Procurement act change seeks status quo ante in variation order - 
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By Rudra Pangeni 
KATHMANDU, Oct 31: The authority of government secretaries to approve variation orders in construction contracts was ended by the Public Procurement Act 2007, but now a draft amendment seeks to restore the authority for up to 10 percent. A variation order is issued for payments for construction project work which could not be foreseen during the project design and cost-estimate stage. 

The draft amendment says that the provision for restoring the discretionary authority of the secretaries is meant to make variation orders more accountable. 

Following implementation of the procurement act in 2007, all variation orders above 15 percent of the total project were decided by the cabinet. However, high-level officials maintain that the variation orders became impractical for the cabinet ministers to handle and several such orders became subject to political pressure.

According to the act, project chiefs and departmental chiefs decide 5 and 10 percent of variation orders respectively. 

Secretary at the Ministry of Physical Infrastructure and Transport, Tulasi Sitaula, said that secretaries were stripped of their power variation orders purportedly to exercise greater control over such orders. But several projects have suffered delays because of the need for the decision to be taken by the cabinet. 

Former finance secretary Krishna Hari Baskota has welcomed the latest decision as it distributes authority from the cabinet to the line ministries and should result in faster and more practical decision-making. 

According to some engineers, however, secretaries who are not from an engineering background may take longer to take their decisions. 

But Secretary Situala said that a secretary is not alone in taking the decisions on such important financial issues. He also pointed out that non-technical secretaries are also given charge of ministries of a technical type. 

“There is a committee comprising officials from the Comptroller General’s Office as well as experts to help the secretaries decide on such issues,” added Sitaula. 

Variation orders are full of anomalies as the contract bidders try to bag projects by hook or by crook and through low bidding. But they are accused of later coming up with artificial needs for expanded work and such demands also get approved, a clear indication of rampant corruption, it is pointed out. 

“There are genuine cases to be made for variation orders, such as changing the alignment of a tunnel the need for which could not have been foreseen during the project design stage,” said Baskota. He also accepted that there are big anomalies in variation orders and suggested making the engineers who design the construction projects more responsible. 

During a discussion Thursday on the amendment draft prepared by the government, many lawmakers at the parliamentary Finance Committee demanded that unlimited authority should not be given to the bureaucrats over large projects. 

Construction contracts at hydropower projects, particularly projects developed by Nepal Electricity Authority, have become a haven of corruption and are riddled with controversy. 

The Finance Committee has itself found anomalies in variation order to the tune of Rs 1.09 billion at the Chameliya Hydropower project and the committee’s study file has been forwarded to the Commission for Investigation of Abuse of Authority (CIAA). There are similar anomalies alleged at the Upper Trishuli 3A, Kulekhani Hydropower III and other projects. 

Experienced engineers have suggested that the anomalies have become rife in hydropower projects due to the unlimited authority given to the executive bodies at government-run entities and companies, including NEA. 

The amendment draft makes no mention of placing a limit on such authority. “In principle, the cabinet should not be sitting on the procurement process but several procurements for the Pokhara Regional International Airport, the Upper Trishuli 3A upgrade project and many others were decided by the cabinet,” Baskota pointed out. - See more at: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=85766#sthash.vh2F6sPK.dpuf

Finance Committee for fixed dates for budget process
	RUDRA PANGENI KATHMANDU, Oct 18 :The budget for the current fiscal year was approved only recently, some three months later than usual, as the opposition UCPN (Maoist) obstructed parliament for one-and-half months to press its political agenda.

 The record of over a decade shows similar obstructions by parties in the opposition in the presentation of the budget and its endorsement, regardless of the adverse effect this had on the country’s economic development. 



To address this chronic problem, the Finance Committee of Parliament has come up with the idea of bringing in a number of reforms, including instituting a fixed timetable for budget presentation and endorsement, and making these legally binding. 

Following a series of discussions with officials of the Ministry of Finance and the National Planning Commission, the parliamentary committee has decided to direct the government to fix the second week of May and the middle of June for tabling the budget along with its income and expenditure plan and for its endorsement, respectively. 

The committee has also directed the government to come up with bills or legal provisions incorporating fixed dates for budget presentation and endorsement by parliament. 
Likewise, in a bid to discourage public construction works that take place at the start of the monsoon in Ashadh, the committee also floated an idea of bringing the start of the fiscal year forward by a month to Ashadh 1 (mid-June). 

