Indo-Canadian investors to explore investment

A team of Indo-Canadian businessmen led by Stewart Beck, ambassador for Canada to Nepal, is visiting Nepal next week to explore investment avenues in infrastructure development sector.
“Another focus of the visit is to launch the Canada-Nepal Business Executive Committee (CNBEC)," Archana Mirajkar, senior media and communication officer at High Commission of Canada in India, told Republica over phone.
According to Mirajkar, the CNBEC comprises representatives from Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and Indo-Canadian Business Chamber (ICBC). "The business community from Canada is, mainly, looking to have an understanding of Nepal and investment climate there," Mirajkar said.
The delegation will visit Nepal from May 5 and 8.
Mirajkar further informed that the team comprises of representatives from firms like Arcop Associates, Bombardier, IRD Inc, Lea Associates, Manitoba Hydro International, Premiertech Aqua and Ballard Power Systems, and Indo-Canadian Business Chamber.
The Indo-Canadian business delegation will explore investment avenues in sectors like urban development, roads, hydroelectric power and waste management.
“The delegation will explore commercial opportunities in the different potential sectors," Mirajkar said. "It will also try to gain a deeper understanding of the priorities, challenges and achievements of the current government in Nepal."
Additionally, the team will also have in-depth discussion with the officials from FNCCI about the potential projects to invest.
"We are holding a meeting with the Indo-Canadian delegation on Monday," Pashupati Murarka, vice president of the FNCCI, said. "The meeting will focus on identifying different areas where we can work together and where we need foreign direct investment."
Meanwhile, Ambassador Beck also has plans to call on leaders from different political parties and high-level government officials.
According to Mirajkar, Nadira Hamid from Indo-Canadian Business Chamber, Harsh Dhingra from Bombardier, Debaissh Guha from Arcop Associates, Alisa Kreynes from Manitoba Hydro, Pramod Radhakrishnan from IRD, Pradeep Kumar from Lea Associates, Vijay Malani from Premiertech Aqua, and Alok Goel from Ballard Power System are in the delegation.
Statistics of the Department of Industry (DoI) shows 25 firms in the country have foreign direct investment worth Rs 5.08 billion (approximately US$ 57 million) from Canada as of fiscal year 2010/11. These firms have generated 1,926 jobs.
"We will explain the situation of the country to the Canadian investors and convince them that the investment climate here is not that bad," Murarka said. "We will demonstrate them that the real situation is not as bad as portrayed outside."

Improving value-chain for income generation

The One Village, One Product (OVOP) program that is under implementation in some of the districts of the country in public-private partnership (PPP). The Federation of Nepalese Chambers of Commerce and Industry (FNCCI) is seeking support from the development partners to improve the PPP for better implementation of the project.

Changed landscape of hydro sector

The government increased the application fee for survey license of hydroelectric project in October 2012 aiming to curb the growing proclivity of holding licenses of projects by developers. The news that highlights the issuance of 13 new survey licenses: 

• The Department of Electricity Development (DoED) issued 13 new survey licenses for different hydropower projects with installed capacity of 715.15 MW in the last six months.
  The licenses were extended after the department revised the survey license fee structure from a range of Rs 50,000 to Rs 200,000 in the past to Rs 1 million to Rs 6 million in October 2012.

The immediate effect of that policy change has been reflected in the number of application that come in the Department of Electricity Development (DoED).

