Nepal's only growth industry: private sector corruption

The discourse around corruption in Nepal is mainly about politicians and bureaucrats accepting bribes and kickbacks. The private sector usually does not get as much blame.

But the prevalent climate of cronyism in Nepal means that the politicians and businesses are often hand in glove. The private sector is generally considered to be in favour of free market competition to encourage investment and innovation so that wealth is generated.

But insider trading, cartelling, and conflict of interest have become a given in Nepal’s private sector, and it all happens with the blessings of the government. In fact, tycoons have become legislators and politicians have become businessmen.

“Such collusion kills the free market, and does not allow entrepreneurship and innovation to flourish,” says Kush Kumar Joshi, former president of the Federation of Nepal Chamber of Commerce and Industries (FNCCI).

An example of this is the Dangote Group of Nigeria, which was planning for a cement factory in Nepal. A Dangote executive told us that Nepal’s cement cartel got the government to sabotage their plans. 

Earlier, the same cartel tried to do the same thing to the Chinese companies Hongxi and Huaxin, arguing that Nepal’s cement industry was capable of meeting domestic demand and did not require foreign investment. Ultimately, Hongxi partnered with Nepal’s Shivam and Huaxin with former FNCCI president Suraj Vaidya.

In 2019, industrialists successfully lobbied lawmakers to prevent foreign investment in agriculture by amending the Foreign Investment and Technology Transfer Act. Two years later, foreign investment in agriculture was opened, but only if 75% of the products were exported.

There is a long history of local lobbyists obstructing the entry of multinationals, like J Walter Thompson advertising agency and the international shipping company Maersk. Microbreweries, which can be operated by restaurants, have been prohibited at the behest of larger beer companies. The private dairy sector opposed the government-owned Dairy Development Corporation when it tried to begin production in Pokhara a decade ago.

“The business sector is a reflection of Nepali society and government which do not care about ethical business practices,” says former CNI president Hari Bhakta Sharma. “The environment is not conducive to the few businessmen who are honest.”

Lobbying by businesses is not unusual in a democracy, but its basic character should be for the collective good, not individual greed.

“This kind of profit-over-everything mindset is fatal for businesses. Entrepreneurs must prioritise social, worker, and customer welfare,” adds Sharma.

Industrialists have actively lobbied for the removal of policies that prevent loan misuse and require bank loans in specific areas. They have partially reversed such directives.

Until the economic slowdown, Nepal’s fastest growing industry was construction. But even there, cement and steel rod manufacturers colluded by price-fixing. Banker Parshuram Kunwar Chhetri says Nepal’s corporates just do not believe in free market principles, adding: “Their ideas go against competition benefiting consumers. It is all about price fixing, cartels and monopolies.”

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Ideologically, Nepal’s Communist parties are supposed to be against the neoliberal free market, globalisation and the ‘imperialism’ of international financial institutions like the World Bank and the IMF. But cronyism is rife there, too.

Two years ago, the FNCCI and the Confederation of Nepalese Industries (CNI) accused the IMF of interfering in Nepal's domestic economic policy after the Fund demanded economic reforms as conditions for its Extended Credit Facility.

Says economic analyst Sujeev Shakya: “How can we expect an honest and ethical business sector when we as a society tend to laud those who earn money through illicit and corrupt means rather than lament their moral bankruptcy?”

In October 2012, the Chaudhary Group’s CG Electronics warehouse in Kathmandu caught fire. A surveyor certified that the company had suffered Rs580 million damage, which was paid out by United Insurance Company.

The Commission for the Investigation of Abuse of Authority (CIAA) directed the Nepal Insurance Authority to investigate suspected insurance fraud, and found that the fire damage was actually Rs340 million.

The Patan High Court ordered Chaudhary Group to return the excess amount, a decision the company challenged in the Supreme Court. But in March, the apex court also found the Chaudhary Group guilty of insurance fraud.

Chaudhary Group's Binod Chaudhary, Nepal's only known dollar billionaire, is a Nepali Congress central committee member and MP, former president of FNCCI and founder of the CNI.

Then last February, the Central Investigation Bureau questioned Binod Chaudhary and arrested his brother Arun Chaudhary of CG Holdings over their alleged involvement in the illegal acquisition of the state-run shoe factory, following an investigative report by Ukaalo Online.

In 2021, Chaudhary and his family’s offshore business dealings landed them in the Pandora Papers list by the International Consortium of Investigative Journalists (ICIJ) for hidden assets in Panama.

Says Krishna Khanal, assistant professor of business ethics at King’s College: “Cronyism, political collusion, and anti-competitive cartelling are routine in the private sector. There is no other objective than to make money at any cost.”

Conflict of interest is rife in Nepal’s share market. In 2023, Ghorahi Cement owned by Triveni Group issued primary shares at a premium price. There is also evidence that a river was diverted for the construction of its business tycoon Upendra Mahato’s Mediciti Hospital. Bhatbhateni owner Min Bahadur Gurung is also involved in Lalita Niwas land grab scam in Baluwatar.

