With the promulgation of the new Constitution of the Federal Democratic Republic of Nepal in September 2015, Nepal switched from a unitary system of governance to a federal system with three parallel forms of government – the federal, the provincial and the local. The Constitution confers both legislative and executive powers to all three forms of government. Schedule 8 of the Constitution of Nepal particularly confers exclusive power to the Local Governments on 22 matters, including matters relating to public finance (raising taxes, fees, and fines), management of local services, local infrastructures, local statistics and records, and local market. Furthermore, the Constitution also enshrines ‘prosperity’ as a national agenda. Along this end, creating employment through necessary economic policy reforms for an investment-friendly business environment has been widely accepted as Nepal’s mantra of prosperity. Having legislative and executive powers that can be exercised to achieve the goal of prosperity creates space for local governments to forge a shared vision of growth and prosperity together with local stakeholders. Continue reading
Today, there are numerous examples from all around the world on how securing property rights has led to the economic prosperity of nations. Be it the farm privatization in China or securing formal titles to the property under possession of the Peruvians, these actions have been the harbinger of economic growth in the respective countries, esp. their nationals at the bottom layer of the pyramid. Secure property right sits well-established as one of the most important elements for economic prosperity. As more and more people from developing nations are stressing on the need of economic growth, and as Nepal is no exception to this, it is therefore crucial that the status of protection of physical and intellectual property in Nepal be discussed.
In partnership with Property Rights Alliance (PRA), a Washington DC-based non-partisan organization that advocates the protection of property rights (Physical and Intellectual), Samriddhi, The Prosperity Foundation launched the International Property Rights Index (IPRI)Report, 2014 in Kathmandu, Nepal on the 4th of November, 2014. The report-launch was done during an Econ-ity event which is a monthly discussion forum where politicians, bureaucrats, entrepreneurs, academicians, journalists and all concerned stakeholders partake in a discourse on contemporary political-economic issues of Nepal. This edition of Econ-ity featured a discussion on the position of Nepal in the global property rights context, the reasons behind why Nepal fares so poorly in terms of security of property rights and the importance of the concept of property rights being acknowledged and respected by the state for achieving economic prosperity in Nepal.
The panelists for the event were:
1. Dr. Chiranjivi Nepal – Economic Advisor to the Prime Minister of Nepal
2. Dr. Bhimarjun Acharya – Constitutional expert
3. Mr. Khim Lal Devkota – Former Member of the Constituent Assembly
The event was moderated by Mr. Yuvaraj Ghimire, Chief Editor, Annapurna Post.
As per the report, Nepal’s IPRI has remained at a stagnant 4.5 this year, as the last year. Legal and Political Environment has remained stagnant at 3.3 while Physical Property Right and Intellectual Property Rights have gone down by 0.1 point each to 5.9 and 4.1 as compared to 6.0 and 4.2 respectively last year. With this index, Nepal is still a nation with one of the weakest property rights in the world, securing 78th position out of 97 countries that were studied in detail.
Below is the snippet of the views expressed by the panelists during the discourse.
During the event, Dr. Chiranjivi Nepal stayed true to his roots as an economist and displayed great enthusiasm in supporting the importance of Property Rights in leading a nation towards economic development and prosperity. “Access to natural resources or being natural resource rich is not enough to ensure richness,” he argued, “as strong property rights enforcements will naturally foster an environment for wealth creation.” Moreover, further supporting his strong belief on the importance of property rights, he said, “political ideologies are not a barrier or impediment to growth, as evinced by Finland, a socialist state, which is a powerhouse in terms of technological advancement because of its proper enforcement of property rights laws.” In the case of Nepal, he provided strong evidence for the weak property rights situation by verifying the number of people who have lost their property in the guise of road expansion. He stated that the state-sanctioned ‘Road Expansion Drive’ has been a direct violation of the constitutional right to private property of all Nepalese citizens, leading to such dismal performance in the global comparison. He expressed that such unconstitutional acquisition of private property kills the spirit of entrepreneurship in people and pushes the country towards economic regress. He drew examples from countries like India, the US and more where they have opted to shift capitals to new locations to protect and preserve the historical resources and safeguard private properties instead of bulldozing them in the name of traffic management. He further urged the policy-makers to learn from the examples of India and China where economic liberalisation, where protection of private property is one of the responsibilities and commitments of the state, has led to their attaining such high levels of economic growth in the last few decades as they have.
