In the past few weeks as Nepal faces trying times with falling growth and high inflation, Kathmandu has witnessed numerous seminars, conferences and workshops with the discourse revolving around the economy and investments.&nbsp;
The consensus that Nepal needs foreign direct investments (FDI) to grow was once again repeated, and the familiar litany of reasons about why it has not been able to. Policy advocates and regulators have understood that the lack of urgency is compounded by procedural inconsistencies and added to the already deficient investment environment in the country.
It is a welcome change from what used to be flippantly accepting things as given that there is now a sense of urgency, with procedural inconsistencies and lack of harmonisation between various Acts and regulations openly discussed.&nbsp;
Furthermore, the desire from government stakeholders to learn and attempt to be part of the solution is also beginning to happen. &nbsp;Whatever policy changes have been introduced in the past have been piecemeal and address the few rather than the entire industry, thus leaving dual regulatory approaches aimed at similar players. &nbsp;
To attract FDI in a competitive global market means Nepal has to demonstrate that it is serious about bringing in investments with a more consultative and collaborative approach with investors. &nbsp;A departure from procedural to a result-oriented focus is needed.&nbsp;
Read also: <a href="https://www.nepalitimes.com/editorial/invest-in-investment">Invest in investment</a>
To put issues in perspective, Nepal needs US$20 billion in investments to meet SDG (the UN’s Sustainable Development Goals) targets by 2030. If net-zero decarbonisation targets are to be met by 2045 another US$7 billion will be required annually.&nbsp;
Looking at our investment history and poor government capital expenditure, the gap is long and wide. &nbsp;Last week’s budget showed that in the nine months of this fiscal year, Nepal was able to book a lamentable US$9 million in FDI (equity) investments, a decrease of 98% from the corresponding period last year.&nbsp;
Nepal is in fact the lowest market in South Asia for FDI with 0.3% of the regional average. &nbsp;What is it that we can do to fill the gap?&nbsp;
First: we need to move away from the notion that Nepal only needs large investments. This has proven to be a mistake, and time series data have proven that smaller investments, in aggregate, make a larger impact to economies.&nbsp;
We talk about an ‘enabling environment’ but without the right tools. &nbsp;We place restrictions on interest on debt ceiling (Libor +5.5), without risk premium adjustments, we do not have an active secondary market for bond trading, nor do we have a yield curve, an integral part of the bond market. &nbsp;
Read also: <a href="http://archive.nepalitimes.com/regular-columns/Comment/making-nepal-fdi-friendly,853">Making Nepal FDI friendly</a>, Shyamal K Shrestha
In order to attract green financing, Nepal needs to develop its bond market. Billions of dollars of green climate funds are waiting to be tapped. Sovereign risk rating has been mooted, but to be rated in an adverse economic environment could further deteriorate investment potential due to a lesser than expected rating. &nbsp;
Hedging is another instrument that needs further research on. A commercial bank recently showcased the first risk hedging mechanism for an investment of $8 million. &nbsp;This can be the beginning to expand on its modality. &nbsp;&nbsp;
Subordinated debt instruments have been introduced, but on a special nod basis, this now needs to be institutionalised as it is the most applicable form of investments after equity in a market that has volatile forex reserves.&nbsp;
Viability Gap Funding has yet to be implemented and has been in active discussions for a few years now. &nbsp;This needs to come into effect to encourage solar installations in the country.
Moving forward, to attract FDI, Nepal needs to tap into the funds that are available for the growth of small and medium enterprises (SMEs) and climate change. &nbsp;Alternative investments such as Private Equity Venture Capital (PEVC) have been around in a structured manner in Nepal for nearly a decade now. These funds have blended finance components and have attracted climate funding as well. &nbsp;
Read also: <a href="https://www.nepalitimes.com/from-the-nepali-press/why-there-is-no-foreign-investment-in-nepal">Why there is no foreign investment in Nepal</a>
PEVC is a new asset class and can address the issues of penetrating into SME financing by incorporating environment, social and governance issues into their investment process. &nbsp;SMEs are the backbone of any economy, PEVC comes with the ability not only to scale up the enterprise with risk capital, but with the ability to bring technical know — how to enhance not only the enterprise, but also the entrepreneur. &nbsp;A differentiator from all other forms of financing available till date in Nepal.&nbsp;
Blended finance is a way of de-risking investments especially in frontier markets. <a href="https://bo2.com.np/" target="_blank">Business Oxygen (BO2)</a> is an example of blended finance with subordinated debt investments of IFC (World Bank Group) taking the lead and Climate Investment Funds along with FCDO as co-investors. &nbsp;
On a larger scale, the 216MW Upper Trisuli1 is another example of blended finance with IFC, a Korean consortium and local investments. &nbsp;So far, we see that development finance Institutions have been taking the lead in Nepal as their risk appetite is greater than commercial investors and they are eager to help develop the financial markets. &nbsp;
In order to be sustainable, we need to step on this and attract commercial capital from all over the world. To do this there has to be political will to make that pivot.&nbsp;
The recent budget has tried to address some issues in a cosmetic manner, and once again it lacks the overall approach to the problem. &nbsp;Nepal has outdone many countries in its macro-economic indicators, with sound forex reserves and a stellar history of debt payments to its creditors. This story needs to be propagated along with the drive for change to attract potential investors.&nbsp;
Read also: <a href="https://www.nepalitimes.com/opinion/guest-column/so-you-d-like-to-do-business-in-nepal">So you’d like to do business in Nepal?</a>, Ritu Pradhan Malla

Siddhant Raj Pandey

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Alternative investments to attract FDI

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221109121112/636b8b099c7e80680e06b277jpeg.jpg" alt="" width="1400" height="902"/><figcaption>Photo: BIKRAM RAI</figcaption></figure>As we face an unprecedented and precarious pandemic that has caused uncertainty to the entire global economy, Nepal’s own response to it will determine at what velocity our economy will hit the ground. We need to brace ourselves for a very hard landing.<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/nepals-economy-already-weak-takes-direct-hit/" target="_blank" rel="noopener">All businesses have been severely disrupted</a> by the COVID-19 lockdown. As private equity investors, our first task has been to assess the nature of the problem that they face and provide solutions.The effect of this contagion has not just been sector-specific, but has affected the entire value chain. In Nepal this problem is compounded as we are heavily import dependent, which has created severe disruption in intermediate (raw) materials and components for production.<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/banner/pandemic-is-a-chance-to-rethink-development/" target="_blank" rel="noopener">Pandemic is the chance to rethink development</a>, Ivan G Somlai<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/nepals-economy-already-weak-takes-direct-hit/" target="_blank" rel="noopener">Nepal's economy, already weak, takes direct hit</a>, Sanghamitra SubbaAll sectors of the economy are facing limitations. The tourism and hospitality industry has suffered immensely due to cancellations of visitor arrivals, local restaurants have had to close down due to lack of business. <a href="https://www.nepalitimes.com/opinion/work-for-food/" target="_blank" rel="noopener">Agriculture will be next to be affected</a> due to the lack of fertilisers and other inputs. As the lockdown is extended, the state of the economy will progressively deteriorate.The foremost factor for a private equity is investor like us in a crisis like this is to ensure the management of impact on the work force. Human resource must be well taken care of and all our partner companies have preventive measure against this virus.Secondly, we assess the financial health of the companies. Our advisory role is to give oversight on what they should do to alleviate the problem. It is no surprise that all are in a stage of cash shortage for working capital and debt repayment compounded by receivables that seem improbable of getting paid on time.We impress upon them to consolidate their accounts, manage expenses prudently and cut costs. Management of operational risk is very important at this juncture -- this is not the time for bottom line expectations but to ensure top line sustainability.<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/opinion/common-sense-is-uncommon-in-fighting-covid-19/" target="_blank" rel="noopener">Common sense is uncommon in fighting COVID-19</a>, Anil Chitrakar<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/editorial/back-to-the-future-of-farming/" target="_blank" rel="noopener">Back to the future of farming</a>, EditorialDepending on the gravity of the state of their balance sheets, we support them to acquire bridge gap funding or, in the long run, increase our equity portion. The companies that are in a better situation have been active in providing philanthropic activities to the community.Whether it is providing <a href="https://www.nepalitimes.com/here-now/philanthropy-in-the-time-of-pandemic/" target="_blank" rel="noopener">free lunches to the police and health workers</a> or building and providing swab collecting booths for safety of medical workers at hospitals or setting up a call center that provides access to doctor services have all been pro bono activities in this hour of need. We encourage such endeavors and also provide linkages between the companies in our portfolio.Never has private equity impact funds been more relevant than now. Patient risk capital with a hand holding mechanism that provides diffusion of knowledge along with the much needed capital is what private equity has been doing in Nepal for the past five years.<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/philanthropy-in-the-time-of-pandemic/" target="_blank" rel="noopener">Philanthropy in the time of pandemic</a>, Shristi Karki<a style="font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/opinion/labour-mobility/crossborder-virus-and-nepali-migrant-workers/" target="_blank" rel="noopener">Cross border virus and Nepali migrant workers</a>, Upasana KhadkaFor a foreign direct investor (FDI), we are restricted due to the time taken by the government agencies for approval, which can take as long as 3 to 6 months. There are capital increment requests for investments that have been waiting for over 18 months for FDI approval.Businesses will not have that long a gestation period if they are strapped for cash. Therefore, the government needs to put in place a mechanism to expedite onward investments or top ups for these companies to move forward. Furthermore, this will also help the weak situation of the balance of payment of the country.Millions of dollars are awaiting approval at this moment. Post lockdown, this will be an opportunity for the government to show its sincerity towards foreign investors by expediting the process and demonstrating that <a href="https://www.nepalitimes.com/here-now/nepal-has-to-curb-corruption-before-wooing-investors/" target="_blank" rel="noopener">FDI is an important component to Nepal’s development</a>  showcasing that we are open for business in action rather than words.Siddhant Pandey is Chairman and CEO of Business Oxygen Pvt Ltd (BO2).