Meanwhile, Shankar Group Vice President Sulabh Agrawal, former honorary consul of Kyrgyzstan, was arrested by the police during the Covid-19 pandemic after he was found selling 67 infrared thermometers from a vehicle with diplomatic credentials. He was later acquitted by the court for price-gouging.

Nepal’s most influential corporates were accused of evading billions in VAT by forcing invoices. Freedom Forum invoked the Right to Information to collect evidence of the involvement of CG Foods, Him Electronics of Shekhar Golchha, Morang Auto Works of Bishnu Agarwal, Sulabh Agarwal’s Jagdamba Steels, United Builders of Shakuntalal Hirachan, United Traders of Anuj Agarwal, and Min Bahadur Gurung’s Bhatbhateni Supermarket.

Most of these businessmen have held leadership positions in the FNCCI. Former FNCCI presidents Shekhar Golchha, Pashupati Murarka and Pradeep Jung Pandey, along with members of the federation's governing council Birendra Kumar Shanghai, Shashikant Agrawal, and others all have unpaid dues of Rs22 billion to Nepal Electricity Authority. 

Former FNCCI president Chandiraj Dhakal was blacklisted by the Credit Information Bureau Nepal for non-payment of bank loans.

He had previously obtained permission to use 36 hectares of government forest land in Chandragiri for 40 years without competition, and had received an exemption to build a ropeway there. The 54th report of the Auditor General, stating that Nepal had suffered as a result of these decisions, had suggested that the state be investigated for leasing land at low rates allowing large revenue exemptions.

Another ex-FNCCI president Pradeep Jung Pandey was sentenced to prison in 2014 following a corruption case spanning three decades. Former FNCCI treasurer Gyanendra Lal Pradhan is currently facing charges of money laundering through insider trading. 

Former FNCCI president Pashupati Murarka was acquitted by the special court in a corruption case, but it is still pending in the Supreme Court. His cement company was found to have exploited the environment by over-mining limestone at various times. 

His Siddhartha Minerals was also found to have encroached forests in Palpa, following which the District Forest Office registered a criminal case against him and co-investor Manoj Kedia. Arrest warrants were issued for six people, including Murarka and Kedia, but Muraka was released on bail, while Kedia is on the run.

Current FNCCI president Chandra Prasad Dhakal during his tenure as a member of the Securities Board of Nepal (SEBON) was accused of conflict of interest in being a regulator in the sale of shares in a company that his family had invested in. 

Dhakal is the chair of the IME Group, which owns banks, insurance, remittance companies, several cable cars and hotels, and has been embroiled in numerous ropeway-related controversies — most recently for allegedly using political connections to suppress local opposition to a cable car project in Pathibhara.

Another example of fraud committed in collusion with political leadership is Himalayan Reinsurance, the investors of which include prominent businessmen who have led FNCCI and CNI in the past, including Shekhar Golchha, Pashupati Murarka, Bhawani Rana, Rajesh Kumar Agrawa, Rohit Gupta, Amit Mor, Satish Mor, Shashikant Agrawal, and Sulabh Agrawal.

During the Covid-19 pandemic, the Nepal Insurance Authority requested approval for a reinsurance company through an emergency notice, even though such a government-operated company already existed. But Himalayan Re-insurance was granted permission without any explanation as to why another reinsurance company was needed, or how it was selected out of the five companies that submitted proposals.

It was found that the Securities Registration and Issue Regulation was amended to allow this company to issue shares at a premium price, allowing the shares priced at Rs100 to be sold for Rs206. Himalayan Re-insurance raised Rs6 billion. The Companies Act stipulates that primary shares can be issued at a premium price only after three years of operation, a criteria Himalayan Re-insurance did not fulfil.

Open competition, consumer protection, worker welfare, environmental consciousness, anti-corruption, and tax responsibility are the foundations of a country’s healthy business world. But most captains of Nepal’s industry themselves do not uphold those principles.

The business community here is instead actively engaged in lobbying and colluding with the political leadership, and forcing the appointment of their candidates to lead various regulatory bodies. 

“While the new generation of entrepreneurs operating in sectors linked to external markets such as IT seem sensitive to and compliant with professional codes, ethics, professionalism, and honesty are sorely lacking in Nepal’s business sector in general,” says Rameshore Khanal, former Secretary of the Ministry of Finance.

He adds: “Even those following ethical practices have been forced to seek political favours for fear of being left behind. There will thus be no integrity in the private sector until there is honesty in politics.”

Following the publication of this report in Himalkhabar, a Supreme Court judge on the condition of anonymity said: “Businessmen do not adhere to the principles of judicial independence, rule of law and good governance. They use intermediaries and political connections to approach judges and win cases. Meanwhile, nobody raises these issues in public.”