Dr. Bhimarjun Acharya, as an expert in the legal system of Nepal provided a concise viewpoint on the issues related to property rights which are contentious in the current constituent assembly, namely: ceiling on earning, compensation on public earning, ceiling on land holding, and whether property is a fundamental right. He further added that UN’s Fundamental Declaration on Human Rights recognizes property as a fundamental human right. He added that public acquisition of private property can only take place in the case of public interest and when such actions are taken due compensation is a requirement. Similarly, “an accountable government should take all necessary steps to ensure the public that the acquired property is being utilized for the same purpose as the pretext that led to such acquisition in the first place” he concluded. He added that despite Nepal’s once having endorsed the notion that all the land in a country belongs to the state and people are given permission by the state to use the land for economic gains, it is a completely impractical notion in the modern context and no state action can be justified if it breaches the fundamental right of the people without prior compensation.
Former CA member Mr. Khim Lal Devkota had a differing opinion in terms of private property. He stated that property rights are provisioned by law; hence, they are legal rights and cannot be accorded the position of fundamental rights. He explained that government planning on the allocation of private property is required and that compete freedom of property utilization through private parties will result in failure as verified by the recent economic downturn and failure of a number of corporations which ultimately required government intervention. Similarly, he suggested that private property ownership will not lead to economic freedom as such wealth owners will only be looking for themselves—the difficulties faced in the construction of transmission lines being an example. Asymmetric wealth distribution is a looming problem and an undeterred property acquisition would only aid those who are already rich, leaving the poor poorer he stated. Moreover, he argued, such conditions would foster an unequal and volatile social environment that could incubate unrest and disorder. In a world where 85 people—who could easily influence world events to their whim—posses more wealth than that held by half of the world’s population, he concluded, it is important to structure property rights around activities that are beneficial to the public as a whole.
With the recent visit by Indian Minister of External Affairs Sushma Swaraj and the forthcoming visit of Prime Minister of the Republic of India, Mr. Narendra Modi, Power Trade Agreement between Nepal and India has become a concern for many in the Nepalese political-economic discourse. The recently proposed draft Agreement between Government of the Republic of India and Government of Nepal on Cooperation in Power Sector has been subject to immense political scrutiny for a number of reasons making the discussion on the proposed power cooperation agreement imperative.
Samriddhi, The Prosperity Foundation thus conducted its latest round of Econ-ity tilted “Discussion on Indo-Nepal Power Cooperation Agreement (Draft)” on the 31st of July, 2014. The event was held at Hotel Himalaya, Kupondole, Lalitpur and the panelists/speakers were:
• Dr. Prakash Sharan Mahat- Nepali Congress
• Mr. Lila Mani Pokharel- UCPN Maoist
• Dr. PC Lohani- Rastriya Prajatantra Party
• Mr. Dharmendra Bastola- CPN-Maoist
This edition of econ-ity was moderated by Mr. Kuvera Chalise.
Here is a snippet of what the speakers said during the forum.
1. Dr. Prakash Sharan Mahat
Dr. Mahat commenced his deliberation by stating why it is high time that Nepal enter into a Power Trade Agreement PTA with India. He shared that hydropower is a highly capital-intensive industry and all investments are made before the generation begins. Therefore, developers shy away from entering the industry until a prospect for market has been established. This market can be secured by a PTA.
In the mean time, he also expressed that Nepal’s domestic needs should be fulfilled first. There is immense amount of water flowing throughout the country and with right investments this water can be converted in to economic goods. He talked about the need to guarantee that small projects cater to domestic demand and only large projects export electricity to fulfill the needs of the neighbor. There is seasonal fluctuation of water supply in Nepal. Therefore, storage-type projects are must for Nepal. Given the high costs associated with these types of projects, due to high expenditure in building dams, relocating locals of the land, environmental impacts etc., he shared that the state should lead the construction of such high capacity projects. If the state guarantees that investors get a respectable return, he further hinted towards the possibility of channeling the remittance money into construction of these mega-projects.
He further clarified that this proposed PTA, if agreed upon, would mean that Nepal sells only the excess (otherwise spill-over) electricity and it does not mean selling electricity while Nepalese people remain in darkness. With the pace that hydropower developers are investing in Nepal, after 2017 we are all set to face spill-over and this PTA guarantees that such excess electricity can be sold to India. He further added that the Nepali side must be cautious about whether or the not the condition – that Nepal can also import electricity from India when it faces shortages – makes it to the agreement. This is a must, he shared.
