Economic performance remains unimpressive

-------------Economic Review- Year 2069-------------

PRABHAKAR GHIMIRE

KATHMANDU, April 14: Nepal´s flagging economy suffered another setback in the Nepali Year 2069 ended April 13 plagued by prolonging power deficit, frequent labor strikes, widening trade deficit, ebbing investors confidence and low capital spending in the absence of full budget.

The previous government led by Baburam Bhattarai could not announce full budget due to political wrangling although ordinances on budget were introduced twice to keep the economy moving.

The newly formed government led by Khilaraj Regmi last week announced a full budget worth Rs 404.82 billion making additional provisions of Rs 52.89 billion on previous allocation of around Rs 351 billion.

Due to lack of consensus for full budget among political parties, the Bhattarai-led government was compelled to set capital expenditure target based on actual spending of last fiscal year without allocating funds for new projects. Even ongoing projects did not receive adequate funds during the year, which affected their day-to-day works.

On the back of low capital spending, huge amount of money remained idle in state coffers affecting money supply. This was one of the major reasons that forced the government to revise down the economic growth to 3.6 percent for the current fiscal year from 4.1 percent projected in the mid-term review. During the year, farm sector also suffered a setback, with production of paddy, maize, and millet dropping by 11.3 percent, 8.3 percent and 3 percent, affecting the food security situation in the country. These reasons also compelled the government to come up with lower economic growth projection for this fiscal year. As an apparent effects of decline in cereal production, price of food commodities  went beyond the government estimation. Inflation rose to around 10.5 percent from the 7.5 percent originally estimated by the government. In a bid to ensure smooth supplies of petroleum products in the market, the government introduce the Petroleum and Gas Transaction Order 2013 which paved the way for private sector to import, process and distribute the petroleum products ending more than four decades long monopoly of state-owned Nepal Oil Corporation (NOC). However, the government backtracked from its plan to open up the petroleum sector to private sector after fierce protest from petroleum entrepreneurs who had been enjoying benefit from the mismanagement of NOC. Also, in terms of trade performance, Nepal suffered highest ever trade deficit of Rs 340.65 billion in the first eight months of the current fiscal year till mid-March. During the period, exports contributed to nominal 11.4 percent of the total trade volume of Rs 441.09 billion. Increasing imports of petroleum, iron and steel, machinery parts, transport vehicles, gold and silver, cereal and some luxurious products contributed to the ballooning trade deficit at a time when the country has been suffering from weakening supply capacity amid persisting power shortage, bandas, labor unrest and political instability. In a bid to boost trade between Nepal and China, construction works for establishment of a dry port in Larcha of Sindhupalchowk began this year, with the aim of completing the project within next two years. However, Nepal failed to renew transit treaty with India with additional provisions that were crucial to promote Nepal´s trade with the southern neighbor and overseas countries. Nepal and India renewed the treaty in existing form after Nepal´s foreign ministry expressed reservation over one-time additional lock system on Nepal bound cargos proposed by Indian officials. The additional lock provision was among the different provisions included in the proposal of the new transit treaty with the southern neighbor. Though Nepal has been celebrating the Investment Year 2013-14 to encourage foreign and domestic investors to put money in major potential sectors such as hydropower, infrastructure, tourism, agriculture and manufacturing, the investment environment in the country was not conducive during the year. Growing industrial insecurity, amid frequent attacks on businessmen and industrial establishments by trade union workers, has generated fear among potential and existing investors. However, the government secured investment commitments worth US$440 million for implementation of proposed 140-MW Tanahun hydropower project from Japan International Cooperation Agency, the Asian Development Bank, Abu Dhabi Fund and European Bank. Completion of track opening works by Nepal Army for 76-km Kathmandu-Tarai Fast Track, the government´s decision to raise licenses fees to a range of Rs 200,000 to Rs 6 million for hydropower generation, were some of the major steps taken by the government during the year. The performance of the stock market also remained satisfactory during the year with the Nepal Stock Exchange (Nepse) index surging 203.47 points over the year to end at 523.41 points on April 12, the last trading day of 2069, thanks to progress in peace process following integration of former Maoist combatants in the Nepal Army. In the foreign employment sector, the year was possibly one of the best for Nepali migrants abroad. The Nepal government decision to jack up minimum salary of Nepali workers in Saudi Arabia and the United Arab Emirates (UAE), to enhance their savings amid increasing cost of living in those key destinations that house around 700,000 Nepalis migrants, was well received. Malaysia, the most popular destination for Nepali job-seekers, also announced its decision to raise minimum salary to 900 ringgit from 546 ringgit providing relief to overseas migrants, including Nepalis. However, the salary hike in Malaysia will be implemented in 2014. Yet reports of strikes staged by Nepalis in different areas of Malaysia such as Maur, Johor Baru, Perak of Kelang Neru and Tebrau were also reported during the year. Increasing incidents of violent protests by Nepali workers in labor destinations have become a matter of concern for the government though such agitations are against employers, who exploit Nepali workers by infringing on terms and conditions of work contracts.
Published on 2013-04-14 03:00:04