Joint-Secretary at the Ministry of Finance Baikuntha Aryal said they have long been demanding an early budget to provide ample time for necessary preparatory work. 
A significant portion of budget funds remains unspent while the bulk of the spending takes place in the dying days of the fiscal year, which coincide with the start of the monsoon rains. The result is substandard construction work. Data shows that 75 percent of the annual budget is spent in the final quarter. 

Likewise, the parliamentary committee has also asked the government to effect all transfers and deputations of civil servants during Ashadh so as to ensure the continuity of officials in the implementing agencies. 

Economist Bishwambher Pyakuryal welcomes the time-bound schedule but seeks proper implementation. Noting that a past finance minister had also endorsed the idea, he said it however remained limited to paper. “Parties should refrain from messing up economic issues with their so-called political consensus,” added Pyakuryal. 
The approach paper for the 13th periodic plan says that government spending on developmental works spurs overall economic growth if capital investment by government and the private sector is in the ratio of 35 and 65 percent respectively. 

Pyakuryal also suggested removing any legal and structural barriers to growth. 

Likewise, the parliamentary committee has suggested shortening discussions on the budget in parliament. Talking to Republica, Prakash Jwala, chairman of the committee, said they have sought time with Finance Minister Ram Sharan Mahat to hand over its directives. 

During discussions with lawmakers on the committee, Mahat had said that the fiscal year can be brought forward by a month to help avoid the rainy season. However, the four-month period for construction works from Falgun to Jestha (mid-February to mid-June) should not be split between separate fiscal years. About two-thirds of the government’s expenditure is on construction work and such work is implemented in those four months. 

The committee has also suggested strengthening the monitoring and evaluation of development projects as well as endorsing a reward and punishment system for the personnel of implementing agencies.