Responding to the allegations that India plans on controlling the entire water resource of Nepal and dominating Nepal, he said that the proposal sent by Indian side is just a draft and it is open to negotiations. Nepalese side should table their own conditions and take the discussion forward rather than alleging India of trying to dominate Nepal, he added. The proposed agreement opens possibilities of further cooperation between India and Nepal and at the moment we should carefully analyze the proposed clauses and try to earn a better deal for ourselves than doing nothing about it.
Then he went on to say that the proposed agreement sets Nepal into a path of changing the way Indo-Nepal cooperation moves forward. He shared that Indian political leadership is trying to make real cooperation with Nepal after 17 years and this is the best possible situation for Nepal. We should extract the best out of this opportunity. He added, we have borne the brunt of handling this responsibility to bureaucracy in the past and today, we have the opportunity to change this.
Dr. Mahat then talked about the benefits this PTA offers to Nepal. He said that this PTA opens the way for Nepal to make PTAs with Bangladesh, China and others in future. Furthermore, removing tariff barrier, as proposed, is a great deal for Nepal. Removing tariff barrier means that Nepal’s electricity will be cheap and there will be more demand for our electricity in India. There is a clause that secures non-discriminatory treatment for our electricity.
He concluded his deliberation by warning all political and opinion leaders that this PTA should not be taken into an ideological debate.
2. Mr. Lila Mani Pokharel – UCPN (Maoist)
Mr. Pokharel talked about how problems that have surfaced following the 1950 treaties have made us think about the consequences of this proposed PTA as well. Therefore, it is important that we take this fact into consideration. He further expressed his dissatisfaction over how the details regarding the proposal by the Indian side was kept under-cover.
Then he spoke about how selling raw materials has never made any country rich. He said that we need to use our water resources to fulfill our own needs. Therefore we should not be too dependent on selling electricity.
He then went on to talk about the motives of India behind this power agreement. He explained how energy is not the primary concern or India. He said that there are alternative sources of energy for India. It is not energy that India wants. They want control of our water.
He also highlighted some of the issues that were not included in the PTA but which should have been there. There is no mention whatsoever of the downstream benefit sharing in this draft. He said that current PTA proposal compromises Nepal’s irrigation projects, while India gets surplus water.
He concluded his deliberation by mentioning that Nepal should also ask India for right to sell electricity to Bangladesh.
3. Dr. PC Lohani – Rastriya Prajatantra Party
Dr. Lohani started by acknowledging that in any bilateral agreement, both countries have their own national interests. Likewise, India and Nepal have their national interests. The right thing to do under such a situation is to openly discuss the interests and strike a deal with mutual benefit.
He then went on to pointing out the shortcomings of the proposed cooperation. The proposal fails to acknowledge the concept of value added water. When Nepal builds dams to store water so that India can have enough water during their dry season, it offers them a lot of benefits. Nepalese side should table this issue while discussing PTA. He then shared that we should be transparent with our bilateral issues. We cannot do a deal under cover without allowing enough public discourse over the deal . Other relevant ministries should also be on the same page.
On the bright side, he said, Indian side is ready to negotiate the terms and therefore need to expedite the process. He suggested that we should put in the concepts of sub regional grid common market mechanism without government intervention in the PTA.
He concluded his speak by mentioning that there should be a different framework policy in dealing with water resources. A high-level committee could be created to prepare a draft report within 3 months.
4. Mr. Dharmendra Bastola: CPN-Maoist
Mr. Bastola began his speak by saying that PTA should happen, but the terms and conditions and modality need to be discussed further. He also warned that India wants to exercise control over Nepal’s water. India needs water for various reasons such as irrigation and flood control. They need to deal with their dry season shortage and this is what guides this PTA, he said. Therefore signing this PTA under current terms and conditions will make Nepalese people poorer and force them to live in the darkness forever, he added.
He then went on to talk about how the Nepalese government should take up the responsibility of constructing larger scale projects. If we do not have enough funds, one option is that we take loans and pay interest. Another alternative is that If the government can channel the remittance money (which amounts to over $ 5 billion) into hydropower sector, we can invest $ 4 billion in Upper Karnali. Then we can build hydro projects and still have 1 billion dollars’ worth of saving.
He then added the benefits of developing hydropower projects by Nepal itself. We could then concentrate on bringing in foreign investments on the ground that production costs are cheaper in Nepal due to cheap energy. If we have enough energy, we could lure foreign companies into Nepal.