Tenants of industrial estates protest rent hike

Tenants of the country´s 11 industrial estates have launched series of protest programs against the government´s unilateral decision to increase rent of land and buildings inside the industrial estates.
The businessmen operating factories inside industrial estates went on warpath after Industrial Estate Management Limited (IEML) - the authority overseeing the management of industrial estates - increased the rent going against the agreement that it reached with Federation of Industries in Nepal Industrial Estates (FINIE) in January.
FINIE is the umbrella organization of more than 600 factories operating inside industrial estates.
IEML revised rent for spaces and buildings inside industrial estates effective from mid-April.
“We announced the protest after IEML went against the agreement,” Shailendra Lal Pradhan, president of FINIE, said. “We want IEML to stick to the agreement.”
Issuing a press release, FINIE has issued ultimatum to IEML to correct its decisions by Sunday. "We have asked the government to implement the understanding reached between FINIE and IEML in January," Pradhan said. "If the government didn´t address our demands, we will launch protest programs from May 6.”
According to the release, the FINIE has devised protest programs like submitting a memorandum to Minister for Industry and Secretary at the Ministry of Industry, urging all the political parties for their solidarity, and stop paying rent to IEML.
Meanwhile, Devendra Kumar Yadav, chairman of IEML, said the state-owned agency has not gone against the spirit of the agreement. “We have revised the rate as per the understanding reached with the tenants,” he added.
Private sector has made investment of more than Rs 13 billion in industrial estates. Factories in the industrial estates employ around 25,000 people, according to the release.

Govt to sign $70m loan deal with EIB next week

The government and the European Investment Bank (EIB) are set to sign a loan agreement worth of US$ 70 million that would be used for the development of 140 MW Tanahun Hydroelectric Project.
"The loan agreement will be signed in the first week of the coming month of May," Madhu Kumar Marasini, joint secretary at the Ministry of Finance (MoF), told Republica on Sunday.
The government and the EIB have already completed the loan negotiations that paved the way for signing of the agreement. "We completed negotiations a couple of months ago with EIB for a loan of US$ 70 million," Marasini said.
The EIB, which will be the third donor agency to sign loan agreement for the development of Tanahun Hydroelectric Project after Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA), is offering floating rate loan. Such debt typically uses an index or other base rate for establishing the interest rate for each relevant period.
According to Mahesh Prasad Acharya, project chief of the Tanahun Hydroelectric project, the interest rate will be between 2.5 and 3 percent. "But that will depend solely on how the market will function when we actually borrow the money from the EIB," Acharya said.
The government has already finalized the terms and conditions with the ADB and JICA for loan worth US$ 170 million and US$ 184 million, respectively. The government is taking loan from the EIB for the first time. Similarly, the government is also seeking a loan of around US$ 30 million from the Abu Dhabi Fund for Development (ADFD).
JICA has agreed to provide soft loan at 0.01 percent interest rate with 40 years of maturity period. "The recent developments indicate that we would be able to kick off construction of the project in the near future," Acharya expressed optimism.
The national pride project based in Bayas Municipality in Tanahun district will start power generation from 2020 if the construction starts as planned in 2014. According to officials engaged in the negotiation process, the ADB and JICA both also have taken Tanahun Hydropower Project as a ´prestige project´.

IBN doubts private sector's capacity to execute mega projects

The Investment Board of Nepal (IBN) is not confident about the domestic private sector executing mega projects under the public-private partnership (PPP) model.
"The Nepali private sector can form small ventures under PPP model, but it´s yet to grow and learn much in order to handle mega projects," Radesh Pant, chief executive officer of the IBN, said.
Interacting with media persons here on Friday, Pant said domestic private sector has to change its ´mindset´. However, Pant didn´t elaborate what exactly he meant by ´change in mindset´.
The IBN, which was formed more than one and half years ago to facilitate the implementation of large scale projects in the country, has a mandate to execute all its projects on the PPP model. The PPP model is an arrangement between the government and the private sector to execute different projects in the country.
"The private sector and its suitability is important to take forward the PPP model in order to execute any project," Sanjay Poudyal, senior advisor at Centre for Inclusive Growth, said, presenting a paper on PPP model during the event. "The private sector should have capacity as well as expertise to deliver services in a competitive price to make the PPP model successful while executing projects."
The IBN is currently handling 14 mega projects, including five large scale hydropower projects such as 650 MW Tamakoshi III, 900 MW Upper Karnali, 600 MW Upper Marsyangdi, 900 MW Arun III and 950 MW West Seti. The other infrastructure projects include Kathmandu-Tarai Fast Track, Kathmandu Metro Railway, and project to upgrade Tribhuvan International Airport, among others.
Meanwhile, private sector representatives have expressed dissatisfaction over the statement of IBN officials. "That´s not true," Pashupati Murarka, one of the vice presidents of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said, commenting on the statement of the IBN officials.
"The domestic private sector is competent enough to execute mega projects under PPP model," Murarka told Republica over phone. “I can´t believe that such a statement can from IBN.”
Similarly, Bhawani Rana, another vice president of the FNCCI, said the IBN should work toward creating a favorable environment for investment rather than making such statement. “Private sector is always ready to work in the PPP model if the government ensures investment friendly climate in the country," Rana added.

