Nepal Considers Scrapping State-Owned Enterprises
KATHMANDU, April 14: The High-Level Economic Advisory Commission has recommended scrapping out five underperforming state-owned enterprises (SOEs), citing them as a financial burden on the government. The commission, led by former finance secretary Rameshore Khanal, submitted its report to Finance Minister Bishnu Paudel on Friday.
The report suggests shutting down the Janakpur Cigarette Factory, Butwal Yarn Factory, Nepal Engineering Consultancy Services Centre, National Construction Company, and Nepal Orient Magnesite Pvt Ltd. The commission concluded that these institutions were beyond revival and advised transferring their assets to the government for better management.
The report also recommends partial privatization of Hetauda Cement Industry and Udayapur Cement Industry by selling shares to the private sector. It noted that while privately run cement industries are profitable, these two government-owned factories continue to operate at a loss due to inconsistent production.
According to the Finance Ministry, there are currently 44 state-owned enterprises, out of which 15 are running at a loss and three are inactive. The government has invested over Rs 615 billion in these enterprises, but the returns remain poor. As per the 2081 Annual Review of Public Enterprises, 25 enterprises made profits while 17 incurred losses. Though institutions in the service sector generated a profit of Rs 2.22 billion, those in the social sector recorded a combined loss of Rs 120.5 million.
Nepal Airlines Corporation incurred the highest loss of Rs 652.9 million, followed by Nepal Water Supply Corporation at Rs 546.9 million, Dairy Development Corporation at Rs 484.2 million, Udayapur Cement at Rs 362.8 million, and Nepal Television at Rs 351.2 million.
The commission suggested restructuring the Dairy Development Corporation into provincial-level entities. It also proposed the creation of a holding company under the existing Company Act to manage all SOEs with full government ownership and reduce political interference. Furthermore, it recommended keeping these enterprises outside the purview of line ministries.
The report called for timely audits of all SOEs and proposed inviting foreign strategic partners to help restructure and manage Nepal Airlines professionally. The commission emphasized appointing competent leadership in SOEs with performance-based contracts and transforming them into public limited companies to allow public shareholding and bond issuance.
It also advised against providing loans to cover operational costs such as salaries in loss-making SOEs.
The government has invested in various types of SOEs across industrial, trade, service, social, public utility, and financial sectors. However, many of these investments lack justification. Despite the global debate over government involvement in business, most SOEs in Nepal have failed to deliver expected returns or services.
Although some institutions were established to ensure essential supplies during national emergencies and prevent market manipulation, cartelization, and black marketing, they have not yielded significant outcomes despite billions in investment. The original intent behind setting up SOEs was to provide essential goods and services at affordable prices, promote competition, build infrastructure, and support economic and social development.
The report highlighted that many SOEs continue to incur losses due to policy and managerial weaknesses. Despite identifying the need to enhance managerial, technical, and commercial competitiveness, little improvement has been made.
It stressed the importance of assessing service delivery, cost-effectiveness, and relevance to determine whether to retain government involvement, switch to public-private partnerships, outsource management, or fully privatize or dissolve the enterprises. Although similar recommendations were made by the Public Expenditure Review Commission in 2018, only a few have been implemented.
The commission urged the government to review these past suggestions for relevance and take necessary action.
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