analysis   Casinos' turn to fold     RUDRA PANGENI KATHMANDU, April 24: After about five decades  of operations, the curtains fell on the gambling and entertainment business this month after the government declared casinos illegal on April 20 for not complying with the law and not paying their dues even after repeated warnings and an extended nine-month deadline. The government endorsed the Casino Rules 2013 to regulate and bring the gambling business into the ambit of law and administration and operate gaming in a systematic way. But none of 10 casinos applied for new licenses even when the deadline was extended by nine-months. In an interview with Republica, Tourism Minister Bhim Acharya said that there was no reason now to allow casinos to keep operating as their objectives, particularly that of collecting revenue, could not be achieved. Besides revenue, the government allowed casinos to run as they provided jobs and brought in foreign tourists. “They were also not paying their bills to hotels, suppliers and even employees, therefore we had to take the most stringent of actions and ban them,” said Acharya, adding that casino operators attempted to influence political parties and bureaucrats instead of clearing their dues and royalty even when more than ample time was given to them.  Dinesh Gole/Republica According to the tourism ministry, eight casinos have to pay a total of Rs 654 million in revenue, accumulated over the last seven years. Officials of the Hotel Association of Nepal (HAN) also confirmed that the casinos owe hotels a significant amount but did not provide further details. Kishor Silwal, the president of the Casino Association of Nepal said, “Feud among the casino operators, the government frequent raids on casinos, and casinos top clientele -- visitors from India -- diverting to Goa, India, caused a slowdown in the gaming businesses.” Goa only emerged as a new casino hub recently. Silwal also accepted that casinos were yet to pay dues to hotels, suppliers and even pay out to their employee’s welfare funds. He said the business had been suffering from a slowdown over the last few years. Silwal further said, “To make things worse, the government’s doubled the annual royalty by issuing new rules. This has made our businesses almost unviable.” Operators say the casino business is at a ‘sick status.’ Some also acknowledged that they were compelled to allow Nepalis illegally into the casino to maintain business as newly established casinos in Goa and Sikkim, and many other destinations in South Asia had taken away their visitors. Nepal’s casino business has faced problems one after another. To make it worse, Silwal says newly emerging ‘sports betting’ has sapped businesses when important sports events are happening around the world. Such games have become more frequent in recent years, he says. Cricket and football matches in India and the South Asian region, happening more these days according to Silwal, are diverting prospective customers. Moreover, casino operators also say that they are facing overstaffing and undisciplined staffs. Bulk entry of Maoists cadres in 2006 and 2007 badly affected their balance sheet and the workers started becoming undisciplined, say casino operators. WHAT DO CASINO RULES-2013 SAY New rules were endorsed for the first time to regulate casinos, which were governed and managed by the Gambling Act of 1963. The rules have provisions to not only keep tabs on all activities of casinos by keeping records, including every financial details, but also CCTV surveillance in casino activities. The new rules have defined every income of casinos as ‘windfall gain’ and casinos are to collect 25 percent tax on earnings and submit it to the tax offices duly. Likewise, the rules also state that mini-casinos in the Tarai can only operate in four-star hotels. But mini casino operators say there are no such hotels and complained the new rules are meant to ruin them. Other rules include casinos having to spend two percent of their income on social activities like education and health, among others. Prabin Pandey, an executive member of HAN, said that gradual increment of royalty would have made more ‘business sense’ than doubling royalty which has pushed them to shut down. The royalty amount doubled from Rs 20 million per annum to Rs 40 million annum. Pandey owns Shangri-La Hotel, which has Cashino Shangri-La operating in its premises by a Malaysian company. Pandey also said that the company walked out saying that there is no business sense after the new regulations, heavy increment in royalty, and labor problems. According to the new law, interested party has to have Rs 250 million in paid-up capital and deposit Rs 40 million. One of the casino operators said owners were actually relieved by the government’s decision to close them as they would have faced major protests from employees had they themselves taken the decision to shut down. TOURISM SECTOR HIT HARD  Estimates say that 200,000 visitors come to Nepal for its casinos only. Casino operators claim that about 15 to 20 percent of the room occupancy of five-star hotels are with casino visitors, therefore Nepal’s tourism sector is likely to be hit hard by the shut down. Pandey, the executive member of HAN, says that the casino is an important tourism product but is now just the latest of the vanishing products, after trekking routes, jungle safari, and shopping, among others. According to Pandey, nearly half of all Indian tourists, or 150,000 Indian tourists alone, are the visitors to casinos in Nepal. Hotels, in general, used to sell off-season packages to Indian tourists who traveled to casinos in Nepal, but by shutting down the casinos they have nothing to sell. Pandey said effects would be significant in the upcoming off-season. Tourism entrepreneurs also say that even tourists from Malaysia, China and Macau had started visiting the country for casinos, besides a section of westerners. Silwal also said that the casino visitors occupied 5,000 room nights per year in five-star hotels alone. OVER 10,000 JOBLESS  Over 10,000 people have been left jobless after the shut down. Trade unions say that they are preparing to announce protests, demanding their jobs back. Nepal Entrepreneur Hotel Workers Union President Laxman Tiwari said that some employees in their late forties would find it hard to imagine starting out in any other profession. Prakash Shrestha, a trade union leader affiliated to the UCPN (Maoist), said that Minister Acharya has assured them that they will not remain jobless for long. However he complained about the uncertainty about opening new casinos, leaving the employees stranded out of job. WHO WILL OPERATE CASINOS? Minister Acharya said those operators would be given priority but they have to pay revenue first and clear bills of hotel and employees’ payment and fulfill new criteria. Asked about the reasons behind the rise in royalty and large amount of paid-up capital, Acharya said the government was positive about addressing genuine concerns of casino operators, but they should first clear their dues. “We will give priority to them first,” added Acharya. He also indicated that foreigners have shown interest in establishing casinos in Nepal but he did not specify who they are. “Casinos were operated by foreigners in the past and foreigners have invested in casinos indirectly. We will not ask them from where they brought the investment,” added Acharya. Though the Casino Rules 2013 states that foreigners can invest in casinos in Nepal, the government has not defined ‘casinos’ as an industry, which is the basis for getting foreign direct investment permission from the Department of Industry. However, it is obvious that casinos were started by foreigners and some casinos have received foreign investment too. HOW CASINO STARTED IN NEPAL  The first casino was opened by RD Tuttle, an American national, by a Royal decree in the late 1960s. Some say it was established for gambling for the royal family. Tuttle expanded it to eight casinos in joint-investment with his employee Rakesh Wadhwa by early 2000s. They were operated under Nepal Recreation Centre Company. However, the casino business saw tumultuous days after the People’s Movement II of 2006, as Wadhwa took over all the casino businesses by arbitrarily removing Tuttle. Many casino operators today credit Tuttle ‘ as the pioneer of casino business in Nepal.’ Tourism entrepreneurs admire Tuttle for his contribution to increasing the number of Indian visitors to Nepal. He also had published four travel magazines. Others say the downfall of casino business started when Tuttle was pushed out. In 2010, the government issued an arrest warrant against Wadhwa for not paying taxes, after repeated warnings. But he managed to abscond to India, leaving all the casino businesses in limbo. The employees recount the confusion and uncertainty in the business about who would run the decades-old business after the owner fled. Employees operated the businesses themselves by making their own committees and later some employees formed companies and owned the casinos by also accepting all the liabilities of casinos including outstanding dues. Silwal who operated three casinos, including Star Venus and Pokhara Grand, said that they accepted accumulated dues also though the businesses faced downward trend.