Also keeping financially healthy in a lockdown

https://www.youtube.com/watch?v=Kd5O93-Ipg4&amp;feature=youtu.beDil Bahadur Gurung was 13 when he left his isolated home village of Orang in <a href="http://archive.nepalitimes.com/article/Nepali-Times-Buzz/heritage-conservation-outside-kathmandu,3487" target="_blank" rel="noopener">Dolakha district</a> to get a better education in Kathmandu. He was used to hard work, and was prepared to face any hardship to pay his way through school. He worked as domestic servant for a family in exchange for food and shelter.The teenager had to wake up at 4AM and finish all household chores to able to join morning classes at 6am and return to finish the rest of his work. At night, after all the cleaning and washing he would do his ‘homework’. In three years, he graduated from high school and joined a college, while working at a cargo company to pay for his studies.Read also: <a href="https://www.nepalitimes.com/opinion/migrant-worker-finds-farming-in-nepal-more-rewarding/" target="_blank" rel="noopener">Migrant worker finds farming in Nepal more rewarding</a>, Naresh newar“It wasn’t an easy life, but I was so determined to study. My self-confidence and motivation prepared me for this life, and later on in my business,” says Dil, now 47.He started working in a shop in Thamel and took technical training in hand-crafted products at the Department of Cottage and Small Industries. He had some savings by then, and with help from an uncle he invested it in his own company, ‘Handcraft’ in Kapan to produce lamp shades, notebooks, boxes, greeting cards from <a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="http://archive.nepalitimes.com/article/Nepali-Times-Buzz/Putting-it-down-on-paper-nepali,3750" target="_blank" rel="noopener">Nepali lokta paper.</a><figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108151128/636a67b09c7e80680e0599efjpeg.jpg" alt="" width="1500" height="1125"/><figcaption>Photos: NARESH NEWAR</figcaption></figure>But competition was stiff, he had few customers and he did not have access to raw materials. He struggled to keep his business afloat. His parents insisted that he close down the shop, and <a href="https://www.nepalitimes.com/editorial/reducing-labour-pain/" target="_blank" rel="noopener">migrate to the Gulf</a> for a more stable salary, like many of his peers.“Everyone was asking me to close down my company, but that just increased my determination to keep going. I believed that I could make the business of paper handicrafts a success,” recalls Dil.So, he headed back to his village in Dolakha to collect wild lichen, pipal leaves, and lokta pulp to create handmade greeting cards. Back in Kathmandu, he went door to door, from one shop to the next, walking and cycling all over Kathmandu with his products. Even after being rudely rejected often, he did not lose heart and gradually managed to find loyal customers.Read also: <a href="https://www.nepalitimes.com/opinion/rupeshs-epic-journey/" target="_blank" rel="noopener">Rupesh's epic journey</a>, Naresh NewarHe slowly diversified his products and started making lamp shades, small boxes, pouches – all made from lokta. Before long, the original designs started bringing in orders from wholesalers, hotels, restaurants, schools. He started a small outlet in Dhobighat which became popular. As business picked up, he hired 16 fulltime staff and also involved another 150 painters, flower and other suppliers.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108151128/636a67b49c7e80680e0599f0jpeg.jpg" alt="" width="640" height="480"><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108151128/636a67b89c7e80680e0599f1jpeg.jpg" alt="" width="640" height="480">Today, Dil Bahadur Gurung’s company is valued at Rs10 million, and he has an annual turnover of Rs4 million. He is also encouraging his 20-year old son to finish his studies and join the business so he does not have to move abroad.“I am so glad that I didn’t migrate abroad to work as a labourer, and I want to encourage other Nepalis to stay in the country because this place is full of opportunities for those who are willing to work hard starting small businesses,” says Dil. “Working abroad is not a solution. We Nepalis have to tap our abilities to start our own ventures and create jobs for other Nepalis at home.”Read also: <a href="https://www.nepalitimes.com/opinion/lighting-up-her-darkness/" target="_blank" rel="noopener">Lighting up her darkness</a>, Naresh NewarInstead of the <a href="https://www.nepalitimes.com/here-now/nepal-and-malaysia-rewrite-rules-for-migrant-labour/" target="_blank" rel="noopener">Nepal government working on deals with foreign countries</a> to send labourers, it can do just the opposite by bringing in more <a href="https://www.nepalitimes.com/editorial/invest-in-investment/" target="_blank" rel="noopener">foreign investment</a> to create jobs right here in the country, he says, adding: “We cannot afford to lose any of our younger generation by migrating abroad and working in dirty and dangerous jobs.”Journalist-turned-farmer Naresh Newar presents this multimedia column, Made in Nepal, in Nepali Times every fortnight profiling stories of successful small entrepreneurs.

Staying in Nepal to create jobs

<figure><img width="1500" height="1149" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108121136/636a40019c7e80680e04a5f8jpeg.jpg" alt=""/><figcaption>Illustration: BHANU BHATTARAI</figcaption></figure>The spate of investment treaty arbitrations that have inundated developing countries in recent times has now reached Nepal. At stake is a Rs39.06 billion tax imposed by the Large Taxpayers Office (LTO) on <a href="https://www.nepalitimes.com/opinion/ncell-ruling-opens-a-can-of-worms/" target="_blank" rel="noopener">Ncell</a>, following a decision of the Supreme Court.Ncell subsequently contested the LTO tax assessment, submitting that it is liable to pay only Rs14.5 billion. It also obtained an interlocutory interim stay from the Supreme Court on these grounds.The initiation of investment treaty arbitration by Axiata Investment UK Ltd (Axiata UK) through an intermediate special purpose vehicle not directly investing in Nepal, while challenging the same action before the Supreme Court of Nepal and bypassing other statutory remedies, raises several questions as to the use of investment treaty arbitration and the International Centre for Settlement of Investment Disputes (ICSID).Read also:<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/opinion/ncell-ruling-opens-a-can-of-worms/" target="_blank" rel="noopener">Ncell ruling opens a can of worms</a>, Semanta Dahal<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/supreme-court-weighs-in-on-ncell-tax-dispute/" target="_blank" rel="noopener">Supreme Court weights in on Ncell tax dispute</a>, Sharad OjhaAxiata UK filed a request for arbitration before the ICSID against the Government of Nepal regarding the capital gains tax levied by Nepal’s tax authorities on the indirect transfer to Axiata UK of an 80% stake in <a href="https://www.nepalitimes.com/here-now/supreme-court-weighs-in-on-ncell-tax-dispute/" target="_blank" rel="noopener">Ncell</a> through the sale of Reynolds Holdings Limited, by the previous foreign investor, TeliaSonera Norway Nepal Holdings AS to Axiata UK.The arbitration was initiated on the basis of the bilateral investment treaty between the governments of Nepal and the UK (UK-Nepal BIT) on 2 March 1993. In parallel, Ncell has also initiated proceedings before the Supreme Court of Nepal challenging the CGT assessment by the tax authorities.In doing so, Ncell and its indirect shareholder Axiata UK have not availed statutory remedies otherwise available under Nepal's law to challenge the assessment. This presents the government with some credible arguments to resist the investment treaty claims.First, it is doubtful whether Axiata UK’s indirect acquisition of Ncell’s shares qualifies as an ‘investment’ in terms of Article 1(a) read with Article 8(1) of the UK-Nepal BIT. Axiata UK’s role in the transaction is limited to its acquisition of Reynolds, which owns 80% of the shares of Ncell.Moreover, Axiata UK is a wholly owned subsidiary of Malaysia-based Axiata Group Berhad. The Government of Nepal could argue that Axiata UK Ltd has no real interest in the transaction and is merely being used as a vehicle to bypass the jurisdictional hurdle of the UK-Nepal BIT.Previous investment treaty arbitrations have found that a mere passive investor, such as a company which conducts no business of its own but merely holds shares in a company incorporated in the host state, will not be able to invoke the jurisdiction under a bilateral investment treaty.It could be argued that Axiata UK is required to exhaust local remedies before resorting to arbitration under the UK-Nepal BIT. The ICSID Convention expressly provides that if a dispute arises, parties may refer the dispute to arbitration if they are unable to resolve it within three months ‘through pursuit of local remedies or otherwise’. By its decision on 6 February, the Supreme Court held that capital gains tax could be levied on the transaction. Thereafter, the capital gains tax was computed by the assessing authority, and this assessment was also challenged by Ncell by way of a writ petition before the Supreme Court on 21 April. Subsequently, Axiata UK submitted its request for arbitration, as announced on 26 April.The sequence of events shows that the decision to invoke arbitration under the UK-Nepal BIT was made immediately pursuant to the calculation of capital gains tax liability, instead of pursuing local remedies to challenge the assessment. The strategy of ignoring statutory remedies and instead relying on constitutional and investment treaty protections appears to have been motivated by the desire to avoid the requirement of depositing one-third of the disputed tax liability as a condition to challenge the assessment under Nepali tax laws.The government can now argue that the invocation of arbitration is against the letter and spirit of the UK-Nepal BIT and the ICSID Convention.Ncell’s present challenge before the Supreme Court is limited to the amount of tax, and Ncell has itself admitted a portion of the liability. It is questionable whether a dispute on the quantum of tax can be referred to arbitration under the UK-Nepal BIT.In matters involving taxation, a claim for expropriation will ordinarily involve showing that the tax liability in question has been imposed as part of a designed and deliberate set of measures to deprive the investor of the value of their investment. Such claims in previous cases have typically involved retrospective legislation where local tax law has been applied in a patently arbitrary and discriminatory manner by the host state. Establishing such a high threshold may be difficult for Axiata UK.The Government of Nepal can now consider all options available, including raising preliminary objections on jurisdiction under Rule 41 of the ICSID Arbitration Rules and Article 41 of the ICSID Convention, at the earliest.Semanta Dahal and Vikas Mahendra are lawyers and partners at Abhinawa Law Chambers (Nepal) and Keystone Partners (India).

