. It makes energy integration much easier as Power Trading Company is an essential body for trading power in a competitive market. Due to presence of it, power markets seek to maximize competition in generation and compete on price instead of cost. Thus, it creates value for power by discovering market for power which is crucial for introducing innovative products according to need of customers. Additionally, it provides a single window service to take care of all intermediate requirements like transmission agreements, metering, accounting and other necessary things.

Furthermore, integration of energy market through formation of Power Trading Companies helps to optimize existing energy resources and provides commercial outlook to the sector by catalyzing investment especially from domestic and foreign private sector. It identifies and promotes opportunities for mutually beneficial cooperation projects in the power sector. The countries of Greater Mekong Sub-region (GMS) like Cambodia, Lao PDR, Myanmar, Vietnam and two provinces of China, namely Yunnan, Guangxi Zhuang have already practiced this principle. This ushered in much needed prosperity in the region through exchange of energy and further led to integration in other economic activities.

Nepal also needs to initiate similar work by holding a series of dialogues and discussions with the state governments of Uttarakhand, Uttar Pradesh, Haryana and Bihar which are neighboring states of India as people living in this region have been suffering from acute shortage of power for a long time. The invitation from Narendra Modi to Nepalese counterpart during his sworn in program provides a wonderful opportunity to raise such issue for the betterment of both countries. If Nepalese Prime Minster is able to float this idea during his formal and informal meeting, it might pave the way for detailed discussion in secretarial and ministerial level as follow up process, and a long term agreement will happen for power exchange. This leads into construction of mega projects which have been waiting for a long time for suitable environment and the adequate availability of energy will surely bring higher economic growth with rapid industrialization and modernization process in the region and remove people out of vicious circle of poverty in massive number.

(This article was originally published in Econity on 27th May, 2014). 

Existence of Double Taxation in Air Service

The presence of double taxation unnecessarily increases the cost of any commodity to consumers and it also reduces the level of profit of investors. It is observed that the issue of double taxation is prevalent in air service sector of Nepal. In international flight from Delhi to Bangkok or any other destination, Nepal Airline Corporation (NAC) charges the certain prices on air ticket and various forms of taxes such as security charges, airport development charges are levied on it as per the rule of Indian government. The money which is earned from this service is taken as income of NAC by Government of Nepal (GoN) and Value Added Tax (VAT) is charged on it which is not common in other parts of the world. Thus, there is existence of double taxation in this service because various forms of taxes are paid to Indian government as well as Nepal government. It reduces the profit level of the national flag carrier and all airline companies which are based in Nepal and operate international flights. Such kind of practice of charging tax above tax by the concerned agencies of both countries is against the principle of established Tax laws globally. Additionally, the users have to pay a higher price as the burden of double taxation is finally shifted to the passengers of this service. Therefore, this practice is condemned by the president of Board of Airlines Representative in Nepal (BARN) by issuing a press statement on 20th March 2014 which was covered in Republica, the leading national daily of Nepal.

In addition to this, Government of Nepal (GoN) has been charging 13 percent VAT on ground handling services which is also against the international practices because there is no provision of imposing any form of tax on goods and services within air side area. According to policy under Section IV of the International Civil Aviation Organization (ICAO), generally such kinds of taxes are exempted. Moreover, Nepal Airline Corporation (NAC) was never charged VAT on ground handling services when it used to carry passengers to 20 different foreign destinations in the past. The process of charging VAT on ground handling is not only monetary issue but it also causes negative impact in international relation as it is completely against the international principle and practice. Therefore, Nepal should avoid such unnecessary taxes and formulate policy which is internationally acceptable and better for bringing economic growth and prosperity.

(This article was originally published in Econity on 13th June, 2014).

SAARC Grid: Is it myth or reality?

The seasonal fluctuation of demand and supply of electricity and variations of sources create suitable situation for the cross border trade of electric power in the SAARC region, especially in India, Nepal, Bhutan and Bangladesh. India generates its major portion of electricity from coal, Bangladesh is rich in natural gas and Bhutan and Nepal, the two Himalayan nations have a great potential in hydropower due to their altitudinal variations. There is deficit of electricity in all nations except in Bhutan where the maximum demand is below 400 MW and the total production is above 1000 MW. Moreover, Bhutan is planning to produce electricity as much as 10,000 MW by 2020 and the surplus energy will be exported to India. Although, Nepal is facing a load shedding for more than half a day during the dry season due to the low volume of water in river, electricity that is equal to 43,000 MW is financially feasible for generation. It is far more than the domestic demand. Therefore, the surplus energy can be exported to India or Bangladesh using transmission line of India for earning foreign exchange which can minimize ever increasing trade deficit.

It is well known fact that for the realization regional trading in these countries, there should be a common grid which has an open access to transmission line for all players participating countries. Prior to construction of it, there need to be harmonization of laws and regulation so that there will be no legal hindrance. Furthermore, voltage and frequency of these countries should be synchronized for smooth operation. The need of a regulatory body cannot be denied as it looks after issues of contract enforcement, payment, energy transfer etc. and create confident among generators, developers and investors. All these actions lead to more secure south Asia in terms of energy, which is basis for economic and technological development.

Despite of all these possibilities, the concept of SAARC grid is moving in a very slow pace and very less has been achieved in a period of decade. There is power trading of Bhutan, Nepal and Bangladesh with India on only bilateral basis. However, several problems related to regulatory gaps and absence of complementary policies stop private sector from entering into the power market. With the participation of private bodies, the electricity market becomes more vibrant as it creates competition in price and quality of service. After then only, the energy market of south Asia becomes efficient.

In nutshell, the success of SAARC grid mainly depends upon political willingness of India as it is situated in the middle and her border is connected with Bangladesh, Nepal, Bhutan and Pakistan. If India formulates policies that is suitable for regional power trade, then the countries of Indian subcontinent also changes their respective power policies accordingly as it is mutually beneficial for all. Otherwise, the concept of SAARC grid remains only in paper as myth.