Electric Rickshaw to hit on the road

RUDRA PANGENI

KATHMANDU, March 31:The government has decided to allow electric rickshaws to ply the roads in urban centers and municipalities. 

The Ministry of Physical Infrastructure and Transport (MoPIT) on Friday took the decision to allow battery-operated rickshaws that can carry up to five passengers, or load of 500 kilograms, on Nepali roads. The meeting decided to issue road permit to rickshaws powered by up to 1500 watt batteries. Speed limit for those rickshaws has been fixed at 25 km per hour. 

Talking to Republica, Senior Divisional Engineer of MoPIT Nabin Kumar Pokharel said MoPIT has directed the Department of Transport Management (DoTM) to register electric rickshaws through its zonal offices and issue road permits by fixing a quota in urban centers.

MoPIT, however, has decided not to allow such vehicles in the Kathmandu Valley, Pokara and areas covered by the Lumbini Master Plan.

According to ministry officials, electric rickshaws should meet road worthiness requirements and a pass a road test conducted by technicians. 

Electric rickshaws are already in operation, albeit illegally, in Birgunj, Hetauda, Biratngar, Butwal and Nepalgunj.


An electric rickshaw in Biratnagar. Chuman Basnet/Republica

Hulas Motors, which assembles five types of rickshaws from parts imported from China, had applied for registration of rickshaws two months ago.

Talking to Republica over telephone from Biratnagar, Surendra Golchha, director of Hulas Motors, said the new rickshaws will not only improve city transport but also bring about changes in the lives of rickshaw pullers. “We want to replace normal rickshaws by the battery-powered rickshaws which are also called nano rickshaws,” he said, claiming that daily income of rickshaw pullers would double after the loan payment period is over.

Prices of electric rickshaws start from Rs 150,000. There are separate models to carry passengers and cargo.

“We will provide easy financing for rickshaw pullers so that they can replace their traditional rickshaws with the new electric rickshaw,” added Golcha. “These rickshaws, however, can be operated only in plains.”

Besides Hulas Motors, there are around half a dozen companies that are assembling and supplying rickshaws in different Tarai districts. 

Sharad Adhikari, director at DoTM, argued that electric rickshaws will make urban centers pollution-free and provide people with faster transport compared to traditional rickshaws.

Dinkar Sharma, former joint secretary of MoPIT, welcomed the decision. “Such vehicles can reduce import of fossil fuel and reduce pollution,” he said.
Source Republica 

Upbeat about tourism, pvt sector pours money in hospitality sector

KATHMANDU, March 22: As the government accords high priority to infrastructure projects to woo foreign tourists and investors, the private sector is increasingly attracted to the hospitality industry. There are about a dozen star-rated hotels, including four of five-star standard in the pipeline, targeting high-end tourists. The existing hotels are expanding their capacity, too. Talking to Republica, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Suraj Vaidya said that most of Nepali investors have shown interest in hospitality business in recent days. “A lot of businesspersons are talking about opening hotels these days as they expect rise in the number of tourists following the government´s plan to build different infrastructure projects, including Tribhuvan International Airport expansion project and regional airports,” added Vaidya. Infrastructure is a major bottleneck when it comes to the flow of tourists. Three hotels in affiliation with international chains are in the pipeline. Industrialist Sashi Kanta Agrawal is preparing to establish a three-star hotel in Thamel and another five-star hotel in Naxal in association with Marriot International. Agrawal said that the construction of both the projects has started, and that they will cost Rs 3.8 billion in total. “We decided to institute both hotels assessing the prospect of tourism growth,” said Agrawal, adding that the number of foreign tourists is likely to grow by three times within the next five years. However, nobody has constructed a five-star hotel in the country after Hyatt Hotel was completed back in 2000. Agrawal further said that businesspersons are upbeat about the tourism sector as different international reports have also listed Nepal as a favorite destination for tourists. Another five-star hotel is in the offing, too. It is being promoted MIT Group Holdings, in association with Sheraton Hotel, another international chain of hotel. Sesh Ghale, President of Non-Resident Nepali Association (NRNA) is one of the promoters of MIT Group Holdings. NRNA had announced yet another five-star hotel in the country during its sixth global conference in Kathmandu in October. Another five-star hotel named Chhaya Center, also with all facilities of a shopping complex, is in the pipeline in Thamel area with an investment of Rs 3 billion. According to FNCCI officials, eight proposals of hotels and resorts targeting high-end tourists will be floated to foreign investors in a business conclave slated for Sunday and Monday in Hyatt Hotel. The total project worth is about Rs 8 billion. It is said that new project proposals also include of boutique resort and wellness hotel targeting high-end tourists. Ananda Raj Mulmi, former president of FNCCI, stresses on the improvement of infrastructure, better facilities for tourists and programs to increase per capita spending of foreign tourists. Foreign tourists spend only US$ 34 per day in Nepal which is one of the lowest among the South Asian destinations, said Mulmi. He also suggested that investors should devise a holistic approach while planning hospitality projects instead of merely focusing on the capital city. However, Vaidya doubts whether investors vying for hotel projects have assessed the market well. Citing huge investment in sectors such as ready made garment, carpet and real estate, hydropower, banks and financial institutions in the past two decades, he added, “Unfortunately, not many of such investors could sustain their businesses.” Ropeway is also another attraction for the investors as there are about half a dozen ropeway projects being developed in different parts of the country.

