Seminar Report on Privatization in Nepal
Organised by NFHRD-FES

Oct 6, 2002

A one day seminar was organised by NFHRD with the cooperation of FES on Privatization in Nepal on October 6, 2002. The seminar was held to seek feedbacks for a book that Subash Pokhrel is bringing out. A summary of his ideas in the form of a single paper were floated to generate discussion. During his presentation, Pokhrel claimed that the paper was an account of his experience in the public sector rather than a purely economic analysis of the privatization process in Nepal. This did lead floor commentators to seek clarifications on wide ranging issues that he had touched upon in the course of his presentation. His conclusion was that there is a process of de-industrialization going on in Nepal and that the political leaders and policymakers are behind the economic decline. The single-session discussion was chaired by Prof. Gunanidhi Sharma of the Tribhuvan University. The presentation began without much formality and ended with the chairperson's remarks. The following are the excerpts of the floor discussion.

FLOOR DISCUSSION

Binod Bhattarai: The author claims that Nepal needs to keep itself in the good books of India for Nepali industrialization. This needs elaborating. What is the experience of Nepalese negotiators? He has made the reasons for the de-industrialization of government industries clear. What is the reason for the decline of the private industries?

Nepal is entering the WTO next year. What will happen to privatization after that?

Prem Sharma: I feel uncomfortable with the fact that privatization is being discussed by an organisation that is supposed to promote human rights. And this is happening at a time when people are being killed. Shouldn't we be discussing that instead of this?

You have sketched the Nepalese scenario well. India and China are our neighbours. How do we exploit their markets?

Bikhari Mansul: There is negative attitude among directors of the board. And, all the way down to the worker's level, things do not look any brighter. Also, the attitude of the bureaucracy is to blame for the current mess in the economic sector. The open border is a problem for our industrialization..

Industries have shown that they are not sensitive to public needs. There is only pollution for the local people where industries have been established but they are not given any benefit out of them, like employment which is reserved to provide jobs to political workers.

Khilanath Dahal: The topic is privatization but the paper discusses more about industrialization. It appears to take scant notice of the current situation. About 21 enterprises have been privatized after the restoration multiparty democracy. Four different modes have been used to do so.

The Raghupati jute mills was privatized for 8 crores. But it was valuated at 40 crores to take loan from the bank when the buyer himself (Golchha) was one of the directors of the board. How can the mills be valuated with two different amounts that are so wide apart? This in fact explains the state of industrialization in Nepal? The same person in the management kills the government industry saying that it is unprofitable, but once he buys it, it becomes profitable. This is because of lack of accountability.

• Privatization should be carried out for a certain class of industries. There is no classification other than just selling whatever the government owns.
  
• There is also dual standards in information dissemination regarding Nepalese industries. For attracting FDI, government info tells of the good environment and the profitability of industries. But the same government describes the environments as very bad when they want to privatize industries.
  
• One of the indicators of bad industrial status has been touted to be labour. But we have not blamed government policy, even while every activity is carried out on the behest of government people- ministers and bureaucrats. The blame appears to go only on the labourer.
  
• Overstaffed people have not been sent away in a systematic manner even while systems like golden handshakes are devised.
  
• The labourer should represent the workers in the board.
• Those public enterprises that need privatizing and those that don't should be classified.
  
• Privatized industries have led to unemployment of people that were previously employed. This should be accounted for. Even the unemployment of indirect employment should be taken into consideration.

Dr. Suman Dhakal: Development assistance from communist countries in the form of setting up industries has gone to the public sector, not because those countries want to export communism. Since aid depends also on the recipient, we should not blame the assisting country in question. If we blame China for wanting to export communism, was it the reason why Chinese industries were first targetted for privatization?
Privatization has appeared just to be an initiative to sell the industries with a motive for private profit by officials.

Mohammad Muzzahuddin: Privatization of public liabilities began even before 1990. The Jhiti gunta act used to employ a lot of people, but 1991 ended the act and people became unemployment. Privatization does not always bring in money.

Lal Babu Yadav: Thatcherism and Reagonomics are said to have initiated privatization. It would be good if you give the origin of privatization in your paper. Second,, which government carried out privatization of which industries? Third, the WTO context also needs to be defined. Lastly, since you are a human rights organization, you should have included human rights violation arising out of privatization, because it is reported to have done so in many instances.

Could you also connect privatization with the Maoist issue. What is the impact of privatization on the Nepalese economy? And, while privatizing, all the sectors should be represented, including the labourers.

Shanta Shrestha: The paper is simple to understand and also it is in Nepali.. This is good. There were ancient factories in Nepal which do not appear to have been mentioned in the paper. A lot of people were employed by some pioneers in Kathmandu. Tulsi Mehr and late Kansakar are some well known people. In fact, there are still people, the jyapus, who are unaffected by the modern industrialization, let alone privatization. We have to understand that industrialization needs to reflect the national identity.