He then shared that the economic model of Public Private Partnership (PPP), which we are practicing at the moment is a wrong economic policy. We need Public Private Cooperative Partnership (PPCP).
Coming back to the prospect of PTA with India, he shared that storage-type projects should be the priority. Record Keeping on how much electricity flows out and how much electricity flows in should be done properly. Prices should be fixed by Nepal. Tariffs should be made applicable. If all these issues are included in the PTA, then we can move on with the proposal and sign a deal, he said.
Interaction with the audience
The participative and interactive audience then further talked about price fixing mechanisms including that for import in the short and medium term, need and prospects of a power trading company for Nepal, transmission lines provisions and other pertinent clauses in the proposed (draft) agreement. Some of the highlights of the interaction session were:
• This proposal is silent about the prices that will be charged to Nepal when Nepal has to import electricity from India. This could cause problems in future. This issue needs to be worked out.
• This PTA is similar to Bilateral Investment Protection and Promotion Agreement (BIPPA) that Dr. Babu Ram Bhattarai, former Prime Minister of Nepal did with India. Signing this PTA will open avenues for making PTAs with other neighboring countries like China and Bangladesh for Nepal.
• Agreements like the one that has been proposed by India affects not just the Ministry of Energy, but the Ministry of Agriculture and Ministry of irrigation as well. In order to smoothen the policy making and ease up the monitoring of different activities related to water resource management, agriculture and harnessing hydropower, these ministries could be accommodated into one.
• Unfair terms of trade are bundled together and proposed here. We should separate these and discuss them one by one. A team can work that out. A consensus base model is what is required.
• We do not have a Power Trading Company in Nepal right now. Even in India Power Trading Company, India is a near-monopoly institution. We have to make a PTCN and a new transmission company. Then only, both countries will be on balanced terms.
On May 23, 2014, Samriddhi Foundation held a round table meeting to discuss the Framework for Foreign Investment Policy in Nepal. As the latest draft of Foreign Investment Policy (2014), proposed by the Ministry of Industry, has been receiving mixed feedback from stakeholders and experts, it had become important to outline a framework that clarifies the objective of the policy and outlines the application of sound measures and tools to achieve the goal.
International Finance Cooperation (IFC)’s investment policy specialist, Mr. Roberto Enchandi was the speaker for the program and he shared his knowledge and expertise during the discussion. Mr. Enchandi specializes in legal and political economy dimensions of investment issues, dispute resolution and regional trade, among other trade-related subjects. He has also served as the Chief Negotiator for Costa Rica in numerous international negotiations on investment, trade in services and dispute settlement.
The meeting was attended by senior bureaucrats, experts, business community leaders, economists, editors & columnists and foreign investors. The event was held at Hotel Yak & Yeti and here is a brief summary of what was discussed during the event.
Mr. Roberto Echandi commenced the discussion by giving a presentation on ‘Improving Investment Climate in Nepal’. He stated that the starting point for Nepal would be making a broad, but concrete and realistic policy framework which prioritizes short term reforms and can be realized within a government’s time; i.e. 2-3 years. He brought to attention that wealth creation is non-linear; simply receiving investment does not ensure growth as can be seen from countries like Nigeria where investment has not resulted in proportional growth or development. Hence, proper investment policies are crucial for managing FDI. His presentation highlighted three key ideas about investment. T
• “Investment policy is not about choosing between FDI and domestic Investment, it is about connecting them.”
• “Investment is not a transaction: it is a relationship.”
• “Not all investment is the same, nor has the same impact on economic development.”
Mr. Echandi emphasized that while it is very important to promote and attract FDI, retaining existing investors is equally or even more vital. Keeping investors happy is key to successful FDI management. There are four kinds of investments namely: natural resource-seeking, strategic-asset seeking, market seeking and efficiency-seeking. Therefore, Nepal has to recognize this, decide why it wants investments and create different policies according to the nature of investments. For example, a country rich in natural resources like oil does not have to provide heavy incentives for investment in those sectors. The difference in development between Nigeria and Norway was that while Nigeria failed to differentiate between the types of FDI investments and so its Foreign Exchange appreciated till it was too expensive to produce anything else; Norway realized this difference and started investing in development factors like education.