REPUBLICA

Let contract farming safeguard farmers

By RUDRA PANGENI

KATHMANDU, March 27:With farmers expecting a raise and mill operators blaming decreasing market prices, payment to sugarcane farmers has been deferred for months with both the parties not being able to fix a minimum price. 

Last year, it had all been easy. A rate of a minimum of Rs 481 per quintal was set quite early and farmers say this encouraged them more to take up sugarcane farming this year. They had also expected the prices to go up. But the sugar mill operators said they couldn’t even afford to pay last year’s prices what with sugar prices bucking the trend of other commodities and going down. 

Farmers accuse the operators of trying to take advantage of the bump in supplies, about 20 percent more sugarcane was harvested this year, they say. 
“Sugar mills have taken the growth in the production as an opportunity to bargain with us,” Kapil Muni Mainali, the president of Federation of Sugarcane Farmers of Nepal, says. They have demanded at least a 10 percent increase in prices this year based on inflation. 

Mills, on the other hand, want the market forces to determine the rates. 

“Price of sugarcane should be decided on the basis of the market price of sugar,” Sashi Kanta Agrawal, the president of Sugar Producer’s Association (SPA), says.
“The factory-gate rate was Rs 58 per kg last year but has decreased by Rs 6 to 8 this year. Therefore we can not pay more than Rs 460 per quintal.” A quintal of sugarcane gives about 9 kg of sugar. Last year’s total sugarcane production was 29 million quintals, which was worth Rs 13.94 billion. 

The wrangle between about 500,000 families involved in sugarcane farming in 13 districts of the Tarai and the 10 sugar mills in the country have dragged on for four months. 

Rounds of meetings between farmers and mill operators could not reach a deal. They agreed on an advance payment of Rs 400 per quintal on December 24 and started delivering the sugarcane to the mills after a delay in supply by a month from the normal sugarcane harvesting and supplying season, which runs till the third week of April. Later, both groups sought government’s assistance for mediation on February 15. 

Industry Secretary Krishna Gyawali formed a taskforce led by Ministry of Industry joint-secretary Jit Bahadur Thapa to propose a minimum price. However, two rounds of meetings have yielded no result. The last meeting of the taskforce, which also comprises representatives of concerned ministries, farmers and sugar mills, was held on Tuesday. 

Multiple sources say that sugar mills are trying to benefit from the significant growth in production by bargaining with the farmers. Moreover, the farmers’ representative Mainali has accused sugar mills of artificially keeping sugar prices low.



“Last year, we had agreed on minimum price of Rs 58 per kg sugar but mills were selling sugar at up to Rs 70,” Mainali says. The variation in sugar prices also affects the minimum price paid to farmers as sugar mills pay 70 percent of the VAT as a subsidy to farmers and the subsidy is calculated according to the factory-gate price on the day of price fixation. 

Economist Bishwambher Pyakuryal says the government should not leave sugarcane prices to the moods of free market as sugarcane farming is a sensitive business and farmers cannot bargain with sugar mills. 

“Therefore, the government should set the minimum floor price and protect farmers,” added Pyakuryal. He also suggested subsidizing of insurance premium to insure sugarcane farms and support the farmers’ bargaining capacity. 

In an application to Ministry of Industry (MoI), SPA has cited the sugarcane price of Rs 408 (Indian Rs 255) per quintal in Bihar should be taken as the basis. By adding 70 percent of the VAT SPA has proposed Rs 460. 