Nepal has strong case on Ncell arbitration

<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108111152/636a35b39c7e80680e0482c6jpeg.jpg" alt="" width="1050" height="696"/>An extended full bench of the Supreme Court comprising of five judges including the Chief Justice Cholendra Shamsher Rana after listing the case regarding taxation of Ncell at least 14 times for hearing announced its verdict through a written order this week.The judgment, though not devoid of reasoning, has placed reliance solely on Section 57(1) of the Income Tax to impose tax liability on Ncell and its current the largest indirect owner the Axiata Berhard Malaysia. Ncell in its subsequent press release has stated that the Axiata Group Berhard was not party to the dispute decided by the Supreme Court, and that it is further reviewing the decision without prejudice to its remedial rights. This is considered non-appealable or open to review because it is the decision of an extended full bench of the Supreme Court.Read also: <a href="https://www.nepalitimes.com/here-now/supreme-court-weighs-in-on-ncell-tax-dispute/" target="_blank" rel="noopener">Supreme court weighs in on Ncell tax dispute</a>, Sharad OjhaThe most important issue for the court to resolve was the tax implication in Nepal arising due to the sale of shares that consummated in St Kitts &amp; Nevis, a nation famously recognised as a tax haven. The ownership (shareholders) of Reynolds Holdings incorporated in St Kitts &amp; Nevis and holding majority shares of Ncell was changed from ‘Telia Sonera Norway Holdings’ to ‘Axiata Investment Limited’ (a company incorporated in the UK) under a Share Purchase Agreement executed outside Nepal.‘Telia Sonera Norway Holdings’ as per the Supreme Court decision is ultimately owned by ‘Telia Sonera Sweden’ and ‘Axiata Investment Limited’ is conduit company of ‘Axiata Berhard Malaysia’.Section 57(1) of the Income Tax Act applies in situations where there is change of underlying ownership of 50% or more of an entity compared to its ownership in the last three years. The Supreme Court after carefully interpreting each of these following expressions in Section 57(1) ‘entity’, ‘asset’ and ‘ownership’ comes to conclusion that Ncell is the ‘entity’, the license to provide telecommunication service the ‘asset’ and ownership change from ‘Telia Sonera Sweden’ to ‘Axiata Berhard Malaysia’ as disposing of underlying assets of Ncell.Since there has been disposal of assets, the Supreme Court further adds that, the gains should be taxed at 15% in accordance with Section 95A(2)(b) of the Income Tax Act and that the tax must be paid by Ncell and Axiata Berhard Malaysia.The Supreme Court has directed the Large Taxpayers Office (LTO) to determine the exact tax amount within three months but has not clearly set a timeline for the payment of the outstanding tax liability for Ncell and Axiata Berhard Malaysia. The outstanding tax liability, in addition to Rs21 billion that Ncell has already paid before the LTO, can only be determined after tax assessment by LTO. On Tuesday, the LTO ordered Ncell to pay additional of Rs39 billion in taxes by 22 April.The decision of the Supreme Court, even though a pronounced assertion to ensure taxation of offshore transaction in Nepal has relied on Section 57(1) with marked intention to impose tax liability on Ncell, but it has left more questions unanswered than it settles.There are few questions an investor especially a foreign investor would seek more clarity. Will Section 57(1) get attracted even in cases where the change of shareholding by selling of shares is less than 50%? What if the period of change of ownership is more than three years? Will the Company which shares are being transferred be held liable to pay tax even in situation where the seller pays the capital gains tax? Most important of all, will share sale transactions occurring outside Nepal having the effect of changing of ownership of Company in Nepal be taxed? Or lastly, will the taxation in Nepal of an offshore transaction be pursued under certain prescribed criteria?During the entire episode of taxation of Ncell, neither the government nor Parliament took any substantive measures to reform laws to establish the principles and criteria of taxing an offshore transaction having implication in Nepal. Further, the evident wavering position of government added to the conundrum. This is appalling especially in light of entered Bilateral Investment Treaties which require Nepal to provide fair and equitable treatment to foreign investors. Nepal has such a Treaty with the UK and one of the current indirect shareholders of Ncell Axiata Investment Limited is a company incorporated in the UK.The Foreign Investment and Technology Transfer Act, 2019 only imposes a notification obligation to notify the share transfer or sale of foreign investment company occurring outside Nepal. A judicial remedy on taxation matters creates uncertainty and unpredictability about its implication on future offshore transaction and therefore it is time for the government and Parliament to take steps to pass legislative enactments that are predictable and follow established principles to cover offshore transactions.An opportunity is forthcoming. The Finance Act 2019 to be promulgated in June can make amendments to the Income Tax Act.Semanta Dahal is an advocate. @the3rdbranch

