Relief-packages to sick industries uncertain

Sick industries that were hopeful of finally getting much-touted relief package, particularly after the cabinet last week approved an action plan of Ministry of Industry (MoI), will find their hopes shattered again as there is no parliament to amend the laws necessary for implementation of the package.

The government, which constantly failed to identify criteria for sick industries for well over one-and-a-half of decade, was preparing to amend Industrial Enterprise Act (IEA) incorporating the recommendations of a high-level task force formed to facilitate rehabilitation of sick industries.

But the dissolution of Constituent Assembly (CA) has eroded the possibility of amending IEA. "We can´t provide anything that is not under the law," Yam Kumari Khatiwada, joint secretary of the MoI said, "We can offer relief-packages that have been envisioned by IEA - 1992 only after finalizing the criteria for listing sick industries."

The committee has got cabinet approval to work and finalize the list of sick industries. "The committee will set the criteria for sick industries," Khatiwada said.
"Enacting the proposed IEA is crucial to industrial development," Khatiwada said adding, "We will try to take initiatives to provide as much as possible relief to the sick-industries."

However, the high level task force led by vice-chairperson of the National Planning Commission (NPC) Dipendra Bahadur Kshetry has recommended multiple relief packages to the sick-industries ranging from bank loan restructuring to tax waiver.

The high-level taskforce has received applications from 26 firms for relief packages. "Additionally, six of them have put pressure on the ministry for immediate support," said a MoI source, declining to name the industries.

The ministry, which was looking forward to getting special economic zone (SEZ) bill endorsed and foreign direct investment policy revised has faced a set back following CA dissolution.

Investment Year in trouble post CA demise

Much-touted Investment Year 2012/13 has landed in trouble after the country´s failure to formulate new constitution badly eroded country´s prospect as an attractive investment destination.

While launching the Investment Year, Prime Minister Dr Baburam Bhattarai had said the government would bring in foreign investment worth US$ 1 billion within the first six months of 2012/13, and to achieve the target the government would formulate necessary policies and laws.

“The program is doomed now. Who will put his/her money in a country that does not have a full-fledged constitution and political uncertainties loom large,” said Binod Chaudhary, president of Confederation of Nepalese Industries (CNI).

Under its pledge, the government had said it would provide flexible labor regime to the investors. It had also promised to introduce laws like Industrial Enterprise Act, Special Economic Zone Act, formulate a new Foreign Direct Investment (FDI) policy and enact more investment-friendly FDI Act, among other things.

“The government can still formulate the policies. But the dissolution of CA and legislative-parliament has disabled it from enacting much-needed investment-friendly laws,” said Bhaskar Raj Rajkarnikar, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

The government had launched the Investment Year after it formed the Investment Board (IB) and on the basis of calculations that the country would have concluded the peace process and constitution writing by now.

"But that hope has been shattered,” said Rajkarnikar, adding that as the new chaos has turned even the domestic investors nervous, forget foreign investors.

Officials disclosed that foreign investors who were holding talks with the IB to invest in some of projects have already started showing sign of ´waning confidence´ after the new political turn of events.

“South Korean investors, who were looking forward to invest in the hydroelectricity sector, have expressed fear to move forward,” disclosed a source. "They (Korean investors) were excited, but now they are saying that they do not feel comfortable to continue with the proposed projects," said the source.

The announcement of Investment Year had excited both the private and public sectors, and top business bodies like FNCCI and CNI have been actively supporting IB to come up with numerous business projects.

The government too had handed over 14 large-scale development projects such as West Seti (750 MV), Upper Karnali (900 MW), Kathmandu-Tarai Fast Track and Second International Airport in Nijgad among others to the IB to award them to the promising investors under fast-track mode.

“Sadly, this sudden political mess has sharply curtailed the chances of those projects drawing international investors,” said the source.

Radesh Pant, CEO of the IB expressed hope that situation will not be as bad as the business community and some officials think. "Investors will still be interested in those projects if we are able to guarantee protection for their investment," he said.

Budget to acquire land for Janakpur railway track

The government has finally made arrangement for partial budget to acquire land for the construction of Bijulpura-Jayanagar railway track. The project had been facing long delays after Ministry of Finance (MoF) failed to make timely arrangement of funds.