Vijoy Kumar Mallick, joint-secretary at the Ministry of Agricultural Development (MoAD), says the ministry can not set prices based on the Indian market as Indian farmers get a large amount of subsidies where Nepali farmers do not. Mallick is also a member of the taskforce, which is mandated to set the standard for the future sugarcane prices. 

BY-PRODUCTS

Molasses, press mud and bagasse are by-products of sugarcane at the sugar mills and are regarded as good sources of income for the mills. However, they are not considered while setting prices. Mainali wants income from by-products to be considered. Mallick is also of the view that the products should be counted as income of sugar mills while setting prices as is done in India.

Agrawal says mills earn a paltry amount from the by-products and the money is not even enough for machinery maintenance. 

MIDDLE MEN 

Farmers also complain that sugar mills use middle men to collect sugarcane from farmers. “With good production growth, industries have used middle men are buying sugarcane from farmers at Rs 250 to Rs 300 by harassing them and saying that their production will not be sold,” said Umesh Chandra Yadav, a sugarcane farmers’ leader in Nawalparasi. Middle men collect ‘permission letter of delivery of sugarcane’ from mills and cheat farmers by hiding the permission and bargaining with them, Yadav accuses. 

Agrawal says the SPA has also heard of middle men cheating farmers and are ready to issue a code of conduct for containing such malpractices. 

SUGARCANE AND SUGAR DEVELOPMENT BOARD 

Rajan Khanal, joint-secretary at the Ministry of Finance, says that there should be a board to deal with sugarcane farming and plan for the sugar economy of the country. Khanal is also member of the taskforce. The board also a should fix the minimum floor prices of sugarcane to assure farmers for sugarcane farming. 
The government instituted Sugarcane and Sugar Development Committee to draft the law for the board some six years ago. The first committee, led by Raj Narayan Yadav, had also drafted a statute for the board but the statute is gathering dust at MoAD. Mainali says a nine-member committee was instituted but it does not represent any sugarcane farmers. 

“Committee has been occupied by the cadres of political party and not a single task is done for the welfare of farmers,” blamed Mainali. 

The Government has earmarked a Rs 6 million budget for this year. The office of the Committee in Parwanipur Bara did not respond telephone call on Wednesday.
Officials say that contract farming law can also be a measure for safeguarding the mutual interest of both farmers and sugar mills. The law has been drafted by MoAD is yet to be tabled in the parliament.