Ncell ruling opens a can of worms

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/20221108111152/636a34e59c7e80680e04827fjpeg.jpg" alt="" width="1500" height="1000"/><figcaption>Photo: BIKRAM RAI</figcaption></figure>It was an ironic coincidence that the week Nepal hosted its <a href="https://www.nepalitimes.com/here-now/nepal-has-to-curb-corruption-before-wooing-investors/">Investment Summit</a>, the country signed an MoU with Japan for the export of Nepali skilled workers. Also last week we saw photographs of thousands of young Nepali men sleeping out in the open as they waited in line for Korean language tests which they need to pass to work in Korea. Nepal’s long-awaited G2G deal with Malaysia that will <a href="https://www.nepalitimes.com/banner/kleptocrats-of-kathmandu-and-kualalampur/">remove labour middlemen</a> will soon come into effect.As Nepal woos investors to create employment at home, overseas countries are vying for our cheap labour. This trend will only increase as East Asian countries age, and as traditional labour-exporting countries like the Philippines and our South Asian neighbours attain higher standards of living.If all the new energy, infrastructure and tourism FDI projects committed at the <a href="https://www.nepalitimes.com/editorial/invest-in-investment/">Nepal Investment Summit</a> actually come through, we are surely going to need the workforce here at home.Officials at the Summit vowed that no Nepali youth will now have to seek jobs abroad. That is hyperbole. It is also duplicitous. A government that is promising huge employment opportunities at home is signing deals with <a href="https://archive.nepalitimes.com/article/nation/nepalis-from-chitwan-to-chidoya,4110">Japan</a>, <a href="https://archive.nepalitimes.com/article/nation/Korean-kafala-migrants-in-Korea,4025">Korea</a>, Malaysia and Qatar to export our youth.This is likely to go one for some time as Nepal is already <a href="https://archive.nepalitimes.com/article/editorial/Nepal-economy-supported-by-remittance-money,2874" target="_blank" rel="noopener">addicted to remittance revenue</a> to sustain the economy, pay for imports of everything from to vegetable to fruits. For now, about the only arena where remittance inflows have shown an impact is in driving up land prices in Kathmandu and urban centres.If we want to see Nepal ‘developed’ in our lifetimes, we shall have to aggressively go out into the world and recruit. Many hotels, international non-profits, foreign-aided projects and bilateral and multilateral agencies already have foreigners as heads. To push this line of argument further, if Nepalis can serve in the British and Indian armies and the Singapore Commandos, why not a Japanese or Korean heading an irrigation or hydropower project in Nepal?We can already offers jobs to the Japanese and Koreans in Nepal. Proof of whether the Investment Summit was really successful to generate $30 billion will be if Nepal finally turns into a country that offers employment to Koreans and Japanese. Workers from India and China already have jobs in Nepal, and in fact Nepal is the country that is the sixth largest source of remittances for India.Given that the summit is organised every two years and every day of the past two years at least 1,500 <a href="http://archive.nepalitimes.com/article/editorial/doubts-on-zero-cost-migration-deal-coming-into-force,2157" target="_blank" rel="noopener">Nepalis left for work overseas</a>, we need to start thinking of reversing the flow. No more is it time for afno manche or hamro party ko manche, Nepal now needs ramro manche from all over the world.When Nepal Airlines presses its new Airbus 330 flights to Incheon and Kansai the seats should be booked both ways. Investment is also about technology transfer, and induction of skilled human resources -- Nepal needs trained and experienced human capital that helped build the modern Japanese and Korean economies.This would be a perfect match, and one that Nepal can take full advantage of. They benefit from the energy of the young Nepali, and we profit from their experience. Further, Nepal always seems to have money to hire more police and administrative staff but not the technical and managerial people who can build this country. Buying cars for the government and politicians is done in an instant, while we hem and haw about procuring the services of qualified managers and technicians.Like many other countries, Nepal has embraced the idea of the free flow of goods and services. We have benefitted from the one-way free flow of human capital as well, now we need to reciprocate and relax our work visas. The real advantage of hiring globally will also be to get inside knowledge about how to do business in those countries. We would know, for example, what to grow, how to process and export value-added agricultural products from the Himalaya to Japan or Korea.At social gatherings and in private communications, Nepalis who are likely to oppose the idea of reciprocity will tell you proudly how their children are now earning lots of money working abroad. Why should we deny this opportunity to those who are in the host countries? We need them now. We may not have this need in the future. Let us all watch carefully who gets hired to head FDI projects. We can go for Nepali afno manche first, but then let us do a global search.Anil Chitrakar is President of Siddharthinc

Anil Chitrakar

Coming soon: two-way migration to Nepal

<figure><img width="2015" height="958" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2b4c9c7e80680e04596bjpeg.jpg" alt=""/><figcaption>Photo: BIKRAM RAI</figcaption></figure>The Nepal government has hailed its two-day Investment Summit that ended on Saturday as a resounding success with the signing of 15 deals with foreign investors.However, here in Nawalparasi the experience of a Chinese investor in a state-of-the-art cement plant does not bode well for the future of foreign direct investment (FDI) in the country.Read also: <a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/nepal-has-to-curb-corruption-before-wooing-investors/" target="_blank" rel="noopener">Nepal has to curb corruption before wooing investors</a>, Ramesh Kumar<a href="https://www.nepalitimes.com/here-now/maze/" target="_blank" rel="noopener">Maze</a> <img width="640" height="243" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2b4f9c7e80680e04596cjpeg.jpg" alt="">China’s Hongshi Cement had signed An FDI deal with the government during the first tenure of Prime Minister K P Oli during a similar summit in 2017. Inaugurating this year’s summit on Saturday, Oli told investors that the government would help them in every possible way with permits, infrastructure, and repatriation of profit.But faced with obstacles every step of the way, Hongshi tied up with Nepal’s Shivam Cement hoping that the involvement of a local partner would remove bureaucratic hurdles along the way. But even though the government had assured Hongshi Cement factory of a road, transmission line and other infrastructure it has not kept its promise. <figure><img width="3972" height="2876" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2b509c7e80680e04596djpeg.jpg" alt=""><figcaption>Photos: YUVARAJ SHRESTHA</figcaption></figure>The plant is located 26km from the East-West Highway, and Hongshi opened a dirt track itself because it would have taken too long to wait for the government. However, the road has not yet been blacktopped, and none of the bridges have been built as per the agreement.The Chinese have also built another 12km road to its limestone quarry from where it sources raw material. The company says it has spent Rs1.2 billion of its own money to build roads the government had promised.Read also: <a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/editorial/invest-in-investment/" target="_blank" rel="noopener">Invest in investment</a>, Editorial<a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/here-now/a-roller-coaster-ride/" target="_blank" rel="noopener">A roller coaster ride</a>, Shyamal Shrestha <figure><img width="960" height="563" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2b549c7e80680e04596ejpeg.jpg" alt=""><figcaption>Photo: SUMAN GURUNG</figcaption></figure>Similarly, the Nepal Electricity Authority was supposed to extend its transmission line from the Bardaghat Substation with the installation of 21 pylons. But this has not happened either.Hongshi would have bought 40MW of power from the NEA grid, but since the transmission lines are not yet ready it has to generate its own expensive electricity from diesel-thermal captive plants.The factory employs 520 Nepali engineers, managers and workers, and although Hongshi’s agreement with the government allows it to produce 12,000 tons of cement a day, it only brings out 5,000 tons because of the lack of electricity supply, according to manager Liu Xuguwang.  <img width="960" height="500" src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2b569c7e80680e04596fjpeg.jpg" alt="">China’s Hongshi Cement owns 70% of the venture with Shivam having 30% of the shares in the $330 million project. This is the largest foreign joint venture investment project in Nepal today, and although it is touted as a model, it is clear that unless Nepal can reduce red tape, and keep its side of the bargain, other investors at this weekend’s Summit are likely to be reluctant.Some 600 foreign delegates from 36 countries took part in the Nepal Investment Summit during which some 15 deals were signed in hydropower, solar energy, tourism, 5G telecommunication, and other projects.

