Last week, the government decided to hand out Rs 160 million to three loss-incurring public enterprises (PEs) in a bid to kick start their operations and rescue them from their debts. The recipients are Gorakhkali Rubber Industry, Nepal Drugs and Janakpur Cigarette Factory (despite the government's anti-smoking campaign).
Although the bailout is conditional with restrictions on how the money should be used, it is not the best way to save these corporations. In spite of the growth in numbers, roles and scope of public enterprises in Nepal, their financial and other performances have been far from competitive.
There are 36 public enterprises under the government's control at present, and except for financial institutions, a majority of them are incurring losses that now amount to billions. And we are not talking about welfare centric corporations like Nepal Food Corporation, which has a loss of Rs 1.11 billion. Even commercial ventures like Janakpur Cigarette Factory has recorded a loss of Rs 800 million. Some of these companies are suffering losses despite having a monopoly in their sector, which can be minimised simply through administrative reforms.
Political interference in business is largely to be blamed for the state of the state's enterprises. Public corporations have turned into a playground for political appointees and nepotism, with unqualified candidates occupying even technical posts such as accountants or financial analysts. Such practices have not only deprived enterprises of capable and qualified leaders, but are also increasing the operating costs and leading to huge losses.
The Drinking Water Corporation has over 1,000 staff and bears a loss of Rs 180 million. Using their leverage as state-run enterprises to accumulate bad debts at state controlled commercial banks, public enterprises have become symbols of mismanagement and unaccountability. The Nepal Airlines is a clear example of how too many crooks spoil the broth.
According to the Finance Ministry, about half a dozen PEs including Nepal Electricity Authority, Employees Provident Fund, Nepal Insurance Corporation, Nepal Oil Corporation, Hydroelectricity Investment and Development Company, Nepal Timber Corporation and Gorakhkali Rubber Factory are functioning without a chief executive.
The tendency of public enterprises to cry out to the Ministry of Finance for rescue during financial distress is not new. But a bailout which does not include business-sensible strategies will only be a temporary fix. Privatisation is thought to be the obvious long-term solution, but Nepal's privatisation drive, which changed ownership of more than 15 public enterprises in the last two decades, has left more companies inefficient and corrupt.
The government should now look into other alternatives to save the face of public enterprises. It is possible to use the co-operative model to reform these companies. The state can also contract out the management to private companies.
If the government intends to continue running public enterprises on its own, changes will have to be made. The establishment of Public Enterprise Management Board (PEMB), a semi-autonomous umbrella body which aims to regulate and oversee management of all state-owned ventures is definitely a step in the right direction.
PEMB is now in the process of appointing executive heads for the seven public institutions through a competitive application process. It should now seek to train public enterprises in the basics of prudent business strategies which focus on resource utilisation and wealth maximisation.
There is no reason why public enterprises should not be operated as businesses that are financially sustainable.