Low spending of state-coffers deprives taxpayers of economic benefits

RUDRA PANGENI KATHMANDU, March 13:Taxpayers pay the government and it is expected to spend it in developing infrastructure, stimulate the economy, create jobs and provide services to the taxpayers directly or indirectly. Of course, some amount of inefficiency is expected from governments, what with every spending having to go through different levels of bureaucratic and procedural approval process. But the only ground that the Nepali government seems to be breaking is not roads, power plants or bridges, but how much of the budget remains unspent. The government has managed to spend just 13 percent or Rs 11 billion of the Rs 85 billion that it allocated for capital expenditures -- that is, spending directed at building, acquiring or upgrading infrastructures that have future benefits to the country -- in the first six months of the current fiscal year. This indicates that taxpayers are not benefiting and the economy is not in a dynamic position. Moreover, lack of economic activity in the public sector has also failed to nudge the private sector into spending more. As a result overall economic activity is crawling, which in turn affects job creation and earnings, and then stifles consumption. With less money circling through the economy, money collected through taxes fails to provide the common people with much economic benefit. The government’s periodic plan documents say that for every rupee of capital spending by the government, the private sector invests Rs 2. Provided low capital expenditure in the first half of the year, economists are doubtful that the economy will achieve the target of 5.5 percent growth. This year’s budget broke precedence from those of the past three ones when it was announced in full and on time, and the government at the time was much lauded. Things will finally get done, economists, the private sector and the general public alike said. But the rising waves of optimism that it created hit the inevitable submerged barriers and giant walls to finally ebb and become trickles flowing through puddles across the many pockmarked and unfinished road projects in the capital and the country. In addition to the number of usual suspects behind poor implementation, the election for the Constituent Assembly sapped up government employees’ time and attention when many were redeployed for about a month and half to conduct the election. Economist Posh Raj Pandey pinpoints structural problems as the major issue behind the delay in the approval of programs and the lengthy procurement processes behind the failure to spend the resources stagnating inside the state coffers. “Statistics say that 60 percent of the government’s actual expenditure happens in the last three months of the fiscal year due to time that programs take to complete the budget approval and contract processes,” Pandey adds. Economist Bishwambher Pyakuryal said the government’s way of spending in a short term makes the eventual work of poor quality and the expected developmental benefits are lost while the state has to spend again for the same work. An excerpt of the mid-term review report on budget says, “Budget implementation is stuck to the process and procedures, some projects have not yet started. There is no harmonization between available resources and their utilization.” Add to the pressing and recurrent problems like failure in land acquisition, red tape, local problems, and lack of time-bound action plans of projects. “Many projects, including transmission line, road and irrigation projects have come across a seemingly common problem of land acquisition in the absence of a strong and timely law to deal with the issue,” adds Nirmal Hari Adhikari, the undersecretary at the Budget Division of the Ministry of Finance (MoF). An outdated Land Acquisition Act of 1977 still prevails. Locals demand high prices for the land and the state authority ends up not being able to purchase land as the provision allows for paying of the lowest market price or having to negotiate long and hard to acquire the land. Speaking at a conference on ‘Government’s mega projects’ at MoF last week, Arjun Kumar Karki, the managing director of Nepal Electricity Authority, said the people of Kathmandu would have to live in the dark even when power plants around the country managed to generate enough energy because of failure to acquire land to install transmission lines. Likewise, political instability, according to high-level officials at MoF, is also behind the slow progress in spending as bureaucrats remain busy trying to draw the attention of political leaders and winning favor instead of doing their designated job. On the topic of low expenditure, newly appointed Finance Minister Ram Sharan Mahat stresses that a proper method is needed for budget preparation and prioritizing for better spending. "Budget was allocated for many projects without needful preparations and homework having been done. That was the main reason behind the low spending,” Mahat said, adding that the there is a dearth in resources in some projects whereas others have occupied the budget. He expressed dissatisfaction over allotment of budget before preparing programs and described the prioritizing of projects as baseless and without any parameters. Nineteen national-pride projects also paint a bleak picture in terms of their expenditure status. The mid-term review says, “The projects have only occupied the resources as the implementation is almost ineffective.” BUDGET PREPARATION  The past experience says that a well-prepared budget can lead to better implementation, but officials at MoF lament that budget preparation by ministries is taken for granted. An official at MoF, asking not to be named, said ministry officials are not serious and they merely count the amount in the budget and forward the program without enough preparation. Moreover, a recent heavy demand for non-budgetary programs and projects by ministries shows that they have paid little attention to implementing their budgets. In the first six months of the current fiscal year, ministries asked MoF for over Rs 10 billion to spend on fresh programs and projects, almost equal to amount of capital expenditure they have been able to spend over the period. WAY FORWARD  There is a common view that there is urgency for fresh policy, laws, and a working modality for improving capital expenditure. There is a need for an overhaul of the procurement law and for other necessary provisions to shorten processes that programs have to pass through before implementation as well as effective expenditure monitoring. Economist Pyakuryal says that there must be varying provisions for contracts depending on the types of projects, amount and programs instead of the existing blanket approach. “The laws no longer should be about awarding to the lowest bidder regardless of the contractors’ track record and any compromise in quality of the work should be clearly defined as corruption,” Pyakurel adds. The mid-term report recommended bringing a ‘project implementation law’ to solve several problems in implementing projects, including making implementation officials and the people accountable. It is essential to prepare time-bound plans for a project along with cost-effective and quality assurance measures. Undersecretary Adhikari stressed the need for projects to have an specific annual work plans which prioritize activities in the field-level. The report also said that there must be result-oriented work performance review system for project chief and staff as well as setting of dates of completion. REPUBLICA

To be or not to be: The question of fuel subsidy divides opinions

RUDRA PANGENI 
KATHMANDU, March 20, 2014 : While everyone seems to agree that providing subsidy on fuel puts a big burden on the government, the question of whether to continue with it or of how to lessen the weight while not hurting the poor and the marginalized remains divisive.

In the last decade and half, this has set a trend. The government hikes petroleum prices triggering protests from the opposition parties who disrupt the parliament and then their respective student unions and youth wings hit the streets and burn and smash property. 

Last Friday’s decision on the price hike has done the same. Students demonstrated, banda was called on Wednesday in the capital, and parliament disrupted by the opposition for a third consecutive day on Thursday before the government finally relented to mounting pressure for a roll back. 

Protestors say that it will not only send public transportation fares up but also have a cascading effect on consumer products which will affect the lower strata of population as well as the lower middle class. 