Insecurity causes erosion in business confidence

Last Tuesday, the name of Pashupati Murarka, a vice president at the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), was added to the list of victims of attacks by unidentified groups.
As had been the case in the previous attacks on people of the Nepali business community, no bodily assault was conducted on the target himself – this time Murarka, who again was left without any physical injury. The full force of the attack was directed only at the vehicle the intended target was occupying.
The shattered glasses of Murarka and the other businessmen’s rides have been replaced by now. But it will take longer to restore the confidence of businesspeople and investors shaken by the attack.
The damage has been done!
“Business confidence plays a vital role in luring new investment. It is even more important than the availability of energy and political stability,” Murarka said. “The government must create a favorable environment so that investors do not have to worry about their security.”
Considering the events of past few months, Murarka’s wishes might not come true any time soon since the government has not been able to nab the people who launched the attacks on businessmen.
“This is continuing to erode confidence of businessmen and investors,” Murarka said.
The government announced Investment Year 2012/13 to lure foreign direct investment (FDI). Following this, the government has received investment commitment from abroad. But the response has not been that overwhelming. One of the major reasons for this is the government’s inability to ensure security of investors.
“Let alone reviewing and amending the necessary laws to attract foreign as well as domestic investment, it has failed even to provide security to the business community,” Murarka said.
Government officials also echo the private sector’s sentiment.
“It is unfortunate that the business community has lost investment confidence due to different reasons such as union unrest and trade unions’ concentration on garnering political clout through an unholy nexus,” Kewal Bhandari, joint secretary at the Ministry of Labor and Employment, and a former director general of the Department of Labor, said.
Some of the issues would have been solved had the political parties shown some seriousness. “But almost no one is serious about the country’s economy,” Bhandari said. “So how can we expect the business community to make new investments?”
The flow of investment depends to some degree on the business confidence level. The higher the business confidence, more the flow of investment will be. When investors are living in fear, nobody wants to start a new project.
But it is not only industrialists like Murarka who have lost confidence. Even small and medium-scale entrepreneurs feel the same.
“Small-scale industrialists have been intimidated by the recent attacks,” Lata Pyakurel, former president of the Federation of Nepalese Cottage and Small Industry (FNCSI), said. “Attack on big investors creates terror among small-scale investors and entrepreneurs.”
Who will come to the rescue of small-scale investors when the ‘big ones’ are under fire, she asked.
“The psychological threat has disturbed promoters of small and medium enterprises,” Murarka said.
FNCCI officials are worried that small and medium enterprises may start shifting their bases to other countries to escape the adversities they face here. “The level of confidence plays an integral role in the decision-making process,” Murarka said.
Business confidence in Nepal was low during the decade-long armed insurgency. “But that was understandable,” FNCCI Vice President Bhawani Rana said. “It’s very unfortunate that investor confidence has not been restored even after the commencement of the peace process.”
Further explaining the importance of investor confidence, Rana said that the falling investment confidence is going to affect the country’s economic growth. “These kinds of attacks create terror in the business community, which paralyzes everything, including the economy,” Rana said.
Many businesspeople now say they are not much bothered about issues like availability of power, documentation process and labor issues. “Forget about being aggressive in crossing hurdles in starting a business, we are not even sure about our security,” Rana said. “Fear itself is a big hurdle to start a business.”
Lately, foreign investors are shying away from even thinking of making an investment in Nepal, Murarka said. “We can’t calculate the loss the country has been bearing due to such decisions, as potential foreign investors are dropping their plans to travel to Nepal.”