बढ्दो व्यापार घाटा र घट्दो लगानी

भनिन्छ वचत नै लगानीको श्रोत हो । यसो भनिए तापनि नेपालीहरुको आयको धेरै हिस्सा उपभोगमा नै खर्च हुन्छ । त्यसैले कुल गार्हस्थ्य उत्पादनको ९ प्रतिशत मात्र वचत भएको तथ्य भर्खर सार्वजनिक भएको उपभोगप्रतिवेदनले देखाएको छ । यतिमात्र नभएर नेपालको व्यापार घाटा पनि वर्षेनी वृद्धि हुँदै गइरहेको छ जसले नेपालको अर्थतन्त्रलाई आयातमुखी बनाउदै लगिरहेको छ । त्यसैले आर्थिक वर्ष २०६१÷६२ मा नेपालको व्यापार घाटा कुल गार्हस्थ्य उत्पादनको १५.४ प्रतिशत रहेकोमा हरेक वर्ष वृद्धि हुँदै आर्थिक वर्ष २०६९÷७० मा २८.४ पुगेको छ । यही क्रममा हाम्रो व्यापार घाटा आकाशिदै जाने हो भने केही वर्ष पछि अत्यावश्यक वस्तु तथा सेवा खरिद गर्न अमेरिकन डलर, भारतीय रुपैया, र अन्य अन्तर्राष्ट्रिय मुद«ाको मौज्जाद पनि नहुन सक्छ ।

विदेशी मुद«ाको आयको मुख्य स्रोत नै वस्तु तथा सेवाको निर्यातबाट हुन्छ । तर नेपालमा सन् १९९२ प्रजातन्त्रको पुनरवहालीसंगै प्रथम चरणको नीतिगत सुधारको थालनी गरिएको हुँदा नेपाली अर्थतन्त्रले केहि गति लिएको थियो र छोटो समयको लागि भए पनि भारतमा भन्दा उच्च दरको आर्थिक वृद्धि हासिल भयो । यसै समयमा निर्यातमा आधारित गलंैचा, गार्मेन्ट, पश्मिना, तामाको तार, वनस्पति घ्यूको उद्योग फस्टाएको थियो । यी उद्योगहरुको देनबाट हासिल भएको आर्थिक वृद्धि दिर्घकालसम टिक्न सकेन किन भने विश्व व्यापार संघको प्रावधान अनुसार गार्मेन्टमा नेपाल लगायत अन्य अल्पविकसित देशलाई दिइदै आएको कोटा प्रणाली खारेज भयो । यसको फलस्वरुप नेपालमा उत्पादन भएको तयारी पोशाकले अन्य देशहरुबाट उत्पादन भएको पोशाकहरुसंग प्रतिस्पर्धा गर्न नसकी विकसित देशको बजार क्रमशः गुम्दै गयो । त्यसैगरी गलैंचा उत्पादनमा पनि बालश्रम प्रयोग भएको घटना यूरोपियन देशहरुमा व्यापक प्रचार भएपछि यहाँको बजार पनि न्यून हुँदै गयो । यसका अतिरिक्त, गलैंचा उत्पादनमा गुणस्थर पनि क्रमशः खस्कदै गएको हुँदा ती मुलुकहरुबाट कम माग भएको हो । तामाको तार र वनस्पति घ्यूको प्रमुख माग भारतमा थियो तर भारतले आफ्नो स्वदेशी उद्योगलाई असर पारेको कारण देखाई भन्सारमा विभिन्न प्रतिकुल नियमहरु लागु गर्दा यी वस्तुहरुको निर्यात घट्दै गयो । यसकै कारणले गर्दा भर्खर स्थापना भएका धेरै तामाको तार र वनस्पति घ्यूको उद्योगहरु बन्द भए ।

यी वस्तुहरुमा निर्यातको सम्भावना कम भएपछि वस्तु विविधिकरण गरी अन्य वस्तुहरुको उत्पादन गरी निर्यात गर्न खासै कसैको ध्यान जान सकेन जसको फलस्वरुप नेपालको व्यापार घाटा हरेक वर्ष चुलिदै गएको छ । यसो हुँदा हुँदै पनि नेपालको चालु खाता भने विप्रेषणको कारणले गर्दा वचतमा नै छ । विप्रेषणबाट भएको आम्दानीलाई दिगो स्रोतको रुपमा लिन सकिदैन किनकी हाम्रो देशबाट वैदेशिक रोजगारका निम्ति जाने राष्ट्रहरुले उनीहरुको श्रम नीतिमा थोरै परिवर्तन गर्ने वित्तिकै विप्रेषणबाट हुने आयमा अधिक असर पर्दछ । मलेसिया लगायत अन्य देशहरु विस्तारै ज्ञानमा आधारित अर्थतन्त्रमा परिवर्तन हुन खोज्दैछन तर नेपालबाट यी मुलुकहरुमा रोजगारमा जाने श्रमशक्ति विशेष गरी सीप विहिन हो । त्यसैले वैदेशिक रोजगारबाट हुने आम्दानीलाई अल्पकालीन स्रोतको रुपमा ठीकै भए तापनि दिर्घकालीन स्रोतको रुपमा पक्कै पनि लिन सकिन्न ।

दक्षिण कोरिया, चीन, कोष्टारिका, भारत जस्तै लामो समयसम्म आर्थिक वृद्धि हासिल गर्नको लागि देशभित्र उपलब्ध साधन र स्रोतको अधिकतम सदुपयोग गर्नुपर्दछ । नेपालमा पनि तुलनात्मक रुपमा लाभ भएका पर्यटन, ऊर्जा, कृषि लगायत अन्य क्षेत्रमा स्वदेशी एवं प्रत्यक्ष वैदेशिक लगानी बढाउनुपर्दछ । लगानी आकर्षित गर्न समस्याका रुपमा पहिचान भएका वैदेशिक लगानी ऐन, विद्युत ऐन, श्रम ऐन लगायत सम्बन्धित नीतिहरुमा समय सापेक्ष सुधार गर्नुपर्दछ । यसबाट स्वदेशमा नै रोजगारीको अवसर सृजना भएर मानिसहरुको आम्दानीमा वृद्धि भई क्रय शक्ति बढ्नुका साथै राष्ट्रको समग्र आम्दानी बढ्छ । यसको माध्ययमबाट नै नेपाललाई अति कम विकसित राष्ट्रको दर्जाबाट विकासोन्मुख देशको रुपमा रुपान्तरण गर्न सकिन्छ ।

( This article was originally published in Econity on 10th July, 2014).

Power Purchasing Agreement in Convertible Currency

Nepal has been facing problem of power shortage for more than a decade and it has affected in every aspects of Nepalese life. The government has established Nepal Electricity Authority (NEA), a public utility for generation, distribution and transmission of electricity within the border of country in 1985. After the promulgation of Electricity Act 1992, domestic as well as international private players could also get opportunity to participate in generation side of it. More than 300 MW of electricity that constitutes around 27 percent of total electricity generation is the result of this policy intervention. Furthermore, the investment interest of private sector has been continuously growing in this sector as hydropower comes under a few lucrative areas where the return rate is high and there is sufficient demand in the domestic as well as regional energy market.