As usual, the government has a different take on it. Again, the government says it is costly to subsidize petroleum by cutting the development budget while the cost of imported fuel has increased due to increase in the price of crude oil in the international market and exchange-rate fluctuation. 

According to Nepal Oil Corporation (NOC), its total monthly losses stand at Rs 1.22 billion because of subsidy in different products even after the price hike.

The monthly losses were Rs 1.69 billion prior to Friday’s hike. The country imports petroleum products worth Rs 107 billion annually, which is more than Nepal’s exports put together. 

Speaking at an event on Saturday, Minister for Finance Ram Sharan Mahat said NOC should be free to decide the price of petroleum products in accordance to the changes in the international market.

BLANKET SUBSIDY
OR a TARGETED one

Petroleum products like Liquefied Petroleum Gas (LPG) and diesel have become essential commodities. 

However, the government’s policies are yet to define essentials and non-essentials, therefore prices are increased without considering the effect on the lives of the common people.

Talking to Republica, former Commerce Secretary Purushottam Ojha said there must be a selective approach that targets for whom to subsidize and on which products. 

“As many South Asian countries, including India, have subsidized basic fuel, Nepal too should subsidize LPG and diesel as they are essentials,” Ojha said.

Former Finance Secretary Rameshore Khanal, who is now a leader in Nepali Congress, has been strongly against subsidizing imported fuel. “Subsidy in petroleum only benefits the urban population but the government pays that by cutting the development budget meant for the rural population who can never hit the streets of the capital,” 

Khanal says, adding that the idea of subsidizing imported products is not a wise move as it only benefits petroleum exporters. Khanal further says, “It would be wiser to provide free electricity to the people instead of subsidizing imported fuel as electricity is domestically produced.” 

TAX ON PETROLEUM:
A PRESSING FACTOR IN PRICE HIKES 

The government levies 13 percent VAT on all petroleum products except kerosene and nominal customs duty on all products. Revenue is also one of the major issues that put pressure for price increments. The amount of revenue collected from NOC increased to Rs 25 billion from Rs 8 billion in the last five years.

Former Commerce Secretary Ojha says that the government can specify the amount in revenue on petroleum instead of percentage to keep control on prices, which has shown an upward trend. 

Himal Sharma, a student leader aligned to UCPN (Maoist), says the government should waive taxes on essential commodities like LPG and diesel. “LPG is already listed in essential goods, diesel should be made free from taxes as the price is directly related to transportation fares and indirectly to the price of all consumer goods,” Sharma adds. 
However, former Finance Secretary Khanal says waiving revenue would be a suicidal approach as it would cut the budget for development works. 

“A huge amount of tax must be levied on petroleum products for collecting money for hydropower development, which is the best option for us to wean away from our dependency on petroleum.”

CROSS-SUBSIDY 
Since March 9, the government has implemented a dual-pricing system for LPG by ordering the use of separately colored cylinders for commercial and household use in a bid to subsidize LPG only for households. 

However the process of making commercial entities pay full price for LPG is yet to be implemented. Subsidy for LPG is Rs 864 per cylinder. 1.5 million LPG cylinders are consumed monthly. 

Ojha says that the cross-subsidy policy in LPG will be a strategic move to downsize the burden of subsidy. 

SEVERAL STUDIES, BUT NO IMPLEMENTATION 

As many as five high-level committees, led by Top Bahadur Rayamajhi, Shankar Sharma, Yubaraj Khatiwada, Bhanu Prasad Acharya and Bhim Acharya, have investigated the fuel economy of the country to find a way to solve the problem. However, the study reports are gathering dust at NOC. 

The reports suggested bringing the private sector into the petroleum import business, taking measures to downsize the per-unit cost, and subsidizing kerosene and LPG only for a targeted poor section of the people.

Some steps were taken to implement these study reports, but without success. 
A bill was tabled at the parliament for opening up the petroleum supply business to the private sector in 2008, but it could not make it through.

WAY FORWARD 
Experts suggest that it is high time we expedited hydropower development, which can be the right move to downsize dependency on imported fossil fuel. 

They say that an ample supply of electricity can at least cut down consumption of the LPG and diesel used by factories and other commercial entities to power up their electricity generators.

Data show that LPG and diesel used for generators add up to make about half of the total petroleum consumption in the country.

Besides, it is said that a better road infrastructure can save travel time and, more importantly, increase fuel efficiency. 

Khanal suggests opting for alternative sources including expediting investment in hydropower. “We can generate hydropower of 5,000 MW within six years,” he says.
REPUBLICA