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.”

Govt fails to fast-track Upper Marsyangdi license

The government has not been able to fast track the generating license for the 600-megawatt Upper Marsyangdi hydropower project although Himtal Hydropower Co, Ltd., a subsidiary of Indian infrastructure developer GMR, applied for the license before its survey license expired a couple of months ago.
Himtal had applied for the generation license through the Investment Board of Nepal (IBN), the high-level government body assigned to facilitate development of large scale projects, when the survey license was still valid.
"We have not received approval from the government for the generation license," D K Singh, general manager of Himtal, said. However, he declined to say anything further, citing a privacy protocol he has signed with IBN. "You better contact officials at the GMR office in India or IBN itself," he said.
IBN has rather asked Himtal to sign a project negotiation agreement (PNA), which guarantees the developer´s commitment to completing the project development agreement (PDA) within one-and-half years of the signing of the PNA. "Himtal (GMR) has not signed the PDA so far," a source privy to developments told Republica.
Himtal General Manager Singh refrained from commenting on the PNA signing. "Perhaps the PNA is currently under discussion at the board of directors of GMR," the source further said. However, Republica´s efforts to elicit any comment from IBN were futile as Radesh Pant, chief executive officer at IBN, did not respond to repeated attempts to contact him.
Meanwhile, officials from the Department of Electricity Development (DoED), which issues licenses to power developers, said that GMR itself doesn´t want a generation license without first finalizing the PDA negotiations. "The developer wants to finalize the PDA deal before seeking a generation license," Gokarana Raj Pantha, senior divisional engineer at DoED, said. "GMR is looking to finalizing the PDA deal since that will help them generate financing for the project."
IBN, which is developing the PDA template -- a standard basis for PDA negotiations for hydropower projects above 500 MW capacity, already approved additional investment from Rs 450 million to Rs 1.9 billion in December 2012.
Additionally, the government has granted permission to start land acquisition verification (LAV) at the project site in Lamjung and Manang districts. It has also approved the environment impact assessment (EIA) report prepared by the developer.
The government has awarded the project to Himtal under the build-own-operate-transfer (BOOT) format.

Prosperity depends on political course

Policies are formulated based on reality. Policies are made for better future. Forecast of the future is mostly influenced by hope. But hope itself should not be a determining factor to make policy decisions. It neither fast tracks our desire to develop a prosperous country, nor is a foundation of growth. Still, the hope guides us!
The country’s economic growth is shrinking.
An economic growth rate of just 3.5 percent has been forecast for the current fiscal year 2012/13, the lowest in the last five years. Lack of infrastructure, acute power shortage and low investment are some of the major bottlenecks in our efforts to achieve the desired level of economic growth.
Infrastructure, hydropower, and private sector development are the major areas where the government should focus on in the coming days in a bid to accelerate the economic growth. More specifically, only a vibrant private sector can help the country fill the infrastructure gaps and address the power shortage by injecting new investment in energy generation.
The dynamics of the country’s economic growth is slowly changing. The economy that was mainly driven by the agricultural sector, and remittance to some extent, is shifting to the services. The services sector has enjoyed a relatively higher growth rate in the last couple of years. Keeping this in mind, the focus should be on further accelerating the growth of services sector. For that, we need adequate infrastructure, power and an effective private sector.

