Public Sector Enterprises in Nepal

Mr. Ram Kumar Sharma

Member, National Planning Commission of Nepal

• Public Enterprises (PEs) are established to make effective delivery of public goods and services to the people with fair price, simple procedure and easy access.

Objective of PEs

• To promote economic growth• Mobilization of public savings (resource

mobilization)• Employment creation• To check the private monopoly• To promote distributive justice• To mobilize, utilize and protection of natural

resources• To provide basic goods and services to the

people

Present Condition of PEs in Nepal

• 36 PEs are operating (fully or partially owned) by the government of Nepal

• Net asset of Nepalese PEs is NRs. 1.39 billion• Government investment is on share and loan to

the PEs• Altogether 33,526 personnel are working in PEs• But the production performance of personnel is

not satisfactory

Contd.

• Service sector is performing better than other sector

• As of fiscal year 2009/2010 22 PEs are in net profit out of 36

• PEs are contributing 2.7% revenue out of total revenue

Classification of PEs in Nepal

• Commercial

• Service

• Financial

• Industrial

• Social

• Public utility

Governance of PEs

• Composition of governing board limited to five persons

• Selection of board member based on competency and professionalism

• Performance contract to the Chief Executive Officer/ General Manager

Some PEs Running Under Performance Contract

• National Insurance Corporation

• Citizen Investment Fund

• Nepal Stock Exchange

• Employee Provident Fund

Top managers are recruited on the open competition on the basis of their business plan

Why Privatization?

• To increase productivity through capacity enhancement

• To reduce administrative and fiscal burden

• To increase the participation of private sector

• To make effective public service delivery

Contd.

• Privatization process started from 1992 after the adoption of economic liberalization

• Modalities of privatization

1. Privatization

2. Liquidation

3. Dissolve

Contd.

• Sale of business and property

• Partial sale of business and property

• Sale of asset and building

• Land lease

• Management contract

• Liquidation

• Dissolve

Monitoring of PEs

• Top level manager and their business plan is monitored by concern ministry and ministry of finance

• Operational level by the top managers

Monitoring of Privatized PEs

• Inadequate monitoring

• Many of them are closed and few are running

• After the privatization not substantial increase in investment, production and productivity

• Curtail of employment in large number

Challenges

• Weak financial discipline• Political influence• Confusing role: social or commercial• Operating loss• Obsolete technology• Less autonomous: operating as a government

department• Lack of professionalism• Trade unionism

Way Forward

• Policy reform: separate PE policy• Improvement in ownership1. Government 2. PPP3. Sales of share4. Liquidation5. Cooperative model6. Merge

Contd.

• Structural reform

1. PE coordination council

2. Exercise of holding company

3. Role delineation of board members and executives

4. Organizational improvement

5. Cooperative model

Contd.

• Managerial reform1. Management contract2. Managerial autonomy3. Professional trade union• Financial reform1. Maintain fiscal discipline• Behavioral reform: no politicization• Improve in disinvestment system