Going is tough for Chinese investor in Nepal

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2ac69c7e80680e045936jpeg.jpg" alt="" width="640" height="472"/><figcaption>Boris and Inger Lisanevitch at Kathmandu Airport in 1962.</figcaption></figure>The early foreign investors in Nepal may have been an eccentric and colourful bunch, but they did understand international tourism. As guests in this country, they realised that nurturing Nepali people, their culture and natural environment was both good for them and for their business. They left a legacy that still resonates in a very different tourism world today.<a href="https://archive.nepalitimes.com/regular-columns/So-far-so-good/join-us-on-land-boris,869">Boris Lisanevitch</a> converted a royal palace into a heritage hotel and introduced fancy foreign food and liquor. <a href="https://archive.nepalitimes.com/article/Nepali-Times-Buzz/Jim-Danisch-and-Barbara-Adams%20-passed-away-this-month,3007">Barbara Adams</a> promoted world heritage sites and princely visits. <a href="https://www.nepalitimes.com/opinion/hiking-with-jimmy/">Col Jimmy Roberts</a> (pictured below, right) invented trekking and supported mountaineering to employ Sherpas and share the mountains that he loved. John Coapman, <a href="http://archive.nepalitimes.com/news.php?id=15828#.XJRbyMkza71">Jim Edwards</a> and <a href="http://archive.nepalitimes.com/article/Nepali-Times-Buzz/Charles-McDougal-passes-away-at-86,3034">Chuck McDougal</a> brought global attention to Chitwan’s wildlife with the creation of <a href="https://archive.nepalitimes.com/regular-columns/So-far-so-good/fire-in-the-afternoon-tiger-tops,846">Tiger Tops Jungle Lodge</a>.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2ac89c7e80680e045937jpeg.jpg" alt="" width="211" height="182">Conveniently coinciding with their personal business interests, these resourceful pioneers knew a thing or two about what was needed to attract high paying visitors to adventure amidst Nepal’s natural and cultural wonders.In those days it was not so easy, but with imagination and resolve the rich and famous were lured to the remote and mysterious Hindu kingdom, and tourist dollars started seeping into the economy. Boris’ eclectic guests included Queen Sophia of Spain, Agatha Christie, Ingmar Bergman and Jean Paul Belmondo, and ordinary tourists followed. Air travel was ponderous, roads were scarce and communications were basic -– we relied on telex, telegrams and an unreliable crackly telephone line for reservations when I first arrived in 1974.Despite all that, Nepal became a fashionable, sought after spot for American and European vacationers. Often staying weeks and returning annually, most of our Mountain Travel trekkers headed to the hills for seldom less than 14 days and often for a month at a time. Tiger Tops did not accept guests for less than three nights, and the price of $300 per person (yes, US$600 per room) included all meals and jungle activities, but not drinks from the bar. It must have been one of the higher room rates in 1970s Asia, especially as we lay deep in the forest constructed of local wood, bamboo and thatch.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2ac99c7e80680e045938jpeg.jpg" alt="" width="523" height="740">Solar electricity came later, but the naturalist-guided Chitwan excursions with elephants, rhinos and tigers was considered a ‘must do’ component of South Asian tourism.Our mainstream business at the lodge in Chitwan was around-the-world US groups, mostly blue-rinse ladies spending their husband’s inheritance accompanied by competent, world-weary tour guides. In my guest relations role, I grew used to answering the same questions nightly but, if I was lucky, all the tables were filled and I got to eat on the bench by the elephant tusk bar with Chuck and the Nepali naturalists.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2acb9c7e80680e045939png.png" alt="" width="733" height="732"><a href="http://archive.nepalitimes.com/blogs/thebrief/2012/11/07/han-suyin-took-nepal-to-the-world/">Celebrities</a> and superstars were regular visitors, enjoying their privacy in the undisturbed mountains and jungles of Nepal, and enthusiastic media coverage further established Nepal as the adventure of choice. Actors, writers, mountaineers, politicians and royalty flocked to sample Nepal’s unique diversity and sublime scenery.<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2acd9c7e80680e04593ajpeg.jpg" alt="" width="768" height="948"><figcaption> </figcaption></figure>At the other end of the spectrum, the era’s <a href="http://archive.nepalitimes.com/regular-columns/So-far-so-good/the-hippie-era-in-kathmandu,837">flower-power hippies</a> gravitated to Freak Street and Phewa Tal seeking spiritual enlightenment in clouds of legally available ganja whilst haggling over the price of omelettes and apple pie. Forerunners of today’s budget backpackers, hippies played a significant role in publicising Nepal’s tourism image, until their visas evaporated prior to King Birendra’s coronation in 1975.A healthy holiday destination delivers to a variety of different types of tourists, from the cheap world-travellers willing to rough it, to high paying clients cossetted in luxury, with domestic visitors an important part of the mix. Since the insurgency knocked international tourism down to half its normal volume, Nepal has struggled to regain its reputation as a quality destination, or to develop new ‘authentic experiential’ hip trips to appeal to high spenders and trendy millenials.Tourism recovery since the 2015 earthquakes has been impressive in term of numbers, but our 1.2 million arrivals last year are mainly from cost-conscious neighbours and regional visitors who prefer the same parts of the country as were popular when I first arrived: Kathmandu, Pokhara, Chitwan, Lumbini, Annapurna and Sagarmatha.<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811118/636a2acf9c7e80680e04593bjpeg.jpg" alt="" width="1499" height="1049"><figcaption> </figcaption></figure>The innate hospitality of the Himalayan people of Nepal is well suited to looking after guests, but uncontrolled tourism will become resented by locals who already complain that hordes of budget travellers and pilgrims leave little but trash.<a href="https://www.welcomenepal.com/">Visit Nepal Year 2020</a> is looming and the emphasis is on the number of arrivals rather than their ability to contribute cash. We have more and more tourists coming every year, but spending less and less during their stay. To redress this balance, we need to lure back the <a href="https://archive.nepalitimes.com/article/nation/Tiger-tops-and-high-value-tourism,1087">high value</a> markets by improving the array and quality of services, and developing some persuasive experiences branching out beyond the same old circuits.The <a href="https://investmentsummitnepal.com/">Nepal Investment Summit</a> is an opportunity to inspire courageous and innovative investors from both home and abroad, reassuring potential promoters that Nepal’s rich resources are ripe for responsible tourism development and that the country’s investment climate is conducive.Perhaps we should allow the original investors to have the last word. “After a few hours I fell madly in love with this country,” Boris declared in a 1961 interview.“I’d rather handle half as many tourists with each spending twice as much,” was Jim Edwards’ mantra. And Jimmy Roberts used to rue: “Why are we selling our beautiful mountains so cheap?”

Lisa Choegyal

Early investors didn’t sell Nepal short

<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811114/636a29fa9c7e80680e0458f6jpeg.jpg" alt="" width="640" height="353"/>If we all stopped saying ‘no problem’ to everything and started actually implementing real solutions to Nepal’s real problems, we as a country would be much farther ahead than where we are today.Read also: <a style="background-color: #ffffff; font-size: 15px; letter-spacing: 0.01em;" href="https://www.nepalitimes.com/opinion/climate-risk-to-hydropower-investment/" target="_blank" rel="noopener">Climate risk to hydropower investment</a>, Ajaya Dixit<a href="https://www.nepalitimes.com/opinion/nepal-inc/" target="_blank" rel="noopener">Nepal, Inc.</a>, Suman JoshiAttracting and retaining the flow of foreign direct investment is a no brainer for a country with such potential as Nepal. Foreign Direct Investment (FDI) is not just cash coming in, it is knowledge, international exposure and experience, technical knowhow, and a decent rate of return on invest made that can be repatriated.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811114/636a29fd9c7e80680e0458f7png.png" alt="" width="733" height="732">Currently, houses are being built, taxis are bought, and many restaurants are operating in Thamel or Pokhara with some kind of FDI or other. We just need to invest in improving the investment climate in Nepal, and scale these outlays up to include larger infrastructure projects.The government has put out a list of 63 projects at the Nepal Investment Summit 29-30 March in Kathmandu which will be worth over $30 billion dollars. There is also a negative list where FDI will not be allowed to protect local investors and producers, mainly in agro-based industries.However. building trust will not be easy in a country where we are used to promise much with no thought to fulfilling them. This lackadaisical ‘ke garne’ attitude pervades politics and the bureaucracy. Internationals do not trust us, they take our assurances with a dollop of salt.We should take the summit as an opportunity to remind ourselves that what matters more than what we say is what we do. Blowing up cell phone towers is not the way to collect taxes, renegotiating business deals every time a minister changes does not inspire confidence, extorting international contractors is not how you finish long-delayed water or airport projects.Investors in high-risk zones know that things can change, but even unpredictability has a limit. Nepal has just promised that FDI approvals will be processed in just seven days. Really? Don’t promise what you cannot deliver.There are 330,000 foreign firms with investments in China, and the country  plans to institute changes in the next three months, including the protection of intellectual property. At present, Nepal and China are both ruled by communist parties, yet the way we interact with foreign investors could not be more different. Uncertainty is what keeps investors away, or in wait-and-see mode. Investors have a wide variety of choices of where they can take their money, and Nepal must be competitive.If we could invest in new road and ensure that their alignment complements future hydropower project sites, it would make those investments more cost-effective. Attracting FDI would be easier if we augment the grid so that evacuation of the power produced to potential consumption centres. Land acquisition is so expensive and complex that it is usually several times higher than the cost of any project.Some countries actually attract FDI because the children of the executives get to attend good schools. Kathmandu’s air quality is actually linked to Nepal’s investment climate. Investors do not want to be sick. Land, water, and power supply needs to be regular, but with so many young people sucked away by foreign labour markets, human capital could be a constraint in the short term.Despite everything, Nepal can still be attractive to foreign investors. There is a reason why Shesh Ghale and others are building new hotels here. Tourism, energy, agriculture, education and health are low hanging fruits. A country of 30 million with 2.5 billion people living next door is not a small market.We need to make an honest effort to enable investment, open markets for products and services, allow investors to make a tidy profit which they can take away without having to bribe everyone, and file for bankruptcy if the venture does not work out. The last part has not been easy in the past.Corruption and hidden costs of doing business in Nepal’s rent-seeking state can turn honest people away, and only the crooks will invest. The competition between the seven provinces and local governments could give investment a boost if procedures are streamlined.Foreign investors gravitate to places that have an entrepreneurial and competitive culture. This it the opposite of Nepal’s jagir mentality where a job means a life time guarantee. Cartels enforced by violence, lack of the rule of law, militant unionism, extortion and corruption need to go. Investors should also be careful not to partner with people who claim to be well connected. Any mention of ‘mero manchhe’ by a local partner should be first signs of problems ahead.Anil Chitrakar is President of Siddharthinc