At the meantime, Nepal Electricity Authority, which is a single buyer of electricity in Nepalese market, has halted conducting Power Purchase Agreement (PPA) in US dollar due to a huge loss it has been suffering by buying electricity from Khimti and Bhotekoshi. The PPA was conducted in US dollar with these projects in 90s thinking that Nepalese currency would appreciate in the following years as Nepal was experiencing Gross Domestic Product (GDP) growth of 5-7 percent. However, Nepalese currency devalued in comparison to US dollar and the exchange rate increases from NRs 49 to NRs 98 in less than 20 years. Additionally, NEA has to pay royalty to the government of Nepal on behalf of Khimti hydropower project because the system of paying royalty was not introduced at that time. As a consequence, NEA has to pay higher amount of money to those developers, but could not reflect currency risk with the consumers and it suffers a huge financial loss in each passing year.  In order to protect it from further loss, Energy Minister has made a decision that stops NEA from conducting PPA in any foreign currency.  It discourages local as well as foreign investors from putting money in Nepalese hydropower as most of the mega power projects are jointly constructed with the involvement of both local and international partners.

Some of the Nepalese people also believe that Nepal has got enough resources to develop hydro electric projects domestically and this argument is valid to some extend because a mega hydropower project like Upper Tamakoshi is being constructed with the utilization of local resources. This model can be replicated in others as well for rapid reduction in loadsheding hours. But, it is not necessary to discourage international investments as we need billions of investments for graduating into a status of developing country by 2022 – which needs the growth rate of over 8 percent for remaining years. Therefore, the government can take an alternative approach by introducing multiple buyers’ model and open access in transmission system of Nepalese electricity market. This opens way for other buyers than Nepal Electricity Authority to purchase power and those entities can sell electricity directly to customers like cement, fertilizer, iron and steel factories in a negotiated price or to general consumers according to necessity. It saves NEA from further ruining its financial health due to exchange rate risk. For this, the concept of wheeling charge should be introduced so that hydropower developer can get open access to transmission line. Eventually, it will create competition in the market in terms of quality of service and price which lead to not only 24 hours of electricity supply but it also helps to achieve a greater efficiency in the economy. India has benefitted much from implementing similar policies after the introduction of New Electricity Act in 2003 that brings generation of electricity in larger volume with reduction in price.

However, if the above policy change is not feasible at present time when the country is busy in constitution making process, then Nepal government can create a fund under the Ministry of Finance with the revenue, royalty, and license fee collected from the hydropower plants. This reserve can be used for buying US dollar in advance which can be made available to NEA for purchasing power in convertible currency by following the concept of forward hedging. Thus, this option seems most practical to protect NEA from the foreign exchange risk and attract foreign investments because it ensures fair internal rate of return to shareholders – making projects bankable. Otherwise, international investors simply shy away from investing in hydropower as this Himalayan country posses high level of foreign exchange risk and country risk in the region. In this way, Nepal will lose an opportunity to transform herself economically and develop along with other neighboring nations.

(This article was originally published in Econity on August 4, 2014)

Power to the Nation

The promulgation of Electricity Act 1992 opened Nepal’s energy sector for domestic as well as international private companies who have since contributed more than 300 MW of electricity that constitutes around 27 percent of total electricity generation.

Despite Nepal’s fluid political landscape, the immense potential of Nepal’s hydropower has kept investors interested in this sector. This is because, the demand for energy has outgrown its supply side in the domestic and regional market, which offers a lucrative investment opportunity with high rate of return.

Over the years, Nepal Electricity Authority (NEA), which is a single buyer of electricity in Nepali market, used to buy electricity from private generators in US dollars. However, depreciation of Nepali currency in the international market in the last decade, has resulted in a huge loss for NEA which buys electricity from Khimti and Bhotekoshi project. The Power Purchasing Agreement (PPA) with these projects was conducted in US dollars in the 90s with modest prediction that Nepali currency would appreciate in the following years given its healthy Gross Domestic Product (GDP) growth rate of 5-7 percent then.

However, Nepali currency has consistently suffered devaluation in comparison to US dollars, with exchange rate doubling from NRs 49 to NRs 98 in just less than two decades. Additionally, the NEA has had to pay a royalty to the government on behalf of Khimti hydropower project since the system of paying royalty by a developer was not in place at that time the agreement was signed. As a result, NEA has had to buy electricity from the developers at exorbitant rates suffering a huge financial loss every year. Taking this into account, the present government under Energy Minister has instructed NEA not to conduct PPA in any foreign currency, and formed a special committee including members from Ministry of Energy, Ministry of Finance and Nepal Rastra Bank to suggest a framework for conducting such agreements in future.

The government’s move has been criticized by many, who argue such decisions will discourage local as well as foreign investors from putting money in Nepalese hydropower as some of the biggest power projects are international joint-ventures. However, such arguments fail to take into consideration huge loss incurred by NEA, or propose an agreement model that can benefit both investors and NEA.

For developing a new model, Nepal government can create a fund under the Ministry of Finance (MoF) with the revenue, royalty, and license fee collected from the hydropower plants. This reserve can be used for buying US dollar in advance which can be made available to NEA for purchasing power in convertible currency by following the concept of forward hedging. Thus, this option seems most practical to protect NEA from the foreign exchange risk and attract foreign investments because it ensures fair internal rate of return to shareholders – making projects bankable. Otherwise, domestic and foreign banks do not invest in hydropower projects citing the projects unfeasible.

In the same context, there are those who argue that Nepal has enough resources to develop hydro electric projects on domestic investment. The construction of domestically owned mega hydropower projects like Upper Tamakoshi, Chilime, Mid-Bhotekoshi, Sanjen, Upper Sanjen and Rasuwagadi which has capital investment of more than 67 billion rupees validates such arguments. Experts say, Tamakoshi and Chilime model can be effectively replicated not just to fulfill our own power needs, but also to encourage domestic private sector into international power trading. However, this is not to say that there is no need to encourage international investments in hydropower development- which is essential for Nepal to achieve a robust growth rate of 8 percent and graduate to a status of developing country by 2022.

Besides, the government can take an alternative approach by introducing multiple buyers’ model and pave way for private sector to trade electricity directly and exclusively for industrial purpose. While doing so, the government can separately provide tax concessions to industries that produce vital public goods. This ensures market prices of vital public goods and save NEA from further ruining its financial health by removing subsidy for commercial use of electricity.