Ministry of Physical Planning and Works and Transport Management (MoPPWTM), which is supposed to carry out the land acquisition, finally got Rs 690 million. The government has estimated Rs 1.25 billion for the acquisition of land.

According to Tulsi Prasad Sitaula, secretary of the MoPPWTM, MoF has approved budgetary transfer of Rs 500 million and provided additional Rs 150 million. The government had allocated Rs 40 million through the budget of current fiscal year 2011/12.

“We have formally approached the Indian government to start the bidding process for the construction of railway track,” Sitaula told Republica on Sunday. He further added that the MoPPWTM has arranged money from other projects´ budget that remained unspent.

Acknowledging the delay, the Public Account Committee (PAC) of parliament had directed the government to arrange the necessary funds. According to DoR, it needs to acquire 220 hectares of land from Janakpur to Bijulpura to upgrade the existing track.

Nepal and India agreed to develop Janakpur-Bijulapura railway track in February 2010, when President Ram Baran Yadav visited India. Under the project, the Indian government agreed to upgrade the existing 51-km long railway track to broad gauge and extend it up to Bardibas, a major junction along the proposed East-West railway. India has allocated Rs 600 million for the project.

However, the project is not likely to start within this fiscal year. “It takes at least 3 months from the bidding process and it is almost impossible to start the construction this fiscal year,” Sitaula said.

The MoPPWTM, which will soon start distributing compensation to the local land owners, will first use the available money to acquire 15 km stretch of land in the Biratnagar border area to extend railway track. “And rest of the money will be used in the Janakpur-Jayanagar area,” Sitaula said.

Govt hands over 14 mega projects to Investment Board

The government on Saturday handed over 14 mega projects tagged as National Pride Projects to the Investment Board for their speedy implementation.
It also endorsed the long-pending regulations of the board to allow it to recruit required manpower, set up office and lay down appropriate norms so that interested investors could directly approach it by following the stipulated rules.
Projects that have been handed over to the board include hydropower projects like West Seti (750 MW), Upper Karnali (900 MW), Upper Marsyangdi (600 MW), Tamakoshi - III (650 MW) and Arun - III (900 MW). The board has also been tasked to oversee the much-talked 76-km Kathmandu-Tarai fast track, Nijgadh international airport project, Metro Railway in Kathmandu and the project to upgrade Tribhuvan International Airport.
Likewise, the board has also been asked to oversee various highways along North-South corridor, Kathmandu Waste Management Project, Chemical Fertilizer Plant Project, Nepal Infrastructure Bank and establishment of star hotels on government land.
A meeting of the board held earlier in the day which was chaired by Prime Minister Baburam Bhattarai also passed the Investment Board Regulations, which will allow the board to get a full shape.
The regulations provide a detailed framework for smooth functioning of the board.
Until now, the board´s office was limited to a single room at the Prime Minister´s Office. But soon it will have two offices in the future, said a senior IB official.
According to a member of the board, who preferred to remain anonymous, the board will have one office on the premises of Singha Durbar and another outside. "The aim of establishing two offices is to speed up the work and reduce accessibility hassles for international investors," the member said.
The board, which is supposed to carry out the government´s ambitious plan of bringing in foreign investment worth 1 billion US dollars within the first half of the fiscal year 2012/13, will soon start screening investors who have already approached IB.
"West Seti, Upper Karnali and Arun-III hydropower and Kathmandu-Terai fast track are the projects which will soon find investors as well see speedy work," the board member told Republica.
However, project such as Kathmandu Waste Management, Chemical Fertilizer Plant and North South Corridor will have to wait for some time, the board member added.
The government has announced the year 2012/13 as Investment Year.
Radesh Pant, the board´s chief executive officer, talking to Republica after getting the responsibility of executing the 14 mega projects, said, "We will have to move fast along with sound coordination with all the line ministries and stakeholders."

