KATHMANDU, Jan 5: The privatisation and liquidation of Public Enterprises (PEs) is expected to pick up momentum following the transfer of state ownership of Butwal Power Company (BPC) to Interkraft Nepal AS on Friday.

As per its Economic Reform Programme, the government has initiated the process of privatising Birgung Sugar Factory, Lumbini Sugar Factory, Hetauda Cement Factory, Bhakatapur Brick and Tile Factory and Orient Magnesite, according to sources at the Ministry of Finance.

The government recently formed a study committee to look into the financial health of some PEs like Himal Cement Factory, Bhaktapur Brick Factory and Birgung Sugar Factory.

As soon as the study committee submits its report to the Ministry of Industry, Commerce and Supplies (MoICS), the government will decide its course of action, the Ministry said.

Apart from this, the government has initiated the process of liquidating a few more government enterprises like Nepal Coal Limited, Cottage and Handicraft Sales Depot, Hetauda Cotton Mills and Nepal Yatayat Sansthan. The previous government had announced their liquidation last year.
On the one hand, ailing PEs are adding extra burden on the government each year. The PEs failed to yield positive results in the total economy. On the other hand, the investments that have been made over the years in the PEs have been high.

Though the contributions of the PEs to the national economy is around 15 per cent, the harrowing fall in their productivity and low turnover has considerably swelled up the government’s budget deficit each year. Till the running fiscal year, more than Rs. 1.3 trillion have already been put into the PEs. But the return is almost nil in comparison to the investment.

But Dr. Narayan Manandhar, an expert on Nepalese PEs, said that the opportunity cost of privatisation and liquidation should be assessed before going into action. Dr. Manandhar, who has been closely monitoring the activities of the PEs before and after privatisation, said that the privatisation of the BPC after five years of controversy would give vent to the privatisation of other ailing PEs.

He says the future of privatisation will be determined by the success or failure of the BPC. However, he says that liquidation should not be understood as privatisation. Liquidation is, in fact, a natural death of a PE. But the Privatisation Act-2050 has defined liquidation as privatisation.

Unfortunately, the privatisation drive in Nepal has virtually failed to meet those expectations due to political instability, corruption, bad governance and lack of transparency.

According to the report published by the Ministry of Finance, the financial situation of the PEs has been worsening day by day owing to unbearable burden of liabilities created without reviewing its position. Besides, the PEs have not shown any seriousness in carrying out its day-to-day business. Account updating, final and internal auditing are rarely completed in time.

Privatization itself is not harmful if it is properly carried out, but the intention of the government should be fine, says Khila Nath Dahal, a trade union leader. The poor performance of more than 75 per cent of the privatised institutions during the past one decade, according to economists, is evidence that privatisation of the PEs in Nepal should be restructured and thoroughly reviewed.

When Nepal initiated the process of privatising the state enterprises as part of its move towards western-styled economic liberalisation in 1991, privatization was expected to inject new blood and improve their overall performance.

The government has invested Rs. 17,943.4 million as equity and Rs. 53,298.9 million as loan capital totaling Rs. 71,242.3 million so far. Most PEs have a very weak financial position and lack professional competence. Especially the industrial enterprises have been bearing losses for many years, the MoF report says.