KATHMANDU: The country’s public enterprises (PEs) are often in the limelight for incurring losses and requiring government loan or subsidy. Poor management and unaccountability are held as prime factors for their dismal performance. While many agree that government should not operate trading or business enterprises, experts also suggest that privatisation alone is not the answer to revive the ailing PEs.

Fall from grace

Almost all Nepali PEs share a rich history of un-paralleled success, as they enjoyed monopoly in the market in absence of private sector in manufacturing and trading fronts. However, mismanagement and unprofessional handling, brought about by undue political interference, degraded the once proliferating PEs. The latest case in point is that of Janakpur Cigarette Factory (JCF). “JCF enjoyed such a dignified status around 1985 that the Ministry of Industry depended on it to meet costs for furnishing the offices under it,” says Narayan Manandhar, a freelance consultant previously associated with Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

However, the once un-challenged cigarette giant with over four decades of experience has remained non-operational for the past 10 months. According to those in the know, JCF is dysfunctional not due to lack of raw materials or market. Rather, over-staffing, unprofessional management and inability to compete with the private sector ruined its financial health, bringing the factory to a halt. “Around 241 staffs, mostly at the top level, quit the factory in 2009 as part of the government’s compulsory retirement policy. This had an adverse impact on the factory’s performance,” says Hridaya Narayan Mishra, general manager of JCF, adding that the factory’s outdated machineries also contributed to the loss.

PEs, since their inception, have served as recruitment centres of the government. Recruitment drive by political parties through government appointments, which accelerated along with the reintroduction of the multi-party system in 1990, marked the downfall of PEs. JCF once had its branches across 75 districts. Now the factory has 55 branches and still employees 835 staffs. Its branches and staffs are utterly redundant because all the factory needs is a stockist at a marketplace to supply its products to dealers. According to Mishra, the government has loaned JCF a total of Rs 280 million till date. However, it requires a minimum of Rs 600 million to restart the factory. Even if their request for a new loan is approved, it will go entirely to the factory’s adminis-trative management with no overhauling of its machines.

Privatisation not the panacea

Most industry stakeholders believe that PE culture does not look for market expansion and profit making — and their only remedy is privatisation. In their heydays around 1980s, the count-ry boasted of 60 PEs. Over the years, the government reduced PEs to 36 but recently three more PEs — Hydropower Investment and Development Company, Employees’ Provident Fund and Guthi Sansthan — were added to the list. According to a 2009/2010 record maintained by the Ministry of Finance, of the 36 PEs, 22 were in profit. However, its data for the same year also reveals that the loan investment in PEs increased by 13.8 per cent. As per the data, while the government share in 36 PEs amounted to Rs 84.4782 billion; its loan investment was Rs 84.8254 billion.

“Nepal has a sad story of PEs, where the government funnels money into loss- making institutions. What is the use of draining money in PEs like JCF? What social obligation does the government have to run a loss-making cigarette factory?” questions Meghnath Neupane, director general of Confederation of Nepalese Industries (CNI). He suggests the government to rather focus on infrastructure development and facilitate the private sector. People like Neupane hold that PEs dealing with business other than social sector should be privatised.

One argument is that PEs do not feel the heat of competition, as they count on the government for loans. Thanks to the culture of political recruitment, management and workforce of

PEs are not loyal to the concerned institution or its future. A stark case of unaccountability in PEs poured into media last year when the Commission for the Investigation of Abuse of Authority directed the in-solvent Nepal Oil Corporation (NOC) to stop distributing bonus to its employees.

Delving into the psyche of PEs, Manandhar suggests that political pressure has turned them into loss-making institutions. “PEs tend to operate in loss to avoid political interventions in terms of recruiting employees and sharing profits. When they can operate on yearly subsidy, why would they shoulder the pain of market expansion?” he asks.

Bhrikuti Paper Factory and Bansbari Leather and Shoe Factory are other examples of PEs that failed despite privatisation. However, Neupane urges not to generalise privatisation issue, citing exemplary performance of private sector in airlines, telecommunication and banking sectors. According to him, private sector is

successful thanks to efficient management, sense of competition, implementation of modern technology and efficient marketing. “Lately there’s also growing realisation in private sector that the gap between management and labourers needs to be narrowed, and profit shared to create capital,” he adds.

Remedies and reformsNegating privatisation as the cure-all, Rameshwor Khanal, former finance secretary and PM’s economic advisor, says, “It can be a part of the solution but is not the permanent solution. PEs are a huge success in many countries adopting either socialistic, capitalistic or mixed economy. For example, around 90 per cent companies in Norway and over 60 per cent companies in Singapore are state-owned.” Khanal believes that allowing PEs to operate independently just like private companies — in terms of decision making and management — will end the bleak scenario.

“At a time when even private companies are lagging behind in terms of employment generation and providing services, it is wiser to revamp existing PEs in social sector by making them accountable and transparent,” opines Senior Economist Bishwambher Pyakuryal, agreeing that PEs conducting businesses may be privatised. He stresses that the government should set goals for PEs and make their activities transparent through a strong regulatory mechanism. “The government should have the guts to say that PEs failing to meet the target will be liquidated or privatised,” he says.

As an effort to revamp the PE sector, the government has recently formed the Public Enterprises Directorate Board (PEDB), which acts as a recommender to the government for the betterment of PEs. “We are determined to establish a transparent selection procedure for a CEO in a PE. It will be competitive and merit based,” says Bimal Prasad Wagle, chairman of PEDB. The board is now assessing the status of existing PEs and has plans to recommend CEOs for six PEs. “That the government has formed PEDB means it seriously wants to reform PEs,” expresses Wagle. However, only time will tell whether PEDB’s recommendations are truly executed or not,

redeeming PEs from the long culture of mismanagement and gross unaccountability.