Global map to show Nepali dry ports

Nepali dry ports will soon be visible in the global map of United Nations so that importers and exporters from any part of the world can figure out the origin or destination ports of their cargos or goods.
Government is preparing to register Nepali dry ports with the United Nations Economic Commission for Europe (UNECE). The dry ports, which have been operational since the early 2000s are still not listed in the global map. “Our dry ports will be visible in the global map once we register them with the UNECE,” Sarad Bikram Rana, president of Nepal Intermodal Transport Development Board told Republica on Saturday.
Once registered the dry ports will be assigned codes. “In order to register them with the global map of the UNECE, they should first be registered in the national government authority,” Rana elaborated on the government´s preparation for a Dry Port Registration Regulation (DPRR). Ministry of Commerce and Supply is preparing to endorse DPRR which will give them code recognized by UNECE.
“We were facing problems since our dry ports were nowhere in the global map,” Rana explained, “This will not be the situation anymore. Anyone who wants to dispatch cargos and goods can easily locate the dry ports where they want to send and vice versa.” Currently exporters who trade with Nepal, use the location of Calcutta port.
Dry ports in Birgunj, Biratnagar and Bhairahawa were developed under the government´s Nepal Multimodal Transit and Trade Facilitation Project (NMTTFP) with an estimated total cost of US$ 28.5 million, which include US$ 23.5 million credit from the World Bank and US$ 5.0 million from the government. The project was initiated in 1998 to construct rail based inland containers depots (ICD) in Birgunj and road based ICDs in Biratnagar and Bhairahawa.
In addition, the government has recently signed a memorandum of understanding with China to develop a dry port in Larcha, Tatopani. Similarly, it is working on a feasibility study to develope dry port in Chandani-Dodhara.
“After endorsing the DPRR, there would be a proper guidance as well for the management of ICDs,” Himal Thapa, under secretary of the MoCS said.

Nepal ranks 124th in ETI

Enabling Trade Index (ETI) -2012 has ranked Nepal in the 124th position with foreign trade environment in the country deteriorating over the last two years.
The ETI ranking is based on indices such as access to domestic and foreign markets, efficiency of customs administration, efficiency of export-import procedure, transparency of border administration and availability and quality of transport services, among others.
World Economic Forum (WEF), which develops the ETI, had ranked Nepal in 118th position in 2010. The ETI has ranked Singapore in the first position. This report has been made public following the release of World Bank’s trading logistics report a couple of weeks ago.
The Global Trade Enabling Report 2012, which has prepared the ETI on the basis of 9 pillars, has ranked Nepal in the 106th position in terms of access to domestic and foreign markets, 121st in terms of customs administration efficiency, 118th in efficiency of import and export procedure, 126th in transparency of border administration, 124th in availability and quality of transport services and 129th in physical security.
The report has also listed problematic factors affecting import and export. Inappropriate production technology and skills, failure to identify potential markets and buyers meet quality/quantity requirements of buyers are the first three major barriers for Nepal´s export growth.
Though Nepal´s import has surpassed the export volume, the report has outlined burdensome import procedures, tariff and non-tariff barriers and corruption on the border as the major problems facing imports.
Nepal ranked in the 118th position in ETI -2010. WEF has also added seven other countries -- Angola, Haiti, Iran, Lebanon, Moldova, Rwanda and Yemen -- in the report.
Other South Asian countries such as India, Bangladesh and Pakistan also have lost their previous positions and have been ranked in the 109th, 113rd and 116th position respectively.

Overcoming obstacles

DECLINING EXPORTS TO CHINA

Despite a huge potential market in China, Nepal’s exports to the country have been on a continuous decline for a decade. Nepal has also failed to capitalize on the preferential treatment provided to 4,721 exportable items in 2010. But why is Nepal’s export to China far lower vis-a-vis global export growth? I believe it is the country’s inability to consistently follow up on and implement agreements signed during multiple bilateral meetings between Nepal and China.
The two countries have signed more than half a dozen bilateral agreements since 1981. The Trade and Payment Agreement (TPA) signed on November 22, 1981 in Kathmandu was the first after Nepal recognized the sovereignty of China over Tibet in 1956. Since, the two countries have inked other bilateral treaties related to trade and transit such as the Bilateral Road Transportation (BRT) in 1994, Trade and Other Related Matters between Nepal and TAR in 2002, Agreement of Cooperation for Industrial product Inspection between General Administration Quality Supervision, Inspection and Quarantine of the People’s Republic of China and Nepal Bureau of Standards and Metrology in 2005. In 2009, Nepal and China agreed to establish an inter-governmental committee called Nepal-China’s Tibet Trade Facilitation Committee. Additionally, in 2010 the two countries signed Letters of Exchange (LoE) granting special preferential tariff-treatment to certain goods originating in Nepal and exported to China.