Additionally, the concept of wheeling charge should be introduced to encourage construction of private transmission lines, as well as ensuring open access to NEA transmission lines. These small policy changes can lead to greater efficiency not just in electricity development, but also boost energy drained industrial sector which will help us achieve higher industrial growth rate. The multiplier effects will only be greater as it creates more employment, increases income of people as well as government revenue – which helps Nepal to achieve economic prosperity in a short time.

(This article was originally published in August 14, 2014). 

खस्कदो औद्योगिक अवस्थाका प्रमुख कारणहरु

प्रजातन्त्रको पुनरवहालीसंगै नब्बेको दशकमा भएको नीतिगत सुधारले निजी क्षेत्रको सहभागितामा ६–७ प्रतिशतको आर्थिक वृद्धि हासिल भएको थियो जसमा औद्यौगिक क्षेत्रको देन ९ प्रतिशतसम्म पुगेको थियो । तर, देशमा माओवादी द्धन्द्धमा फसेपछि व्यवसायिक वातावरण बिग्रदै गयो जसको कारणले गर्दा आर्थिक वृद्धि न्यून भयो र सन् २००१ मा आउँदा त आर्थिक वृद्धि नकारात्मक नै भयो । अर्थतन्त्रमा देखिएको नकारात्मक असर अनुसार नेपालको कुल गाह्रस्थ उत्पादनमा उद्योग क्षेत्रको देन पनि क्रमशः घटदै गयो । बाह्र बुँदे समझदारी संगै शान्ति स्थापनाका लागि स्वदेशी तथा विदेशी शुभचिन्तकहरुको सहयोगमा विभिन्न प्रयासहरुको थालनी भयो र माओवादी सैन्य समायोजन पछि दशवर्षे द्धन्द्धको लगभग अन्त्य भयो ।

देशमा प्रथम र दोस्रो गरी दुई संविधान सभाको चुनाव भए तापनि व्यवसायिक वातावरण सुधार हुन सकेन । यसको प्रमुख कारणहरु तल प्रस्तुत गरिएको छ ।

१. ऊर्जा अभाव

ऊर्जा कम आपुर्ति हुनु नै आद्योगिक विकास नहुनुको पहिलो समस्या हो किनभने उद्यमीहरुले विद्युत उपलब्ध नभएपछि यसको विकल्पमा डिजेल जेनेरेटर चलाएर विद्युत आपूर्ति गर्नुपर्दछ । यसले कुनै पनि उत्पादन मुलक कार्यको लागत वृद्धि गरिदिन्छ जसको कारणले गर्दा मुनाफा कम हुन्छ । यसरी लामो समयावधिसम्म लोडसेडिङ् हुने र अन्य विकल्प अपनाउँदा लागत अत्याधिक बढ्ने हुनाले भएका उद्योग र कल–कारखानाहरु पनि बन्द हुने क्रममा छन् । यसका अतिरिक्त, विद्युत आपूर्ति भएको समयमा पनि समय–समयमा ट्रिपिङ्को समस्या हुन्छ र यसरी एक्कासी विजुली जाने कारणले गर्दा चलिरहेको मेसिन बिग्रने जस्ता समस्या सृजित भएको छ । भैरहवा र वीरगंज जस्ता औद्योगिक करिडोरहरुमा यो समस्या अत्याधिक देखिएको छ ।

२. श्रम सम्बन्ध

श्रमिक हक हितका लागि यूनियन आवश्यक भए तापनि नेपालका श्रमिक यूनियनहरु पार्टीगत रुपमा विभाजन भएको हुनाले राजनीतिक रंग बढी देखिन्छ । उनीहरुले आफूले काम गर्ने उद्योग भन्दा पनि राजनैतिक पार्टीको एजेण्डा बढी बोक्ने र त्यसैको आधारमा बन्द एवं हड्ताल जस्ता क्रियाकलाप गर्ने हुनाले यो क्षेत्र अस्थिर रहेको छ । यसका अलावा नेपालमा काम गर्ने श्रमिकहरुको शिक्षा, तालिम, इच्छाशक्ति आदिको अभावमा उत्पादकत्व बढ्न नसकेको र उत्पादकत्वको तुलनामा नेपाली श्रमिकहरुको ज्याला पनि महँगो पर्न गएको छ । यसका अतिरिक्त नेपालमा श्रमिकहरुलाई हायर र फायर गर्न सकिने नीति नभएको हुँदा पनि धेरै लगानीकर्ताहरु नेपालको औद्योगिक क्षेत्रममा लगानी गर्न डराउँछन् किनभने आवश्यकता नभएको समयमा कर्मचारीहरु कटौती गर्न नसकिने हुनाले लगानीकर्ताको अनावश्यक लागत बढाउँछ र अन्य व्ययभार थपिदिन्छ ।

३. व्यापार व्यवधान

आजको विश्वमा व्यापारको महत्व वढ्दै गइरहेको छ तर नेपालमा सीमा व्यापार झन्झटिलो छ किनभने कुनै पनि वस्तु आयात तथा निर्यात गर्न कठीन छ । अप्ठ्यारा भन्सारको प्रक्रिया, बन्दरगाह संचालनमा रहेको पारम्परिक विधि आदि र भौतिक पूर्वाधारमा रहेको कमिको कारणले व्यापारको लागत र समय बढाइदिन्छ । विश्व बैंकले निकालेको डुईङ विजनेसको प्रतिवेदन अनुसार कुनै पनि सामान निर्यात गर्नका लागि नेपालमा ११ वटा कागजातहरु चाहिन्छ जबकि विकसित राष्ट्रहरुमा जम्मा ४ वटा र दक्षिण एसियाली राष्ट्रहरुमा औसत ८ वटा कागजपत्रहरु तयार पारे पुग्दछ । लामो कागजी प्रक्रियाले गर्दा धेरै सन्दर्भमा कतिपय सामानहरु भन्सारमा रहेर बिग्रने, हराउने र समयमा आवश्यक परेको ठाउँमा पु¥याउन नसक्दा दण्ड जरिवाना तिर्नुपर्ने वा अर्को पटकदेखि माग नै नआउने जस्ता समस्या देखापर्दछ । त्यसैले यस प्रक्रियालाई पनि समयानुकुल बनाउनुपर्दछ ।