How Nepal can invest in improving the investment climate

<figure><img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811114/636a29c89c7e80680e0458e6jpeg.jpg" alt="" width="1024" height="628"/><figcaption>Photo: RANDY BERRY</figcaption></figure>One To Watch, a Dutch-Nepal joint venture, co-hosted a well attended mini investment conference in London last month. What was originally planned as a Demo Day for the new cohort of 10 companies under their business accelerator program – Enterprise, turned bigger in scope thanks to Nepal’s Ambassador to the UK Durga B Subedi.The centerpiece of the event was the keynote by <a href="https://www.nepalitimes.com/banner/calendar-of-economic-change/">Finance Minister Yuba Raj Khatiwada</a>. He used the occasion as a curtain raiser for the Nepal Investment Summit in Kathmandu 29-30 March, and impressed the audience with his strong grasp of the economy and foreign investment in Nepal. He presented Nepal as a worthy destination for <a href="http://archive.nepalitimes.com/news.php?id=962#.XIeEUckza70">foreign investors</a>, and that the country was ready for business.<img src="https://superdesk-pro-c.s3.amazonaws.com/sd-nepalitimes/2022110811114/636a29ca9c7e80680e0458e7png.png" alt="" width="733" height="732">The IMF’s recent Article IV Consultation Report supports the minister’s point that Nepal’s economy is enjoying solid expansion and that the near-term outlook is favourable. Political stability, more reliable electricity and re-construction activities are drivers of the current growth.There is a <a href="https://www.nepalitimes.com/latest/u-s-nepal-trade-and-investment-forum/">consensus</a> that Nepal offers tremendous <a href="https://www.nepalitimes.com/here-now/to-davos-with-hammer-and-sickle/">business opportunities</a> in multiple sectors. A senior IFC executive concluded her trip to Nepal recently with a ‘deep and profound sense of optimism about Nepal’s development prospects’ and indicated IFC’s appetite to ‘radically scale up’ its investment in Nepal from the current $57 million to even $1 billion by 2023.Due to inadequate domestic capital formation, the local banking sector is not able to keep up with robust demand for credit in recent years. The need to channel in foreign capital is more pronounced now than ever. In addition to new money, FDIs enable businesses acquire technology, access international markets and improve quality of governance thus ensuring long-term sustainability.However, Nepal’s track record on FDI inflows has been dismal. By contrast, Bangladesh, considered a basket case until early 90s, quadrupled its economy in last 15 years with the help of FDIs and exports.Pundits have identified the following as <a href="https://archive.nepalitimes.com/regular-columns/Comment/making-nepal-fdi-friendly,853">main bottlenecks</a> to securing foreign investment into Nepal:<ul><li>Inadequate or ambiguous laws and regulations</li> <li>Need for approvals from multiple authorities causing delays</li> <li>Primitive foreign exchange regulations</li> <li>Lack of currency hedging mechanism</li> <li>Poor infrastructure and enabling environment</li> <li>Absence of sovereign rating</li> <li>Poor governance standards, corruption etc.</li> <li>The negative list is still too long; there’s no ‘automatic route’ either</li></ul>The good news is that the government has recognised the need to improve investment climate in general, and more particularly, make an effort to attract foreign capital. Infrastructure projects have been initiated. A dozen or so new laws, including the Foreign Investment and Technology Act (FITTA), Foreign Exchange Regulations Act (FERA), Intellectual Property Act are in various stages of approval or implementation.A single-window system is being put in place. Currency hedging mechanism has been approved for large infrastructure projects. Preparations are under-way for a sovereign rating. Some of these initiatives still may not be adequate, but there is a clear intent to work towards creating a conducive environment. Bilateral and multilateral agencies have also been pro-active in helping the government address the bottlenecks.The real challenge, however, lies in the day to day behaviour of the bureaucracy.  While Minister Khatiwada is leading the way to sell Nepal Inc to the world, there is almost equal and opposite reaction towards FDI transactions at operational levels. Almost every company with foreign capital has <a href="https://www.nepalitimes.com/from-the-nepali-press/why-there-is-no-foreign-investment-in-nepal/">horror stories</a> about how frustrating their experience with government agencies have been.There are just too many layers in the investment process: approval, repatriation and everything in between. There are delays in every step, usually on flimsy ground or based on the most unfriendly interpretation of policy provisions. The few businesses that have managed to rope in foreign capital are unable to execute their growth plans due to procedural challenges at the Department of Industries and Nepal Rastra Bank – the two key agencies involved in processing foreign investment. This has discouraged the private sector from actively seeking international capital. It is not by accident that Nepal ranks a low 110 in the Ease of Doing Business Index.To be sure, not all bureaucrats are obstacles. But the genuinely sincere ones are outnumbered by those happy with status quo in foreign investment.  This situation is due to poor governance, a self-serving, rent-seeking tendency combined with misplaced nationalism. We have insular officialdom that cannot grasp anything on a global scale. They seem trapped by paranoia that a reasonably liberal foreign investment regime will ruin our national pride and culture. Nothing could be more farcical and hypocritical.Like water, money flows where it is most convenient. In today’s world, international capital can access numerous investment destinations more attractive than Nepal. They do not need to jump through hoops to invest in our country. We need foreign investors more than foreign investors need us.Let us hope that the Nepal Investment Summit 2019 sparks a positive shift in our attitude toward FDI.Former banker Joshi is Founder and Chairman of True North Associates, a private equity firm.

Nepal, Inc.

Earlier this month, Nepal received Rs1.6 billion from the World Bank as part of its <a href="https://nepalitimes.com/news/will-nepal-ever-be-paid-for-saving-trees">Forest Carbon Partnership Facility (FCPF)</a>, rewarding the country for increasing its carbon sink capacity. Nepal is the first in South Asia to benefit from this facility, and it is specifically to recompense the country for increasing forest cover in 13 Tarai districts between 2018-2024. “We are also trying to get another Rs13 billion from the facility while also preparing for free market-based carbon trading in the international market,” says Nabaraj Pudasaini of the REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries) Implementation Centre. Big emitters of greenhouse gases are under pressure to reduce their carbon emissions, and many have signed agreements to do so by investing in decarbonisation projects in developing countries. Countries that emit more than a specified amount of carbon would be able to buy emission rights from countries that emit less. Nepal is internationally known for its community forestry program which has been largely credited for <a href="https://nepalitimes.com/banner/tree-mendous">increasing tree cover to over 45%</a> in less than three decades. But this achievement had not been adequately recognised or rewarded internationally before. Forests, especially in the tropics, absorb and store large amounts of carbon while releasing oxygen in a process known as photosynthesis. <a href="https://www.fao.org/forest-resources-assessment/en/">Preventing deforestation</a> and increasing canopy cover is considered a much more achievable goal than reducing emission in the scale necessary to limit global average temperature to 1.5°C above pre-industrial levels. COP11 in Montreal in 2005 first proposed reducing carbon emissions by improving forest quality by halting degradation. By 2015, a new mechanism of financial assistance was created to help less developed countries with sustainable management of forests <a href="https://www.un-redd.org/">(called REDD+)</a>. Under this new mechanism, countries receive aid based on their efforts to prevent forest degradation and increase carbon sink, and in 2021 the World Bank was entrusted with implementing it. Nepal’s FCPF receipt this month was calculated on the basis of 2.4 million tons of carbon stored at a rate of $5 per ton. In the second phase, Nepal will receive more than Rs4 billion within the next year for storing an additional 7 million tons of carbon. Eighty per cent of this amount obtained from carbon trading needs to be spent on local beneficiaries and indigenous communities.&nbsp; But carbon trading is not easy, Nepal needs to prove that protected forests will not be destroyed in future.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20241121091132_c8a381c9a95aa86fec558951650d97bb87914741f01766982ba2b086af001f16.jpg" data-media-id="editor_4" data-image-id="20241121091132_c8a381c9a95aa86fec558951650d97bb87914741f01766982ba2b086af001f16" data-rendition-name="original" width="1500" height="999" loading="lazy" alt="Greenbacks for greenery NT "> <figcaption>Photo: KUNDA DIXIT</figcaption> </figure>  Explains carbon trading expert Yugan Manandhar. “Forests should be handed over to the community and shown that they are managed sustainably. Proving this will be particularly challenging; forest encroachment and degradation is rife in the Tarai.” <a href="https://nepalitimes.com/multimedia/nepal-is-going-up-in-smoke">Deliberate forest fires</a> have also added to the challenge because they increase carbon emissions and reduce the sink capacity of forests. The basis for the amount that Nepal received was set five years ago by calculating the carbon reserves of forests in the 13 Tarai districts. In the meantime, sustainable forest management, tree plantation, forest destruction and erosion control were prioritised to increase carbon reserves in those forests. Nepal is signing another carbon trading agreement during the ongoing Baku climate conference. The <a href="https://www.leafcoalition.org/">Lowering Emissions by Accelerating Forest finance (LEAF Coalition) </a>proposes to sell the carbon stored in the forests of Bagmati, Gandaki and Lumbini provinces. For this, Nepal signed the letter of intent three years ago at COP26 in Glasgow. The target is to store 70 million tons of carbon in 32 million hectares of forest in the three provinces per which Nepal will receive Rs13 billion in four years at $10 per ton with provisions to increase the rate if various conditions are met. However, the agreement in itself doesn’t guarantee the amount. According to the targets set by Nepal, forest degradation should be stopped and carbon reserves increased by protecting tree cover. Preparations are also underway for clean air carbon trade because it has offset fossil fuel use by introducing 30,000 electric vehicles. Nepal has been selected for the first round to receive $40 million within one and a half years through the Clean Air System of the World Bank. Given that most of Nepal’s energy mix is from biomass, replacing them with electric stoves can significantly improve health by reducing indoor pollution as well as strengthen the country’s capacity for carbon trade. “Nepal's goal now is to sell carbon in the free market where carbon credits are bought and sold based on supply and demand in an open and transparent manner,” adds Pudasaini of the REDD Implementation Centre. “Nepal can now set its own price and bargain with interested buyer countries and organisations.” Lately, India has been discussing setting up a carbon market. Nepal has exported Rs12.72 billion worth of electricity to India so far this fiscal year, which can be traded under Nepal’s carbon market. “Carbon trading can create significant economic benefits for Nepal, which will help reinvest in development and environmental protection projects,” says Manandhar. “But we must prioritise sustainable management of forests, cutting older trees and allowing regrowth as well as promoting electric stoves and electric vehicles.”

