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Is the idea of state running large buses the solution to improve public transport experience?

Every one of us commuting in public vehicles in the city can recognize the awful experience in travelling by heavily crowded unmaintained buses while being squeezed up among commuters in most uncomfortable ways. The chronic victims are in fact the ones traveling to work on busy commuting hours when this recklessness is at its peak. For such commuters as we know, travelling between home and work has mostly been the area of tension besides work.

In recognizing the tragedy of the commuters, the central government has made a decision to urge the municipalities of Kathmandu Valley to jointly form a company to operate 50 large buses running around the city. And, given our common belief that state is somehow responsible for taking care of our fundamental necessities like proper public transport system, this decision can easily be perceived as virtuous effort. After all, this government commitment to provide better public commutation service to people seems as a move to rescue us from the daily bad commutation experience. However, this common logic doesn’t draw the complete picture for this matter. There are actually relatively unaddressed but severe realities that can lead us to come at more thoughtful conclusions.

In digging deeper down in search of the root cause of the terrible realities of our public transport service, one has to come across the existence of mafia-like transport syndicate. The transport syndicate being formed by influential associations of transport operators has enabled them to dominate the public transport sector in Nepal despite the horrible transportation service they are providing since decades. By preventing the entry of new transport entrepreneurs in the public transport sector by means of coercion and vandalism, the syndicate of public transport associations has heavily protected the limited number of below standard service providers from the mechanism of free competition that guarantees quality service. Meanwhile, their strong political connection and presence in regulatory committee (i.e., Transport Management Committee) that awards permits to new entrepreneurs in this sector has retained their impunity from law despite their illegal attempts to maintain monopoly.

The idea of government running its own bus fleets to put competitive pressure on the syndicate is understandable. But, it may not be the most sustainable solution to the benefit of public vehicle commuters and taxpayers at large. To clarify such contention, one can always refer to the misery of the state-run enterprises in having to hugely rely on state coffer financed by taxpayers to somehow run its inefficient and loss making operations producing below standard services. Though they carry the objective of running in a profit-model concept that expects them of surviving on their own revenue, the state-system instead offers them the facility to encroach on tax payer’s wealth indefinitely as they lose track of profits. And, given the upcoming transport company is to be functioning within the same system and incentive, we can logically expect same fate for this transport based public enterprise too. Alas, state could be only adding another avenue to leech taxpayer’s wealth in name of providing so-called “basic transport service” to the people without considering the financial burden it generates among the very people.

Having said this, utilizing regulatory tools to establish competitive market environment in the public transport sector can instead lead the state to create an effective solution that doesn’t require manipulating taxpayers’ wealth. By neutralizing the condition generated by the syndicate to keep new transport entrepreneurs away from the market, such measure will compel service providers to compete among each other to provide competitive service efficiently to survive in the market on profits. Most importantly, besides preventing taxpayer’s from the burden of financing transport service, it will enable commuters to travel more conveniently with impressive solutions that yield out of continuous innovation through sustained competition.

Prience Shrestha

About Prience Shrestha

Prience works in the research department at Samriddhi Foundation. And, he attempts to specialize in the field of Development Economics

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Policy Options for Public Enterprises Reform in Nepal: A look at two public enterprises

Samriddhi Foundation has released a new policy analysis paper on Nepal’s Public Enterprises. The policy analysis paper titled “Policy Options for Public Enterprises Reform in Nepal: A look at two public enterprises” is prepared under the banner of NEGA 2014, which is preceded by NEGA 2012 and NEGA 2013. The Nepal Economic Growth Agenda (NEGA), first released in 2012, is an annual effort of Samriddhi Foundation to identify key constraints to Nepal’s economic growth and policy options for reform. NEGA 2012 identified and discussed policy constraints in five growth sectors of Nepal viz. Agriculture, Education, Hydropower, Transport Infrastructure and Tourism. NEGA 2013 focused on six cross-cutting issues viz. Industrial Relations, Contract Enforcement, Anti-Competitive Practices, and Foreign Direct Investment, Public Enterprises, and Regulatory environment for doing business. NEGA 2014 builds on The Foundation’s previous studies on hydropower, industrial relations and public enterprises. Of the three study reports produced under NEGA 2014, this study on public enterprises proposes policy options for reform of public enterprises through two case studies of Nepal Airlines Corporation (NAC) and Hetauda Cement Industry Limited (HICL). This policy analysis paper has been prepared in consultation with individuals and groups who are experts in the area or are involved in the mentioned organizations.

This policy analysis paper takes a look at two of the thirty six existing public enterprises in Nepal to propose concrete policy options for reform. Both NAC and HICL have been facing high cumulative losses and presence of unfunded liabilities due to operational inefficiencies and other problems. This paper analyses the poor performance of public enterprises from a policy perspective with an aim of identifying practical reform options and these reform options are mainly focused on improving the organizational efficiency either by bringing changes in the current working modality or by introducing a new modality based on a cost benefit analysis. The larger objective of conducting such analysis on two loss making PEs is to pave way for similar analysis of other public enterprises which are increasingly becoming a burden on taxpayers and consumers.