४. कर तिर्नमा कठिनाइ

देश विकास गर्नको लागि करको भूमिका उल्लेखनीय हुन्छ । विदेशी सहयोग र सहायतामा विकास निर्माणका कार्यहरु गर्नु भन्दा आफ्नै साधन र स्रोतमा गर्दा परियोजनाको लागत कम हुनुका साथै प्रत्यक्ष र परोक्ष रुपमा हुने विदेशी हस्तक्षेप पनि कम हुन्छ । यी र अन्य कारणहरुले गर्दा हाम्रो देशमा पनि करदाताहरुको संख्या क्रमशः बढदै गइरहेको छ । यति हुँदाहुादै पनि आश्चर्य लाग्ने विषय के छ भने नेपालमा कुनै पनि उद्योग व्यवसायको कर तिर्न कर दाताले औसत रुपमा ३२६ घण्टा सयम खर्चनु पर्दछ जुन भूटान बाहेक अन्य देशहरु भन्दा खराब हो । त्यसैले गर्दा कर तिर्ने सुगमतामा नेपाल विश्वव्यापी रुपमा ११४औं स्थानमा छ । सन् २००८ देखि नै यस क्षेत्रमा खासै ठूलो सुधार देखिएको छैन ।

५. करार कार्यान्वयन

करार कार्यान्वयनको विषयमा भन्ने हो भने स्थिति अझ नाजुक छ किनभने करार कार्यान्वयनमा नेपालको स्थिति निराशाजनक छ । करार कार्यान्वयनका लागि ९१० दिन लाग्दछ भने माग गरेको २६.८ प्रतिशत रकम यस प्रक्रियामा नै खर्च हुन्छ । यसैको फलस्वरुप इच्छुक लगानीकर्ताहरु पनि नेपालमा लगानी गर्न अग्रसर हुदैनन् । उद्योग क्षेत्रमा भएको नगन्य लगानी पनि उचित वातावरणको अभावमा बंगलादेश, भारत, श्रीलंका लगायत अन्य देशमा स्थानान्तर भएको छ ।

यी सब प्रतिकुलताहरुले गर्दा नेपालमा उद्यमी, व्यवसायी एवं साधारण नेपालीहरुले गरि खाने वातावरण सृजना हुन सकेन । यसको परिणाम स्वरुप नेपालमा औद्योगिक क्षेत्रमा लगानी विकर्षण हुँदै गइरहेको छ । त्यसैले नेपालको औद्योगिक क्षेत्रलाई सन् नब्बेको दशकमा झैं सुनौलो दिनहरुमा लैजान र देश भित्र नै रोजगारको अवसर सृजना गर्न माथि उल्लेख गरिएका विषयमा सुधार गर्नुपर्दछ ।

Caught in Transmission Issues

Evacuation of electricity has become a bigger problem than power generation in Nepal due to absence of transmission lines. Nepal Electricity Authority (NEA) has a practical monopoly over construction of transmission lines; but it has been constantly confronted with a number of problems, leading to its inability to complete the targeted transmission line projects. Among all, acquiring land is the major one. Several alignments namely Thankot-Bhaktapur, Khimti-Dhalkebar, Hetauda-Bharatpur-Bardhaghat, Kusum-Hapure, Singati-Lamosanghu, Dumre-Damauli have not been completed for many years and a large number of projects have not gone into construction due to uncertainty in transmission line construction. Infrastructure sector like roads have alternatives such as railways, waterways, airways, but transmission lines have no substitutes. Therefore, if we want to see an end to the electricity problem in Nepal, we have no option but developing transmission system urgently.

RIGHT OF WAY

Acquiring land for Right of Way (RoW), constructing towers, and delay in securing timely clearance from forest department as well as security agencies, are some of the major challenges for developing transmission system. There is a field-level difficulty in acquiring private land for developing transmission system as people tend to feel that they are being unfairly treated by being forced to bear the cost for the benefit of other people. This perception of unfairness is the major source of dissatisfaction and social disruption. It is difficult for people to give up land for constructing any infrastructure because it separates them from their ancestral ties. Furthermore, the presence of a transmission line reduces the commercial value of the land to almost nil as it can’t be put for any alternative commercial use. As a result, people opt for not cooperating when it comes to this specific infrastructural development.

LOCAL INVOLVEMENT

The level of non-cooperation of local residents can be minimized by involving them in planning of transmission line projects from the very beginning. Authorized personnel do not involve the locals in the planning process in order to reduce the possibility of political opposition and cost of land acquisition. However, if the locals are involved from the very beginning of the planning process, they can support such development initiatives by suggesting workable alternatives. In a democratic society like ours, decisions should be taken after adequate discussion and interaction among the individuals and groups. A collaborative effort among all stakeholders can solve this issue. Furthermore, landowners, developers and technical people associated with planning and design could discuss in greater detail for creating better and more aesthetically pleasing communities which adds additional value to society in the end.

PROFITEERING PROBLEMS

During the development of transmission line in Nepal, while locals are not involved in the planning process, some informed people/insiders buy the land on low cost and later on, bargain with NEA and other responsible utilities for higher compensation. Such transactions are observed in many strategic locations where transmission line projects are being executed. Similar infiltration is suspected in Sinduli where the transmission system, consisting of only six towers, is incomplete. This sort of activities can be avoided if information is shared with the locals more effectively. Moreover, when participatory approach is followed, local residents will not feel ignored. It causes delay in planning process that often lead to increase in cost in the development stage, however, return will be far more than expenditures.

MARKET PRICES

Additionally, for the smooth construction of transmission related infrastructure, NEA should think of different ways to minimize the degree to which people feel unfairly treated. A market price based monetary compensation of land might reduce the feeling of having suffered a net loss from an unfair practice. The land owners, whose properties have to be acquired for building transmission system, are ready to provide their land if they get market value of their fixed assets. Similarly, if the affected people get some benefits from the project under benefit sharing mechanism, their dissatisfaction will be further reduced and may even turn out to be supportive of the development activities.

POWER DEVELOPMENT

Agriculture and Water Resource Committee (AWRC), the Parliamentary committee has identified that construction of transmission systems is a real bottleneck in development of power sector in Nepal. Therefore, the members of the committee have formed a subcommittee to conduct the detailed study on it and solve the critical constraints of energy sector. Acquiring land from the private owner for Right of Way (RoW) and constructing transmission towers are the major challenges and these cannot be resolved without providing marked based compensation to the affected land owners and including them in the planning process from the initial phase. Without such serious and timely reforms in the transmission system, the country’s problem in power sector cannot be solved and the shortage of power will lead to a greater loss of production of goods and services which also has serious implications on the country’s socio-economic stability. Therefore, reforms in transmission sector are essential not only for attaining a fast pace of economic growth by bringing efficiency in our economy but also for protecting our socio-political rights.