Violence by Nepali workers hurting overseas job prospects

_                                 *******NEWS ANALYSIS******* PRABHAKAR GHIMIRE KATHMANDU, March 29: Talking to Nepali the media earlier this week, Choon-Bok Lee, the vice president of Human Resources Development Service (HRDS) of Korea expressed his concerns about the growing number of cases of Nepali workers employed under Employment Permit System (EPS) involved in unionization with political interests. Choon´s concerns came a day after the Nepali media was flooded with news about a clash between two groups of Nepalis involving local gangs in the southern Malaysian city Johor Bahru that left three Nepalis injured on Sunday.

Govt agencies seek Rs 50b additional budget

PRABHAKAR GHIMIRE

 KATHMANDU, March 21: Given the insufficient budget allocation through ordinance budget, more than three dozen government agencies, including key ministries, have demanded additional budget amounting to over Rs 50 million for different programs.

More than two-thirds of the total amount has been sought for regular expenditure.

However, finance ministry officials said it would be impossible to release additional budget as demanded given the resources constraints.

“We have received demand for over Rs 50 billion from different government agencies. But it would very difficult, if not impossible, for us to arrange fund given the limited resources at our disposal,” Lok Darshan Regmi, joint secretary at the finance ministry, told Republica on Wednesday.

Mid-term review of budget made public recently by the finance ministry also shows that different government agencies demanded Rs 38.67 billion for recurrent expenditure, Rs 2.66 billion for capital expenditure and Rs 7.20 billion for financial management until mid-January.

The peace ministry, which has been overseeing the ongoing peace process, has demanded the highest amount (Rs 13.76 billion) followed by education ministry (Rs 6.08 billion) and home ministry (Rs 5.87 billion).

Ten ministries demanded additional budget of more than one billion rupees each during the first six months of current fiscal year. Ministry of Physical Infrastructure and Transport has demanded Rs 2.66 billion while Irrigation Ministry has asked for Rs 1.61 billion.

Similarly, finance ministry commerce and supplies ministry have demanded Rs 1.8 billion and Rs 2.86 billion, respectively. Federal affair ministry, tourism ministry and defense ministry have asked for Rs 1.01 billion, Rs 3.29 billion and Rs 3 billion, respectively.

Some of the ministries have increased the budget demand compared to the amount recorded until mid-January, according to the officials.

Election Commission has demanded additional budget of Rs 7 billion for the proposed general election. The government has allocated Rs 3 billion for the purpose
“As the budget for different ministries has been reduced by an average of 15 percent compared to last year´s actual allocation, most of the government agencies have demanded additional budget mainly for recurrent expenditures,” Finance Secretary Shanta Raj Subedi told Republica.

“Some ministries such as home, defense and education have demanded additional budget as they have been facing fund crunch even to pay salary. Some demand for additional budget has come for less priority projects,” added Subedi.