On the surface, the low volume of export to China can be attributed to two broad two reasons: one, supply-side constraints and two, problems related to productivity levels and administrative capacity and bureaucracy. Inadequate transportation, scarcity of customs capacity, long administrative process, lack of credit facility, absence of dry port and language and payment issues are hurdles to smooth trade between the two countries. Constantly declining exports to China and mounting imports from the northern neighbor have resulted in a mammoth trade deficit of Rs 45 billion in 2010/11.
Trade is the most viable means for development because it provides incentives and benefits to both the parties. Though China has agreed to support Nepal in encouraging, supporting and establishing payments through banks by a letter of credit in the Agreement on Trade and other Related Matters 2002, Nepal has failed to take full advantage of this and other such concessions. China’s dissatisfaction with Nepali laboratories’ certificates is also considered a major barrier to exports. But what about the Agreement of Cooperation for Industrial Product Inspection (ACIPI) 2005, which has an explicit clause that establishes mutual recognition of inspection certificates? Not just that, China has even agreed to assist Nepal in establishing laboratories with rich technology. Then why does our government not consistently follow up with China for implementation of these agreements?
Some reports claim that China hinders exports from Nepal by creating non-tariff barriers. The government should constantly follow up with its Chinese counterpart to get to the bottom of the matter and clarify all such issues. Let’s take an example, which explicitly demonstrates how the government’s lethargy contributes to low exports to China. China agreed to finance the development of a dry-port in Larcha, Tatopani. However, Nepal has been reluctant to break the transport syndicate that is dampening all such prospects. Breaking the transport syndicate on the Araniko highway is the first step towards utilizing the dry-port.
The bleak scenario of Nepal’s scant trade with China compared to its global trade points to other factors as well. The production capacity of the country is a major issue to be addressed but as we know, it takes years to strengthen this. What the government can do right away is address the problems faced by Nepali exporters in the border areas and in transportation sector. But it calls for strong will at both diplomatic and bureaucratic levels. Nepali bureaucracy is so weak that it can’t even ensure effective and timely implementation of agreements at the political level.
Nepal’s widening trade deficit at the global level may be attributed to its unstable macro-economic situation, shortage of power, limited production capacity and geographical constraints, among others. Problems with export to India and other Third World countries arise of our limited access to sea ports and hurdles caused by Indian and other customs. However, there is ample room to improve the trade with China, or at least ease the complications. In 2001-02, Nepal exported goods worth of Rs 1.1 billion and imported goods worth Rs 11.2 billion. Ten years down the line, in 2010-11, export to China is just Rs 925 million whereas imports have reached Rs 46.6 billion. Declining exports and mounting imports leading to a massive trade deficit is a stark measure of government inefficiency.

At the root of Nepal’s trade growing deficit with China is government’s inability to consistently follow up on and implement past agreements.

There is a pressing need to immediately list goods in which Nepal has comparative edge. A concrete study to identify these goods that have a high demand in China with low competition from other countries should be carried out as soon as possible. The products that are listed in the Nepal Trade Integration Strategy (NTIS), 2010 are losing their competitiveness in the Chinese market. For instance, goods like ginger, lentils and medicinal herbs are no longer as competitive as they used to be; we need to draw up a fresh list of exportable goods
It is also important to constantly engage in productive talks with China in order to keep the trade environment conducive. For instance, the Trade and Payment Agreement, 1981 has provided for an implementation and dispute settlement body. Under this provision, both the countries can meet at any a given time to resolve issues concerning trade and transit arena on the request of the two countries. However, no such efforts have been made till date.
Effective implementation of already agreed plans should be the first priority for Nepal. There is no doubt that the private sector has an integral role to play, in that it can produce high quality goods for the Chinese market, while the government should also look to remove supply-side constraints in the long term. However, that cannot be an excuse for the government not to take immediate steps.