(This article was originally published in The Himalayan Times on 7th December, 2014.)

Power of the People

Nepal is located in a seismically active zone and is considered the eleventh most vulnerable place on earth from earthquake disaster point of view; Nepal did not recently move to this top spot. The earthquake that severely affected at least 14 districts caused complex problems with loss of life and property. Till date, the worst hit district is Sindhupalchowk, with death toll of over 3200 and more than 90 percent of the houses completely destroyed. The rescue and relief works that are supposed to reach within 24 and 72 hours respectively could not reach within that period due to difficult topography and subsequent landslides that made the transportation of materials impossible. Nepal has no reputation of being prepared for setbacks.

The residents of Baruwa (Sindhupalchowk), Satyadevi, Serthun, Jharlang (Upper Dhading), Mairung, Jibjibe, Borle (Rasuwa) were disconnected from the capital city for more than a week, from where rescue and relief operations were initiated with the help of national and international expert teams. Nepalese security agencies, including Nepal Army, Nepal Police and Armed Police Force did a commendable work with limited resources which they have. Nepalese security forces lacked enough number of helicopters, machines that are used for drilling concrete structure, search-and-rescue robots, unmanned rotorcrafts and other equipments to conduct crucial work of rescue. Therefore, the foreign rescuers, including India, China, Israel, Japan, and Turkey came to Nepal after getting government permission to do search and rescue.

The earthquake that occurred on 25th April has not only shaken the ground, but also the governance system as it largely failed to provide basic facilities to affected people at the time of utmost need. However, the self-initiatives taken by individuals, institutions, clubs and community based organizations (CBOs) were praiseworthy. The individuals of different parts of the country have rushed towards Gorkha, Sindhupalchowk, Rasuwa, Nuwakot, Kavre, Dolakha and other severely affected districts with food, tents, blankets, medicines, clothes etc with the true spirit of volunteerism. The representatives of Non-Resident Nepalese (NRN), Non-Government Organizations, and even profit making companies reached remote places for supporting the needy people prior to the government agencies showing their presence. This delay in government initiated relief work is due to the fact that their activities have to go through lengthy bureaucratic processes.

In addition to this, various individuals have taken initiatives in cleaning activities, distribution of drinking water, clearance of rubble and even taking dead bodies out from debris of damaged houses. Many people volunteered in hospitals, health camps and wherever possible to provide medical services. College students were busy in providing psychosocial counseling and education related to awareness especially to children and women in temporary shelters. This kind of selfless activity has definitely increased our willingness to help needy people who are residing in remote locations of our country and who are in very vulnerable conditions after the loss of shelter.

Primarily, the absence of an efficient   coordination mechanism with clear lines of responsibility at different levels hampered rapid mobilization of government agencies responsible for providing emergency response. The delay in distribution has led to the relief materials sent by international communities to rot at the airport warehouse; and in humongous quantities. The relief materials, which have hardly reached Village Development Committees (VDCs), could not reach ward level because of absence of local representatives for nearly two decades. Therefore, the victims in remote locations have had to live without food, tents and medical facilities for more than a week. It is not possible to provide all emergency facilities by a VDC secretary as s/he cannot take critical decisions due to non-political nature of the work. If there were locally elected people, they would have taken greater ownership and responsibility because they have better knowledge and information of local community. Such an arrangement would have also kept the misuse of relief materials at check.

Furthermore, the lack of local bodies has also increased undue pressure on the Constituent Assembly members as they need to do the works which otherwise would have been done by locally elected people or representatives of District Development Committees (DDCs). Therefore, it is only natural that they could not give enough time in formulating effective policy for earthquake victims and effectively coordinate with security agencies responsible for rescue and relief operations. The dilemma regarding distribution of tents and collection of funds from national and international supporters for victims through only one channel occurred due to lack of knowledge about the ground level reality to the cabinet members and lack of proper coordination among all stakeholders.

This deadly disaster, which has taken the life and property of thousands of people, has united all Nepalese – who are divided on social and political issues – to serve for those who are badly affected. Nepalese people who have been residing in other countries have also helped by raising funds or directly serving in hard-hit areas. The role of self motivated people should not be undermined in the reconstruction phase as it brings back social cohesion that existed among all Nepalese for centuries.  This is the only way that helps to overcome challenges brought by the catastrophic earthquake.

(This article was published in The Himalayan Times on 24th May, 2015 and can be read in the following link http://epaper.thehimalayantimes.com/epaperpdf/24052015/24052015-md-hr-19.pdf)

Limited Government and Maximum Governance

The development activities were carried out relatively rapidly during the three-decade Panchayat although the country was ruled under single party system. A lot of infrastructural developments took place then. The roads of Nepal, Mahendra Highway, Arniko Highway (that connects Nepal with China), Tribhuvan Highway, Kulekhani Hydropower Project (the only one storage type project in Nepal), were built during the same period. Institutions such as Nepal Electricity Authority (NEA), Nepal Telecommunication Corporation, Nepal Drinking Water Corporation, and Nepal Airline Corporation (NAC) which were very essential for providing electricity, communication, water and air services to the people were created during the direct regime of the King which lasted till 1990. The development process is similar in other countries as economic development is initiated with the involvement of government intervention.

However, the involvement of government is not a sufficient condition for bringing prosperity at every nook and corner of the country because it monopolizes resources available and, hence, looses the incentive to utilize these resources efficiently in the absence of active participation of private sectors, which is quick in decision-making and following innovative practices. This is very true in case of Nepal as well as evinced by several examples in service and production sectors.

The generation of electricity has increased after deregulating energy sector by bringing Electricity Act in 1992. Private initiatives have already contributed to adding more than 237 MW of electricity to the national grid. Currently, around 44 projects, with a total capacity of 338 MW are under different stages of construction, and 76 hydroelectric projects that can contribute 711 MW to the national grid have already concluded Power Purchasing Agreements (PPAs) with the NEA. The output of electricity is expected to increase after complete deregulation in distribution as well transmission system as it solves one of the critical constraints – the construction of transmission lines by acquiring private land – of this sector. The government has recently decided to form a Transmission Company by including all the stakeholders such as Ministry of Finance (MoF), Ministry of Forest and Soil Conservation, Ministry of Environment, Science and Technology, Ministry of Land Reforms and Management, Ministry of Information and Communications, Ministry of Defense and Ministry of Home Affairs, and general public in order to solve the problems being faced by 18 different projects (worth over 650 MW) – continuous delay in construction of transmission system being the major one.