Greenbacks for greenery

Khukri Rum is <a href="http://archive.nepalitimes.com/news.php?id=3719#.WurBk6SFPIU">one of Nepal’s most iconic brands</a>, and is now launching a new Cask Series premium product to sell in Nepal and abroad. The Cask Series Smoked Finish Khukri Rum is a limited edition with only about 7,000 bottles, most of it for export and rest to be sold to rum connoisseurs in Nepal itself. Each bottle is numbered and will mention the cask from which it is derived. “We are working on taking a classic Nepali rum to a new luxury premium brand category, the Cask Series will only be produced this year with new product ranges in future,” explains Subash Lamichhane, managing director of Nepal Distilleries that first started making Khukri rum in 1959 in Balaju and has never stopped. Fermented from molasses in Bara district in the Tarai after the annual sugarcane harvest, the rum is matured for at least eight months during distillation. The distillery bottles the classic Khukri XXX, Coronation Khukri XXX, Khukri White Rum and Khukri Spiced Rum.&nbsp; The distillery is now adding this limited edition of its ‘Cask Series’. While the original rum is stored in huge wooden vats, the rum used for this more exclusive line is in smaller casks made either from oak or sal, with charred insides to give the rum a smoky flavour. The Cask Series rum is indeed smokier than the classic, while the spiced rum tastes toasty and mostly of cardamom. The company has a tasting suite with a master blender and tasters who have to approve the palate test.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20241122131124_10b8ddca93b37b0348bf964b4f09e7fac6ef4e754cca6231368850539cd558e2.jpg" data-media-id="editor_1" data-image-id="20241122131124_10b8ddca93b37b0348bf964b4f09e7fac6ef4e754cca6231368850539cd558e2" data-rendition-name="original" width="1498" height="1000" loading="lazy" alt="Khukri Rum"> </figure>  The packaging for the Cask Series is as special as the process. A sturdy patterned box that opens up to a black glass bottle with gold lettering, and an indication of which cask the rum is from. These are then shipped to premium customers around the world One of the reasons this is the more expensive premium line is because the casks are smaller than the vats and the blenders reject more than half of the rum in the casks when the aging period is complete. The trick for the blender is also to decide when to take the run out of the cask.&nbsp; Says Lamichhane: “If we have 25 casks, we expect to throw away about fifteen.”Over the decades, Nepal Distilleries have created and maintained a brand that feels quintessentially Nepali, and has served as Nepal’s ‘ambassador’ with exports to Germany, Korea, Belgium, Finland, the Czech Republic, besides the existing markets among Nepalis in the US, UK, Hong Kong and Australia. &nbsp;Its unique <a href="https://nepalitimes.com/here-now/khukri-rum-sharpens-its-act">khukri shaped bottle</a> first introduced for King Birendra’s coronation in 1975 has been a collector’s item. The bottle and rum have been a staple for Nepalis and visitors to take as gifts when they leave the country, and is used as decoration on bar tables around the world. Now, nearly 40 years later, even that bottle will soon be getting a makeover with a sharper design and sleeker handle. “Our bottle design has always been instantly recognisable, and it is,” says Lamichhane. The Himalayan restaurant at The Hague, for example, has a Khukri Coronation bottle adorning its bar (page 6-7). In Washington DC Himalayan Heritage Restaurant &amp; Bar offers ‘Nepalese Khukri Rum’ mojito in its drinks menu with fresh mint, soda water, lime juice and sugar syrup, for $12.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20241122131124_b9474db3fc83c85845348dddc30c49652ee1f17229531867fa241de50849cedc.jpg" data-media-id="editor_3" data-image-id="20241122131124_b9474db3fc83c85845348dddc30c49652ee1f17229531867fa241de50849cedc" data-rendition-name="original" width="1500" height="1000" loading="lazy" alt="Khukri Rum NT"> <figcaption>Christopher Armes, master blender of the Cask Series.</figcaption> </figure>  A distinct element of the award-winning <a href="https://nepalitimes.com/business/khukri-rum-gets-award">classic Khukri rum</a> is its burgundy colour from caramel sourced from cooking sugar and blended with the raw rum. The spirits are then stored in a warehouse with floor-to-ceiling vats. The vats are not just for storage, the wood in the vats imparts flavour into the rum, and removes a lot of the harshness. &nbsp; On a visit this week, the bottling room was just about to begin for the day and the production line was churning out different shapes and sizes of Khukri Rum bottles. Most of the process is automated, including screwing bottle caps, sticking labels, placing the government seal, and packaging. The only manual intervention is the quality control where bottles are held against the light to check for sediment and colour. A mural on the wall of the distillery in Balaju depicts the rum-making process. A lady slings sugarcane on her shoulder, the molasses is churned in a pot, water is channelled into the distillation process, cinnamon, cloves and cardamom are added to a container, and finally there is a bottle of the classic Khukri Rum against a Kathmandu backdrop.

Khukri goes premium with new rum

Turkish Airlines has introduced a new amenity kit collection designed in collaboration with French fashion house Lanvin for international business class passengers on flights more than five hours. It consists of five pieces designed for sustainability and elegance. Bags are reusable and will consist of Lanvin cosmetic products like hand and body lotions and lip balm. Eye masks and socks are made from recycled materials, earplugs are packaged in paper and the toothbrush is bamboo.