Lack of transparency and arbitrary changes in the government were responsible for a country losing 25-30% of its existing investments. Thus, sound policies is the secret to success. In making policies, governments need to realize that while efficiency seeking investments might be sensitive and strong bilateral treaties might be required for their attraction and retention; host countries have more power while negotiating natural resource seeking investments which can be used to the countries’ benefit. Currently, Nepal has not been able to attract efficiency seeking FDI. Wealthy countries have diverse export portfolios and this is a phenomenon that is already taking place in Nepal; however, for Nepal is that pie of exports is very small. Even small industries have the potential to make a big difference in terms of export oriented industries, and it is important to start thinking in terms of a Global Vision and where we can fit in that picture.
Following the presentation, there was an open floor discussion moderated by Senior Advocate Anil Sinha.
Some of the key discussion points are summarized below:
• The proposed FI policy only focuses on bigger hotels. Restrictions on promotion for boutique hotels have to be removed. Training and quality of these smaller hotels also need equal attention. Furthermore, FDI approval time of 3-9 months is simply too long and needs to be reduced.
• The foreign investment policy of the 90’s and the drive of the government officials then were encouraging to foreign investors. Now no large foreign investors are interested in investing in hydropower due to political instability, problems relating to import duty and licenses, difficulty for market access (lack of the power trade agreement), changing laws and policies hence not honoring agreed upon contracts and threats of nationalization. While problems of larger investments are settled through the investment board, the smaller investors have no such agencies to solve their problems.
• Strengthening the procurement act is crucial since it is creating havoc in the construction industries.
• Reducing red tape and educating bureaucrats on what the laws are, is important so that discretionary interpretation of the laws can be avoided, corruption is reduced and the process can move forward quicker.
• Political stability, uninterrupted electricity supply and tackling labor issues will help attract FDI in Nepal. Furthermore, entering the global value chain area is something Nepal should aspire to.
• Delays in the approval process and discretionary decision making stems from unclear and conflicting regulations. Some policies in the Industrial Enterprise act are not in the Tax Law and so that causes a problem. Furthermore, there are two different agencies doing the same work, which additionally creates unnecessary confusion. This type of system benefits rent seekers. We also have unnecessary environmental clearance hurdles which benefits no one. Moreover, our policies have not been able to change in a timely manner. The Foreign Investment policy is closely related to the labor, foreign exchange and other kind of laws, thus harmonization of such laws is important.
• Information asymmetry exacerbates the problem of opportunists who thrive on the asymmetry. Therefore, there is little incentive to resolve the information asymmetry problem amongst government bureaucrats.
• It is very important to focus on improving infrastructure, to attract FDI and also to make the tourism sector more attractive.
• The policy does not address all kinds of investment activities and hence some businesses not listed in the policy become illegal. Business people thus have to focus their resources on solving matters like this through loopholes instead of focusing on running their businesses.
• Policies do not focus on retaining investments which is problematic.
• Putting minimum thresholds in sectors like IT, significantly discourage investments in those upcoming sectors which do not need a lot of investments but have huge growth potential.
The discussion was commented upon by Mr. Echandi and also summarized by Mr. Sinha. The concluding remarks reflected upon the following: Perception is very important for a small country like Nepal thus building a positive image in the international community will help in attracting more foreign investments. As a small country working in the global framework of continuous interaction through mechanisms like World trade Organization and United Nations, one of the major avenues for Nepal to raise and protect its interest is through international agreements and bilateral trade and treaty agreements. Along with building international agreements to defend our interests, a watchdog mechanism to monitor the role and responsibility of government organization is also very important. The process of repatriation and visa requirements need to be hassle free. Conflicting policies and agencies need to be tackled and a harmonization of laws is required to curb discretionary power of bureaucrats. Finally, the Commission for the Investigation of Abuse of Authority needs to not only question but also take affirmative action and be an active and effective agency.
Kushal Gurung, CEO, WindPower Nepal speaking about the prospect of wind energy in Nepal and the need of formulating a clear energy policy during an econ-ity session on the topic ‘Energy Mix to Power Nepal’ which was organized with the joint efforts of FNCCI and Samriddhi, The Prosperity Foundation. Anil Chitrakar moderated the event.
Kishore Rimal of Gham Power speaking about the possibility of solar mini-grids and demand of energy for economic growth in rural Nepal, during an econ-ity session on the topic ‘Energy Mix to Power Nepal’ which was organized with the joint efforts of FNCCI and Samriddhi, The Prosperity Foundation. Anil Chitrakar moderated the event.