Access to mobile as well as landline phone has also risen after involvement of Ncell, United Telecom Limited (UTL), Nepal Telecom Satellite Private Limited (Hello Nepal), and through structural change of Nepal Telecommunication Corporation by disinvesting government’s share to its staff and general public and rebranding the same company as Nepal Telecom. These are just a few examples of sectorial development that Nepalese people have observed in the recent past. The easy access on phone has helped in overall development of the country as the farmers living in remote parts of the country can access necessary information such as the price, demand, supply and stock of their product, and initiate new ventures with the support of internet facility that is available in the mobile phones.

Liberalization, followed by privatisation is needed in an economy to mobilize human resources effectively and efficiently, reduce unnecessary expenditure, and manage other available resources more wisely. Furthermore, the involvement of private sector is very helpful for avoiding additional costs associated with insurance, pension and so on. Every year, Nepalese government has to allocate a large chunk of budget for such expenditure which increases with increase in number of employees.

On top of this, it is not necessary for private sector to follow lengthy recruitment processes that requires an examinee to go through a series of exams that lasts for more than a year. They do not have to worry about being unable to fire any staff unless they are legally declared unsound. It is widely accepted fact that without the presence of vibrant private sector, there is possibility of monopolization of the resources that reduces the chance of innovation – which actually results in fewer jobs in the country.

While the private sector helps in achieving high growth trajectory by judicious use of all forms of resources in the country, the government too can aid by maintaining rule of law, providing free and fair justice, and protecting private property. Only a decade ago, nobody wanted to establish any new enterprises in the Indian State of Bihar. This was also before Nitish Kumar came into power as the Chief Minister at a time when entrepreneurs were mugged, extorted and threatened by criminals. There was no security of life and property.

Today, many domestic and foreign entrepreneurs who want to invest in Nepal are not ready to do so due to lack of security of their property and absence of proper patient rights. Therefore, the government should make every effort to create an enabling environment for doing business by formulating necessary policies that bring efficiency to the economy, incentivize investments, and promote the culture of entrepreneurship.

(This article was originally published in Econity on March 10, 2015)

Many Heads Creating Hurdle in Hydropower

Nepal achieved multiparty democracy in 1990 and a series of liberal and private sector friendly policies were formulated then after. Hydropower Development Policy, 1992 and Electricity Act, 1992 also came into effect which paved the way for foreign and domestic private sector participation in generation side. Electricity Act, 1992 made a provision whereby even the private sector could acquire licenses for undertaking survey and generation purposes.

In the beginning, survey license was very cheap to acquire; for eg., NRs. 100, 150 and 200 for 1-5 MW, 5-10 MW and 10-15 MW respectively. The bureaucrats were quick to act at this. Majority of licenses were acquired by the employees working at the Ministry of Water Resource (MoWR), Water and Energy Commission Secretariat (WECS), Department of Electricity Development (DoED) and Nepal Electricity Authority (NEA), or by their relatives. What’s more, the licenses were distributed on first-come-first-serve basis without conducting sound financial and technical analysis. The license holders did not even have to construct the project, but could sell it to developers at higher prices. Thus, began the license-holding culture. These people who held licenses cited cases of landslides, local issues and others to renew their licenses time and again, without really conducting any survey. Due to this, real investors did not get a chance to construct hydropower projects. Interested parties had to buy it from these license-holders, which increased the time and cost of projects. In order to discourage pseudo license-holding, the license acquisition fee has been reviewed three times till date.

Commission for the Investigation of Abuse of Authority (CIAA) recently directed Ministry of Energy (MoE) to revoke the licenses of 10 different hydropower projects as the promoters of these projects could not complete necessary procedures such as signing Power Purchasing Agreement (PPA), making financial closure, etc. Once the license is repealed, the entire process of development of these projects starts from the beginning i.e., acquiring survey license, conducting feasibility study, finalizing Environment Impact Assessment (EIA) and so on, which costs additional time and money. Therefore, it may not be a good step to scrap licenses of projects that have already initiated pre-construction works as this will further delay the development of hydropower projects. In case of Upper Khorang Khola Hydropower Power Project, the developers could not conduct PPA in time due to delay in decision-making process of NEA. The delay in signing PPA has further delayed managing investment from financial institutions for the project. Although the license period of Kabeli “A” has matured, it has already given Letter of Intention (LoI) to contractors, issued right shares and acquired land to construct the project. A lot of initial investments made in these projects will go in vain if the licenses are nullified and the construction of projects will be further delayed. The solution to these problem lies in initiating competitive bidding process instead of issuing survey and generation licenses for construction of hydropower projects because the nation gets more benefits as it receives free energy and equity ownership along with royalty through international bidding. For example, GMR, the company that won the bid on Upper Karnali Hydroelectric project, has promised to give 12 percent free energy and 27 percent free equity. Likewise, Satluj Jal Vidyut Nigam got permission to construct Arun III after providing 21.9 percent free energy. Additionally, the public limited company of India agreed on providing 20 units of free electricity to each house of Sankhuwasabha district, where the project is located. Furthermore, the promoter of the project has agreed on issuing shares to local people. The system of providing share to the local people helps to reduce level of inequality in society to some extent as they also get return from their investments. They can further utilize that sum of money for starting other income generating works, educating children, receiving vocational training and much more.

Developing hydropower by awarding a project through international competitive bidding is the most scientific way to solve the issues related to license regime in Nepal as it creates win-win situation for all stakeholders.

(This article was originally published in econity)

Banda and its Impacts

“Nepal Banda” is not new to Nepal. The frequency of strikes and blockades increased with the establishment of multi-party democracy in Nepal in 1990. The CPN (UML), which was the major opposition force back then, started the culture of Nepal Banda in order to express their dissatisfaction with the ruling parties. Ever since, whenever the opposition parties disagree over a certain policy, Act or treaty, it has become fashionable among the political elites to call nationwide or regional strike thereby blocking roads, closing down educational institutions, enterprises, and other economic activities. This sort of practice has often been organized for “bringing change in the government or existing regime.” Less than a decade ago, there was a nation-wide strike called the seven major political parties against the direct rule of King Gyanendra which successfully overthrew the monarchy from Nepal relatively peacefully.