Dr. Ram Krishna Timilsina: There is debate regarding industrialization and even privatization. But we lack laws regarding important aspects of industry. This means we lack regulation. The government can do nothing when it cannot regulate.
Privatization is understood to be the selling of government assets. There is no discussion in that debate about how assets can be handed over temporarily to the private sector. For example, leasing or contracting out of services could also fall within privatization.

Rudra Upadhya: There were two officials in the Privatization cell before 2001. But now there are four undersecretaries. Privatization has proved to be a failure. Several have been re-nationalized. Privatization led to drastic reduction of employment (about half in general) in a country where employment is a big problem.

…….: Privatization is wrongly understood to be a shrinkage of government activities. The government is supposed to set up enterprises and leave it for the private sector when they become profitable. This does not mean government pullout from industrialization. Japan is a very good example that did well in setting up industries and leaving it to the private sector as soon as it became profitable.
It is wrong to assume that India is a necessary factor for Nepalese industrialization. Soon, China will be opening up a double track railway to the Nepalese northern borders. This will drastically reduce our transit costs, lower than via Calcutta port. We need to include these developments in our industrial strategy.

There is still no act to regulate the quality of products, including food. It is an irony that in such a situation where regulatory frameworks do not exist that we talk of privatization.

…….: The conclusion appears to be that political interference has led to the decline of industry in Nepal.
What were the reasons leading to privatization?

Privatized companies do not let out their information to the public for fear of publicizing their messy activities. Until political reform is carried out, private sector cannot make any progress.

Som Bdr. Thapa: Privatization should also take note of Nepalese concerns. We copy others and abandon the initiative as soon as we face problems. We did not study why and how the British did it before adopting privatization. Political interference in public industries means the appointees are allowed to carry on illegal acts with impunity.

Privatized industries do not give out information to the public and, in fact, also not to the state. The Nepalese only open new organisations and do not bother about checking to see whether they run or not. There needs to be evaluation of past privatizations before carrying out new.

Author's reply

• What I have focussed on are non-economic factors rather than economic affecting the Nepalese industrial sector.
  
• Honesty should be the first and last category for privatization. Otherwise no matter what reason is given, privatization is not going to work.
  
• It is only in Nepal that industries are taken over by people just to abandon them afterwards, not to operate them.
  
• I still believe that organizing labourers can be done only through industrialization and that the ex-Soviet Union helped us convert people to communists.
  
• In terms of dependence on India, there are certain things that we will always have to depend on. I believe in this dependence. But if trains are going to come to us from the north, we will have to change our world politics.
  
• Regarding the question about whether privatization has anything to do with human rights, privatization is linked to the right to development- a human right.

Chairperson's remarks

Is privatization an external agenda or our own?

First, the Structural Adjustment Programme entered the country in 1984 and it also entered other countries. This happened alongside the strengthening of the US and the weakening of the Soviet Union. America started prevailing in every trade dispute. It started demanding markets in Europe, Japan and even Australia, especially in agriculture sector. In 1986, the Uruguay Round started. Liberal policies prevailed over all the rest. And the IMF and World Bank started pushing the privatization agenda. This coincided with the US agenda to push their multinational companies into other markets. Because the American services were very efficient, they also pushed for services to be included in the Uruguay Round agenda.

With western demands for liberalization in Nepal, what they did not understand was that Nepal already had a treaty on national treatment with India which prevented their coming into Nepal the way they wanted to. Kodak was pushed out of Nepal as a result.

The public enterprises were themselves were part of the multilateral planning. The irony is that it was the World Bank that was the reason behind opening up public enterprises like the Agriculture Development Bank.

Let me also elaborate on some questions raised by the floor:

• Regarding Indian dependence, it is not that we need to be dependent on India. If we look at the situation before 1923, we were more or less self-reliant. After the 1923 treaty, upto 98 percent trade depended on India. In the Panchayat days, we made efforts to reduce that dependency. In 1978 we separated the trade and transit treaties. But this was seen as a reduction of the Indian leverage in Nepal.
  
• Regarding the objectives of the public enterprises that came in with communist assistance, they are clear- either for employment, or for saving foreign exchange or like objectives. And it was the west that facilitated their coming into Nepal. So it is less to do with importing communism. The problem is that we have let the western interest into the country all the way to the privatization of the day.
  
• It is because of our wrong policies that we have been turned into a market for foreigners even while our resources have been lying idle.Privatization has too be looked at in terms of the failure of the whole economic policy, not just the failure of the privatization of a few industries.