Though the ordinance budget has set spending cap on Rs 351 billion on par with last year´s allocation, reduction in allocation by around 15 percent and additional out flow of fund for pensioners and grade amount for employees forced the ministries and other agencies to ask for additional resources.

“As we are not in a position to release additional budget as demanded by different agencies, we are preparing to announce a full-fledged budget for current fiscal year,” Subedi said.

Tulasi Prasad Sitaula, secretary at the Ministry of Physical Infrastructure and Transport, said the demand for additional budget was made on the ground of urgency and in response to the demand for different development programs from people´s level.

“Though we have been demanding additional budget for various programs, allocation of budget as per our demand has remained nominal,” added Sitaula.

Monopoly of ill-performing NOC hits consumers

---------------------NEWS ANALYSIS-------------------------------

PRABHAKAR GHIMIRE

KATHMANDU, March 14: Long queues of vehicles scrambling to refill at fuel pumps is nothing unusual in Nepal, especially in the last few years. Petroleum products have become elusive for consumers who are fed up with frequent shortages that have been forcing them to wait for hours in the winter chill or the blistering heat.

Whether it is a short supply due to Indian Oil Corporation (IOC), Nepal’s sole supplier of petroleum, cutting supplies to press Nepal Oil Corporation (NOC) for timely payment of import bills or the bandas and strikes by different groups, the supply of petroleum products tends to be affected frequently. The target of criticism from all quarters is the state-owned petroleum monopoly -- NOC.

Years of mismanagement, continued losses and insufficient storage capacity are the major factors that have been weakening NOC’s ability to ensure smooth supplies during ‘abnormal period’.

The ailing NOC has been facing ever increasing losses every passing year, with cumulative losses crossing Rs 23 billion, which is almost one-fourth of the yearly petroleum import bill. Just for the month of March alone, NOC estimates a loss of Rs 732.8 million.

NOC has been taking a loss of Rs 5.43 per liter of diesel and Rs 513.14 per 14.2 kg-cylinder of LPG while taking a profit of Rs 2.27 per liter of petrol, Rs 9.16 per liter of kerosene and Rs 24.97 per liter of aviation fuel.

In the absence of an effective mechanism to automatically adjust prices for domestic market in line with the price phenomenon in global oil market, NOC´s capacity to manage cash flow to ensure timely payment to IOC is diminishing.

The loss-making NOC has over 27.5 billion in outstanding dues, to be paid to different financial institutions and the government.

The government is also providing an additional Rs 2 billion as borrowing to NOC and refunding Rs 800 million in VAT to NOC, which is passing through acute shortage of funds to shore up supplies, again.

Perennial crunch of funds to maintain sufficient stocks in its storages has been causing imbalance between supply and demand creating shortage of fossil fuels in the market.

NOC´s Thankot depot -- that supplies petrol to around a 150 depots in and around the capital, has a capacity to store only 1,870 kilo liters (KL) of petrol, which can fulfill less than a week’s demands.

“The key reason behind the frequent shortage of petroleum products in the market is our insufficient capacity to maintain sufficient stocks for smooth supplies in times bandas and strikes created from the crunch of funds to import petroleum in huge quantities,” Shiva Prasad Pudasaini, spokesperson of NOC says.

The Thankot depot can store up to 8400 KL of diesel, which is also insufficient keeping in view the rising demands for diesel with the increasing hours of load shedding, which means more use of diesel in generators, and the rise in the number of vehicles. NOC´s Amlekhgunj depot can store only 1960 KL of petrol, 16,100 KL of diesel and 5,580 KL of kerosene.

Amid the weak financial performance of NOC leading to persisting crunch of funds to pay import bills, the government has been under increasing pressure to arrange the funds to ensure smooth supplies.

Voices calling for the opening up petroleum imports to the private sector and ending the NOC’s monopoly are getting stronger.