The private sector was not able to make much progress despite the government’s free market-oriented policies since 1990 due to the extortion drive by the Maoists during the decade-long insurgency. The end of the insurgency in 2006 brought relief to the private sector and the Constituent Assembly (CA) election in 2008 gave some hope.
With the signing of the Comprehensive Peace Agreement (CPA) between the then seven parties and CPN (Maoist) in 2006, people were hopeful of economic development in the country. But that didn’t last long as the CA was dissolved in May 2012 without promulgating a new constitution.
People continued to suffer as the political mistrust started deepening even after the CA election. As a result, the private sector of the country was reluctant to make new investments and the mega projects in infrastructure development couldn’t gain momentum as successive governments failed to bring full-fledged budget on time.
Mega projects such as the Kathmandu-Tarai Fast Track, which will connect Kathmandu and Nijgadh by a 76-kilometer highway, are yet to find a developer. The much-touted Kathmandu-Hetauda Tunnel Highway is limited to talks. Neither the private sector nor the government is working seriously to devise plans to generate funds for the development of the projects.
The private sector is not ready to make the level of investment required to achieve the desired level of growth rate due to different reasons such as political instability and policy inconsistency resulting from frequently changing governments.
The economic growth rate had reached 5.8 percent in fiscal year 2007/08 mainly because the people were hopeful after the CPA was signed and the then CPN (Maoist) joined peaceful politics laying down its arms. However, that hope was short-lived.
The private sector that was badly hit by the decade-long armed insurgency in the country again started to be intimidated by the political parties. “We have to start from the political parties if we want to a corruption-free society,” Suraj Vaidya, president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said.
Following the CA election in 2008, some efforts were made in terms of infrastructure development. The government’s efforts to reconstruct the physical infrastructures that were damaged during the insurgency gained momentum after it established a separate entity, the Ministry of Peace and Reconstruction, following the CA election.
The private sector’s growth that is crucial to achieving the desired level of economic growth has not happened due to low investment and lack of favorable environment that can lure domestic as well as foreign investment in the country. “We need investments but at the same time the environment is not favorable for injecting fresh investment,” Vaidya said.
The economic slowdown and declining level of confidence of the business community doesn’t give much reason to be hopeful. But that does not mean we would not see any progress in course of time. “The situation is not favorable for making additional investment in the country,” said Pashupati Murarka, vice-president of FNCCI, who has investment in the cement industry in the country.
However, some others are still optimistic about the prospects in the next five years. “I am quite hopeful about the future and I see it happening,” Srijana Bhattarai, a returnee from the USA, who works for the Investment Board of Nepal (IBN), a high level government entity, said. “Probably, you won’t hear the same thing from people from the earlier generation.”
The development of the country’s private sector largely depends on how the political course unfolds ahead. Meanwhile, what we should not forget is that the private sector itself has a role to play in realizing our dream of achieving double-digit growth. The private sector that is supposed to lead the country’s economy has to make new investments in some strategic sector to achieve that goal.
Investment is required mainly in the infrastructure and energy sector from the government as well as private sector. “We need public as well as private investment to realize our dreams,” Murarka said.

SN Power signs PNA with IBN

The Investment Board of Nepal (IBN) has signed project negotiation agreement (PNA) with SN Power, a Norwegian power developer engaged in development of 650MW Tamakoshi hydropower project. SN Power is the first company to ink PNA, although the IBN has asked all hydro project developers to sign such agreement.
"GMR and Sutlej Jal Vidyut Nigam, two Indian infrastructure developers, have not signed PNA so far," a source privy to the issue told Republica. The IBN had previously asked all the three developers--GMR, Sutlej and SN Power--to sign the PNA.
PNA sets a standard timeframe to complete project development agreement (PDA) negotiation for hydropower projects above 500 MW. According to the PNA document, developers and the government should sign PDA within one and half years of beginning PDA negotiations.
The GMR is engaged in development of 900 MW Upper Karnali and 600 MW Marsyangdi hydropower projects. Sutlej is working on developing 900 MW Arun III hydropower project.
"Sutlej still has time to sign PNA. But GMR has failed to sign PNA for Marsyangdi hydro project within deadline," the source revealed. "GMR, however, has not declined to sign the document. It has said it is preparing to sign the agreement."
The IBN, a high-level government entity that was formed more than one and half years ago to facilitate development of large-scale infrastructure projects, last week formed a PDA negotiation team.
"The IBN has communicated with developers to start PDA negotiations by the end of May," the source said. "The IBN is hoping that GMR would sign PNA before that."
According to the PNA template, PDA negotiation with hydro project developers would be automatically terminated if PDA could not be completed within one and half years of commencement of PDA negotiations.
It is said PNA will end the proclivity to lingering PDA negotiations for mega hydropower projects.
According to the source, the IBN developed PNA template through technical assistance of the Centre for Inclusive Growth (CIG), an organization that focuses on policy dialogues in the country and is funded by the Department for International Development (DFID) of the British government.
A high-ranking IBN official said: "The concept of PNA was coined to pass the ownership of the project to developers."