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Privatisation in Nepal: Myths and Reality
The Boss, Nepal Wednesday, April 25, 2007

Rakesh Wadhwa
Nepal’s government is right to

The benefits of privatization are unquestionable and Nepal’s government is right to embark on this course.  Let us now clear up some of the myths about privatization.


The most common comment refrain is that the ‘family silver is being given away.’ The reality is the opposite. Assets yielding little or no return are being sold. Public enterprises (PEs) provide abysmal service and their losses are a burden on the taxpayers. 


Selling off RNAC, Rastriya Banijya Bank, Birgunj Sugar Mills, etc. will lead to massive continuing savings for the government. Further, if these savings are combined with the sale proceeds and are used to retire the country’s debt, then government’s interest expenses will also be reduced. 


What if a PE is making money? Frequently we find that the so-called profits are nothing but the result of government granted monopoly to the PE. Government run duty free shops are an example. Profits merely reflects the absence of competition not any real efficiency. Here privatization when preceded by deregulation and abrogation of monopoly means a far more efficient enterprise with substantial gains for the consumers.


Some say why privatize, just run PE’s more efficiently? This is what the World Bank, the international leader in advising on PE reforms, says:


“The World Bank’s position on (the desirability of privatization) is derived from long experience with failed attempts at reforming public enterprise.  For years, the Bank supported efforts of governments to improve public enterprise performance but with little success.  The efforts either did not bring the desired results or the improvements were not sustained.”


“The costs have been high.  In many countries, inefficient but privileged public enterprises drained budgets, diverted resources from health and education, seriously damaged the health of the banking sector and created obstacles for the development of the private sector.  Observing the immense difficulties of reforming public enterprise without changing ownership, the Bank emphasizes divestiture as a means of locking in the gains from reforms.”


In the days when Germany was divided, the same Germans who produced world class Mercedes, BMWs and Volkswagens in the West made the Trabant in the East - a highly polluting car about which it was joked that you could double its value by filling up its petrol tank.  What caused this difference?  In the West, private companies manufactured the cars; in the East, automobile production was by a PE.


The stark reality is that for government to run businesses efficiently is impossible. It is not just an easily rectifiable fault.  It is like asking a cow to start running up a tree.  It is not in the nature of the cow to do so and waiting for it to happen would be  pointless.


PEs in Nepal provide basic goods and services such as postal services, water, telephones and electricity. Should the government not own them because of their strategic importance?


The problem here is that everything and anything can be termed strategic.  In Soviet Russia food was considered ‘strategic’ and the thought of private enterprises manufacturing bread and running grocery stores for profit was considered a nightmarish situation.


Today, in various parts of the world, all of these ‘strategic’ services are being run privately, profitably and with such excellent customer service that consumers here can only dream of.


Most countries now realize that government ownership is neither essential nor even desirable when it comes to running infrastructure.    If PEs fail in running simple businesses like making bricks, (Harisiddhi Bricks is an example) how can you entrust anything of  importance to the government?

Author : Mr Wadhwa is an economist and businessman based in Nepal.
Tags- Find more articles on - nepal privatisation | privatisation | privatisation in nepal | privatization | public enterprises

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