“NOC´s monopoly should end to ensure smooth supplies of petroleum products paving the way for new players in the market,” said Purushottam Ojha, who chaired the NOC Board for a long time as the Secretary at the Ministry of Commerce and Supplies.

The Petroleum Bill drafted a few years back, which envisages opening up of petroleum product import for the private sector and introduce a competitive market in petroleum trade, is gathering dust in the parliament due to strong opposition from Maoist lawmakers.

“We might not have to face such frequent shortages of petroleum products had we been able to get the bill passed by the parliament,” said Ojha.

Though the government is making attempts to introduce the entry of the private sector in the dealing of petroleum products through petroleum guidelines, implementation is not going to be effective in the absence of necessary laws.

Given the monopoly of cash-strapped NOC in the dealing of petroleum products, consumers continue to face scarcity frequently as the NOC lacks the capacity to store sufficient stocks. The ongoing deficit in supplies of petroleum products is one of the case in point.

Recent strike of petroleum tanker operators followed by a couple of days of public holidays has entirely crippled supply as NOC, as usual, failed to keep up supplies with its limited stock.

A decline in the number of tankers along the Barauni-Amlekhgunj route following the murder of a tanker help and ongoing maintenance of the Raxaual depot are the main reasons behind the disruptions in supply of petroleum from Barauni and Raxual.

Lately, NOC has been compelled in transporting petroleum products to the capital from Bhairahawa that sources them from Betalpur of India. Gonda and Banthara of India are additional entry points for petroleum products.

“Given the capacity for storage in the Thankot depot, NOC can hardly supply petrol for three days and diesel for two weeks,” said Mukunda Dhungel, a former spokesperson of NOC. According to him, demands for petrol in the capital hovers around 300-350 KL per day.

Govt to release funds for NOC within a week

KATHMANDU: The government is releasing Rs 1 billion as borrowing and Rs 800 million as VAT refunds to cash-strapped Nepal Oil Corporation (NOC) within a week.
Newly appointed Home and Foreign Affairs Minister Madhav Prasad Ghimire made the assurance at a meeting with Commerce Secretary Lal Mani Joshi, Finance Secretary Shanta Raj Subedi and representatives of the private sector, in a bid to ease the supplies of petroleum products.
“NOC will be able to increase its stock of petroleum products to ensure smooth supplies once it gets Rs 2 billion as borrowing and a VAT refund of Rs 800 million,” said Commerce Secretary Joshi.

Deepening labor shortage hits industries

PRABHAKAR GHIMIRE KATHMANDU, March 8: Over the last couple of years, Bauddha-based Joshi Carpet Industry has been steadily cutting production and now makes less than half the amount of carpets it used to a few years ago. However, this slash in output was not caused by declining overseas orders, nor was it because of a shortage of raw materials. The factory, which would be filled with clatter of looms and chatter of shifts of workers around almost round the clock during the overseas consignment seasons in the past, is now facing a deepening labor shortage to maintain capacity.

Govt takes fresh steps to promote domestic goods

KATHMANDU, Feb 24: The government is making a fresh move to encourage public sector to use domestic goods in which Nepal is almost self-reliant. The cabinet has already agreed in principle to endorse the proposed ´Directive to Increase Consumption of Domestic Goods´. Nepal´s trade deficit surged to Rs 251.66 billion during the first six months of 2012/13, up by 30.4 percent compared to the figures of same period last year. The ´Immediate Governance and Action Plan 2012´ also envisages encouraging consumption of domestic products.

Govt to provide 50% VAT rebate on dairy products

PRABHAKAR GHIMIRE

KATHMANDU, March 7: Bowing down to pressure from big dairy producers, the government has decided to provide 50 percent Value Added Tax (VAT) rebate on sales of dairy products.

Local dairies were earlier exerting pressure on the government to exempt their products from VAT citing erosion in competitive power of their products to similar Indian products.

At one time, they had even threatened to re-introduce milk holidays and reduce fresh milk collection from dairy farmers to press their demands.