The effect of strikes is most severe on those low-income groups of people who depend on their daily wages to earn a livelihood. Forceful shutdown of enterprises affects entrepreneurs and owners of all levels equally because they need to pay salary and other benefits to their workforce, in addition to having to pay rents on land and building, and interest on loans, all acquired from one financial institution or the other, whether or not there is any production at all. During Bandas, students are also deprived of their right to education in a peaceful environment. Schools and colleges fail to follow the academic calendar due to frequent protest programs. The problem becomes even worse when strikes target educational institutions by bringing issues such as banning private education, high fees in private organizations, rights of teachers, and the likes.

Health sector cannot remain untouched as people who want to receive healthcare are severely affected due to unavailibility of vehicles, which is a must for carrying sick patients. It is absolutely unfortunate that it is no more news when pregnant women, injured, disabled, old and weak people die on the way to hospital. The acts of forceful strike are as severe crimes which cannot be justified at all.

In Nepal, even the health workers, who are responsible for providing health service have been organizing strikes by closing hospital, health posts and clinics for several days in order to bring public attention to their demands. It is totally understandable if this fact comes as a surprise to a non Nepali. It speaks volumes about governance of our country – which is failing to deliver basic rights. Not a single section of a society is immune from the negative impacts of strikes.

When strikes are elongated for several days, the entire economy of a country is completely paralyzed as it shrinks almost all economic activities, from small mom-and-pop stores to stock markets. In addition to this, such disruptions discourage investors by creating uncertainty and unpredictability. Consequently, production of goods and services are reduced and eventually distance the people from job opportunities in Nepal itself. Underproduction also causes deficit balance of payment (BoP) as the country starts to depend more on foreign products and export less and less. Moreover, it hampers revenue collection which is the backbone for overall development of the nation.

Furthermore, a lot of public as well as private properties are destroyed during strikes. We have had situations where they have even cost human lives. In a nutshell, Bandas are not a civilized way of achieving any kind of demand as they hampers all activities and compel us to remain in a vicious circle of poverty.

(This post was originally published in Econity on February 8, 2015)

Benefit Sharing in Hydropower

The management of water resource requires cooperation of various stakeholders including that of the community living in the areas where the hydro resource occurs. It is natural that members of the public from that area would like to have some share in the benefits to be accrued from the development of the project. The successful benefit sharing in water basin can be a tool for poverty reduction, sustainable development and long-term political stability in the country.

After the promulgation of a new constitution, Nepal is going to be a federal state with local, provincial and a central government. Though the demarcation of federal provinces has not been done till now, the issue of benefit sharing in hydropower will be very contentious as there are no clear cut provision of sharing benefits in terms of revenue, royalties, fees, preferential electricity rates between states, and it is very likely that mega hydropower projects will lie in more than one state. It will become more cumbersome and time taking to develop infrastructural projects as it will be necessary to take permission from different states.

POSSIBLE CONFLICT

Water conflicts may arise over rivers with upstream hydropower use and downstream irrigation use. This could occur because upstream water release may not coincide with irrigation needs of the lower riparian areas. Additionally, if there is overgrazing and deforestation in the watershed area, it may bring floods in the downstream plain area. It is the potential cause of conflict between hydropower in an upstream and other economic interests in the downstream.

BOON OR BANE?

Furthermore, benefit sharing between developer and local people is also a very crucial issue in construction of hydropower projects in Nepal as local people feel that they have primary right over natural resources occurring in their surroundings. The ILO Convention No 169 has also given special rights to use natural resources for indigenous and tribal people, though; it has not been defined clearly. On the basis of this legally binding instrument, local people demand a higher stake in hydropower and other beneficial projects. It creates a conflict over right to natural capital which leads to increase in cost of production of hydroelectricity by extending the time period. There are a number of projects in which smooth operation has been disturbed by the issue of benefit sharing.

Upper Tamakoshi (456 MW), which is the largest hydropower project under construction, is being developed using domestic resources. The local people have demanded higher a percentage of share for people who are residing in Dolakha district given the past evidence of successful projects like Chilime, Butwal Power Company and so on. For ensuring investment in the project, this hydro electric project has also given shares to employees of institutions such as Provident Fund, Citizen Investment Trust, Rastriya Beema Sansthan, Nepal Telecom, and Nepal Electricity Authority (NEA) who have no direct link to the project.

Due to this reason as well as attractive rate of return of the project, the labourers who have been working in the project also demanded shares, which is very unique as there is no such practice in other parts of the world. As there is no certain principle to allocate share for workers, the board of directors of the company remained indecisive for several weeks, which led to the halt of regular work. Though the project was disturbed for a month or so due to this reason, the construction period has increased by almost a year because of difficulties in construction work in the rivers during monsoon.

SENSE OF OWNERSHIP

Several other projects, namely Khimti (60 MW), Bhotekoshi (45 MW), Buddhigandaki (1200 MW), Upper Balefi (50 MW), have been facing problem associated with benefit sharing. The local residents have demanded shares in Khimti and Bhotekoshi, which are completed and have been operational for several years. People of affected village development committees (VDC) have not allowed the construction of transmission lines which were damaged by the Jure landslide for evacuating power from Bhotekoshi. The Upper Balefi project (50 MW) could not go into construction smoothly due to the the demand for benefit sharing by local villagers.

The first hydroelectric project which solved the issue of benefit sharing successfully in Nepal is Chilime, which has a total capacity of 22 MW. This is the first project developed with domestic investment and manpower and has faced a similar fate as the local people demanded 10 per cent share after the completion of the project. It means the local people who demanded the shares are free from sharing risk as the construction period was already over. In this scenario also, a 10 per cent share was given to the people of affected VDC and residents of Rasuwa district. The process of awarding local people with shares has helped to develop other subsidiary projects of Chilime namely Sanjen (42.5 MW), Upper Sanjen (14.8 MW) and Rasuwagadhi (111 MW) in a smooth way as the local people have taken ownership of the projects. It proves that the local level obstacles related to hydropower development can be minimised if some portion of ownership of the project is transferred to local residents in a way that they are getting benefits from their resources.

MEGA DISPUTES

Despite successful resolution of conflict in small hydropower projects, it is still a disputable issue in case of a mega hydropower projects as a large number of people are affected by it while building dams, access road, power house and transmission lines. Moreover, the established system of providing 10 per cent share to local people is not pragmatic as this level of investment in large project is too huge. Therefore, government, developers, investors and other stakeholders, including local people should come with mutually agreeable solutions to hasten the pace of hydropower development in Nepal.

(This article was originally published in The Himalayan Times on 2 August 2015)