Turkish amenity kit

Nepal now generates a surplus of electricity and it is all from renewable hydropower. Nearly half the country is under forest cover. Despite meeting these decarbonisation goals, Nepal’s hydropower plants are threatened by increased risk due to climate impact.&nbsp; Till <a href="https://nepalitimes.com/editorial/when-it-rains-it-pours-ksqprbu3">28 September</a>, Nepal was <a href="https://nepalitimes.com/news/india-nepal-sign-power-exchange-deal">exporting just over 1,000MW</a> of electricity to power-hungry India, when flash floods and landslides unleashed by historically heavy rains damaged over 30 hydropower plants across the country, temporarily <a href="https://nepalitimes.com/news/power-to-the-people">slashing nearly half the power generation.</a> The 456MW Upper Tamakosi in Dolakha was the hardest hit and it will take six months and Rs2 billion to repair. This has significantly reduced exports as well as domestic generation. Two months later, Nepal has still not been unable to fully keep its export commitment, and is actually paying Rs100 million in fines to India. Thirty-seven existing and under construction projects under the Independent Power Producers' Association Nepal (IPPAN) suffered Rs2.5 billion in damage. One of them is the 22MW Bagmati project in Makwanpur which was almost completely buried in flood debris. Even before <a href="https://nepalitimes.com/news/60-dead-64-missing-in-nepal-floods">record-breaking rain in September</a>, 15 other hydropower projects had been damaged by floods. Last year, floods caused by heavy localised rain damaged 28 hydropower plants. World governments met in Baku for COP29 to discuss the Loss &amp; Damage Fund and the Adaptation Fund, but for countries like Nepal the commas and brackets are meaningless until they are turned into $ and €. And likelihood of adequate compensation for climate-related damage is a long way off, if ever. Nepal’s national strategy is to use its vast hydropower resource as clean energy to spur economic growth, job creation, and boost export revenue. But the plants are located in narrow Himalayan valleys prone to landslides and floods even at the best of times. Now, those <a href="https://nepalitimes.com/opinion/comment/changing-climate-for-investment-in-nepal">risks have been heightened by weather extremes</a> due to climate breakdown. At present, Nepal generates over 3,300MW of clean hydropower, and the target is to reach 12,700MW in the next five years. Projects equivalent to 6,000MW are under construction or ready to start. The Ministry of Energy, Water Resources and Irrigation has an Energy Development Roadmap and Action Plan with the target of producing 28,500MW by 2035 by when more than half of it will be exported.&nbsp; “The climate crisis will further change the rainfall patterns making hydropower generation a big question mark in the future,” Manjeet Dhakal in Baku, who is also the Nepali adviser to the LDC Chair at the United Nations Framework Convention on Climate Change (UNFCCC). “We are building hydropower projects on rivers without evaluating risk. This whole process needs to be reviewed and reconsidered.” The report of the National Adaptation Plan published by the Ministry of Forest and Environment last year mentions that hydropower production, transmission and distribution will be at risk from flash floods, debris flows, glacial lake outbursts and rising temperatures.&nbsp; This risk is not confined to Nepal. Average global temperatures have increased by 1.3°C compared to the pre-industrial era. Worse, the Himalayan mountains are warming faster than the global average by 0.7°C because of elevation-dependent warming. A study conducted by our own Department of Hydrology and Meteorology in 2017 showed that the average temperature in Nepal has increased in the last four decades. Scientists say this is leading to extreme weather unleashing floods and landslides on slopes already destabilized by seismicity.&nbsp;  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20241124071128_d22901a360e8958f606d80ffa21defba05a671f65afec65539dc21a6885d8345.jpg" data-media-id="editor_5" data-image-id="20241124071128_d22901a360e8958f606d80ffa21defba05a671f65afec65539dc21a6885d8345" data-rendition-name="original" width="1333" height="1000" loading="lazy" alt="Right climate for Nepal’s energy transition NT"> <figcaption>BIBLICAL RAIN: Photo taken during catastrophic rain on 27-28 September at the Upper Tamakosi project site that destroyed the control room, killing four staff and burying the sedimentation tanks. Photo: RSS</figcaption> </figure>  Increased atmospheric temperatures has made the monsoon rains more erratic. It does not rain when it is supposed to, and it comes down in torrents when it is not supposed to. The September floods happened two weeks after the monsoon was supposed to retreat from central Nepal. Kathmandu Valley received half its annual precipitation in just over a day. &nbsp; Winter precipitation has also failed, especially in the high mountains and trans-Himalayan valleys. Thirteen of the past 19 years experienced winter drought. This impacts on dry season flows of the rivers, reducing hydropower generation. Nepal’s power capacity normally goes down by one-fourth during winter, but the gap is widening. The Kabeli corridor could only generate 20MW November-March even though plants there have an installed capacity of 200MW. Similarly, Upper Tamakosi only produced 65MW at most against its 456MW capacity last winter. The Nepal Electricity Authority (NEA) pays producers double the price for winter electricity, Rs8.40 per unit. Even though winter operation is highly profitable the rivers run low and NEA has to import from India to meet the winter demand. “This is not just a weather problem but a serious challenge also for the country's energy future, good climate-friendly design should be combined with policy and effective implementation,” says Subarna Das Shrestha, a hydropower investor and CEO of Sanima Mai Hydropower. “Insurance premiums have gone up as well, and settlement for damage is not timely.” <a href="https://nepalitimes.com/opinion/climate-risk-to-hydropower-investment">Hydropower investment</a> at one time was regarded as having a high rate of return. Now, some investors have become <a href="https://nepalitimes.com/banner/climate-smarter-himalayan-infrastructure">wary of the risks involved</a>. Says IPPAN’s Uttam Blon Lama: “Hydropower projects expected to give stable returns are now looking risky. Not only is climate adaptation design and planning expensive, but future repair and maintenance costs will also skyrocket.” Nepal has only one storage type dam <a href="https://nepalitimes.com/multimedia/rivers-be-dammed">in Kulekhani</a> and another one is being built in <a href="https://nepalitimes.com/multimedia/missing-pieces-of-the-hydropower-jigsaw">Tanahu</a>, but they are also at risk. In September, the sluice gates of Kulekhani Dam had to be opened causing loss of life and destruction downstream. Nepal has to learn lessons from the deadly collapse of the $1 billion <a href="https://nepalitimes.com/news/sikkim-flood-is-warning-to-nepal">Chungthang Dam in Sikkim</a> in October 2023 cause by a glacial lake burst. Glacial Lake Outburst Floods (GLOFs) in Nepal pose potentially catastrophic risk to infrastructure. The <a href="https://nepalitimes.com/here-now/lives-on-the-line-in-the-himalaya">Thame flood in August</a> was a relatively minor debris flow that damaged half of this village in the Everest region when <a href="https://nepalitimes.com/news/climate-breakdown-linked-to-thame-flood">two glacial lakes at 4,760m burst</a>. Luckily there was no loss of life. Of the <a href="https://nepalitimes.com/here-now/lives-on-the-line-in-the-himalaya">47 high-risk glacial lakes</a> in the eastern Nepal Himalaya, 21 are in Nepal and the rest are in rivers in China that are tributaries of the Arun and Bhote Kosi where Nepal has major hydropower plants under construction, or planned.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20241123021128_b596cd8520c57a6c5476031e7a3ea6510f26b464c4d5351d2bc10f6f7d6b70d8.jpg" data-media-id="editor_14" data-image-id="20241123021128_b596cd8520c57a6c5476031e7a3ea6510f26b464c4d5351d2bc10f6f7d6b70d8" data-rendition-name="original" width="871" height="648" loading="lazy" alt="Page 10-11 map #1236 NT"> </figure>  Global temperature rise is accelerating the melting of Himalayan snow and ice, increasing the <a href="https://nepalitimes.com/here-now/living-below-nepal-s-melting-mountains">number and size of glacial lakes</a> so that we do not even have names for them. Imja Tso did not even exist in the old trekking maps until 25 years ago, but is now a 2km long lake. “Natural moraine dams in the mountains are weak, and the projects downstream can face major destruction if they burst, and the risk will only increase in future,” warns climatologist Arun Bhakta Shrestha at the <a href="https://www.icimod.org/">International Centre for Integrated Mountain Development (ICIMOD)</a>. <a href="https://nepalitimes.com/here-now/terrifying-assessment-of-a-himalayan-melting">An ICIMOD assessment in 2019</a> projected that if present heating trends continue, as they probably will, the Himalaya will lose two-thirds of our glaciers by the end of this century. “Generally speaking, hydropower developers hand over the project to the government after 30 years but by that time given the climate risks, they may not be an asset anymore,” says Manjeet Dhakal. Indeed, the cascade of expensive projects India is building on the Arun River are supposed to be handed back to Nepal in 25 years, but there is a big ‘if’ about whether they will survive that long. &nbsp;&nbsp; Planning of hydropower projects is still based on historical hydrological data, and does not take into account future temperature rise and its consequences. Investors, on the other hand, say that planning hydropower projects with climate components would make them even more expensive.&nbsp; “It’s not that we aren’t preparing for climate risk, we design keeping in mind the once-in-100-year flood,” says Blon of IPPAN. “But if we start designing based on once in 1,000 years flood, the cost would be so high that we won’t be able to build them at all.” Nonetheless, Subarna Das Shrestha of Sanima Mai Hydropower says that there is no option but to go for climate smart infrastructure despite the higher cost. Sanima Mai's powerhouse, for example, is completely underground. The strategy could also be to spread the risk by building less expensive plants located on rivers all over the country. Nepal is also diversifying away from its sole reliance on hydroelectricity, which at present supplies 92% of the power in the grid. Most of the rest comes from solar plants, where the total potential has not even been scratched. &nbsp; This article is brought to you by <a href="https://nepalitimes.com/" target="_blank">Nepali Times</a>, in collaboration with <a href="https://inpsjapan.com/en/" target="_blank">INPS Japan</a> and <a href="https://sgi-peace.org/" target="_blank">Soka Gakkai International</a>, in consultative status with UN ECOSOC.  <figure> <img src="https://publisher-publish.s3.eu-central-1.amazonaws.com/pb-nepalitimes/swp/asv65r/media/20240630110640_30c3782f9c09219bf1c249b51483a3cfb7a53a06d117d2aebd23ca7080d12758.jpg" data-media-id="editor_21" data-image-id="20240630110640_30c3782f9c09219bf1c249b51483a3cfb7a53a06d117d2aebd23ca7080d12758" data-rendition-name="original" width="680" height="103" loading="lazy" alt="SDG logo"> </figure>  &nbsp;