The paper can be downloaded here.

Sarita Sapkota

About Sarita Sapkota

Ms. Sapkota is the Coordinator of Communication and Development at Samriddhi Foundation and was previously engaged with the Foundation as a Research Associate for more than three years. She is a graduate of political science and also contributes articles for Samriddhi's column at The Himalayan Times' Perspectives supplement.

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Robbing taxpayers in broad daylight!

So would you give your debtor Rs. 1000 to pay you back the Rs. 1000 it had taken from you a month ago? You wouldn’t, right? A stupid question! But trust me, you will give. Here I will try to explain what I mean by using the case of Nepal Oil Corporation (NOC), the government-owned oil monopoly of Nepal.

Petroleum is a highly political issue in Nepal and a 5% rise in the price of the products leads to huge protests in the streets all over the country. So government likes to come in and play the savior of the people. It controls prices (although the NOC board fixes prices, the political nature makes certain that the price fluctuations are consented by the ruling government). But in the international market, the petroleum product prices are not very stable. Since in Nepal, we do not practice Automatic Pricing Mechanism and instead control prices in the pretext of protecting the poor who cannot afford to pay the market prices for these basic-necessity petroleum products, NOC has to bear heavy losses in its business.

Here is what it implies to the taxpayers:

Vicious circle of petroleum supply in Nepal

Vicious circle of petroleum supply in Nepal

NOC imports petroleum products from IOC, practically on credit. It is supposed to make the payments in two installments within the next 30 days. Since NOC controls prices of its products and cannot charge market prices, it has to cross subsidize its products. The combined profits from all other products still fall short of loss made on LPG by hundreds of rupees per cylinder. As a result, NOC fails to recover its investment made in the import of products from IOC. But IOC will not sell anything to NOC, unless its dues are cleared. So, NOC approaches the government for loans. With government guarantee, it somehow gets loans to clear IOC dues from institutions like Employees Provident Fund (EPF) and Citizens’ Investment Trust (CIT), apart from government of Nepal and some commercial banks in the country. These mind you, are taxpayers’ money (mostly in form of saving, some as taxes paid to government). IOC dues are then cleared with this money. But the same business cycle continues, year in and year out. NOC continues to make losses and continues to acquire taxpayers’ money as loans. Amidst all of this, the loans acquired via CIT and EPF have never been paid. Interests are however paid duly by adding the interest payment component in the selling price of petroleum products. 

Table 1: NOC’s loan portfolio

S.N. Description                           Outstanding Loans (NRs)
1 Loan from The Government of Nepal (GoN)                                 12,64,10,00,000/-
2 Citizens’ Investment Trust (CIT)                                   8,93,00,00,000/-
3 Employees Provident Fund (EPF)                                12,35,00,00,000/-
4 Commercial Banks (CB)                                  2,74,00,00,000/-
5 Indian Oil Corporation (IOC)                                  2,50,00,00,000/-
Total                                39,16,10,00,000/-

*Source:Parliamentary Study and Recommendation Committee Report, Nepal, 2014 A.D

So let’s say, sometime in future, these creditors demand that their money be repaid. Clearly, NOC has no money to repay these loans. So what will it do? One possibility is that it will default on all the loans. Now that is plain bad. How can one default on Rs. 37 billion worth of taxpayers’ money? But this is a little unlikely. The very fact that there is government guarantee behind all these loans means that these will be paid. But would we let it be defaulted if we had the choice? – NOC does not have to pay anything; just shut down?

But hey, there are other possibilities how taxpayers might be repaid. And these kind of look like worse deals than having the loans defaulted. Since government has provided guarantees, it will pay back these loans. It will take fiscal measures to pay back these loans. Government might hike taxes through one fine fiscal budget. Its revenues will soar up and the loans will be cleared. Another possibility is that government will print money. But in doing so, it will devalue the money that we currently hold. To put it succinctly, it will compromise our wealth to pay its liabilities. Yet another mechanism can be that government takes a grant or a loan from some donor agency. Even then, if it is a loan, government will use one of these very measures that we have already discussed to pay back this loan. In case of a grant, the foreign nationals are paying through their tax money.

Now the Nepalese taxpayers have their money – but really? Who paid? To put it in a different way, they took money from us, made us pay the interests and when it was time to pay back the loans, they took equivalent sum of money from us again and acted like it paid the loans. And there is more to this! Since petroleum prices are controlled by the government/NOC, there is no guarantee that these new taxes will be slashed, once their purpose has been served. There is no competition and therefore, no incentive to think in the consumers’ best interest.

So let me rephrase my first question:

Would you allow NOC to default on this monstrous loan that it has accumulated from you, or would you use the government guarantee to retrieve your money?

Akash Shrestha

About Akash Shrestha

Akash Shrestha is Coordinator of the Research Department at Samriddhi, The Prosperity Foundation where his focus areas are petroleum trade and public enterprises. He also writes newspaper articles, blogs and radio capsules, based on the findings of the studies conducted by The Foundation.

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