THE STUDY OF PRIVATIZATION IN NEPAL

A Seminar paper

By

Bedbrath Prasad Shah

Bachelor of Business Administration (BBA)

Second semester

Exam Roll No: 38387/23

Registration No: 7-2-32-573-2023

ECO 205: Seminar on Contemporary Issues of Macroeconomics

Submitted to

Bachelor of Business Administration (BBA) Program

Saraswati Multiple Campus

Tribhuvan University

December, 2024
 DECLARATION

I hereby declare that seminar paper entitled “The Study ofPrivatization in Nepal” submitted to
the BBA program, Saraswati Multiple Campus, Kathmandu is an original place of work under
the supervision of Mr. Krishna Giri, faculty member, Saraswati Multiple Campus, Kathmandu
and is submitted to partial fulfilment of the requirement for degree of BBA Second Semester.
This seminar paper has not been submitted to any other collage for the award of any degree.

Bedbrath Prasad Shah

December, 2024
 SUPERVISOR’S RECOMMENDATION

The seminar paper entitled “The Study of Privatization in Nepal” submitted by Bedbrath
Prasad Shah of BBA second semester, section A, is prepared under my Supervision as the
procedure and format requirement laid by Faculty of Management, office of the Dean,
Tribhuvan University, as partial fulfilment of the requirement for the degree of BBA second
semester, Macroeconomics for Business. I, therefore recommend the seminar paper for the
final evaluation.

Signature
Name of Supervisor: Krishna Giri
Date: December, 2024
 TABLE OF CONTENTS

TITLE PAGE ........................................................................................................................... i

DECLARATION……………………………………………………………………………..ii
SUPERVISOR’S RECOMMENDATIONS ............................................................................ iii
TABLE OF CONTENTS……………………………………………………………………..iv
LIST OF TABLES ................................................................................................................... v
CHAPTER I: INTRODUCTION
1.1 BACKGROUND OF THE STUDY ........................................................................... 2
1.2 STATEMENT OF THE PROBLEM .......................................................................... 2
1.3 OBJECTIVES OF THE STUDY ................................................................................ 3
1.4 METHODOLOGY ........................................................................................................... 3
CHAPER II: DESCRIPTION AND ANALYSIS
2.1 THEORETICAL REVIEW ............................................................................................. 4
2.1.1 HISTORY OF PRIVATIZATION IN NEPAL ........................................................ 4
2.1.2 OBJECTIVES OF PEs DURING 1950s................................................................... 5
2.1.3 PERIODS OF PUBLIC ENTERPRISES PLAN ...................................................... 5
2.1.4 PUBLIC ENTERPRISES IN NEPAL ...................................................................... 6
2.1.5 FUNCTIONS OF PEs IN NEPAL............................................................................ 6
2.1.6 PERFORMANCE OF PUBLIC ENTERPRISES PERFORMANCE ...................... 7
2.1.7 GROUPS OF PUBLIC ENTERPRISES .................................................................. 8
2.1.8 PROBLEMS OF PEs IN NEPAL ............................................................................. 8
2.1.9 CAUSES OF PRIVATIZATION: PRE-PRIVATISATION ANALYSIS ............. 10
2.1.10 IMPACT OF PRIVATIZATION: POST-PRIVATISATION ANALYSIS ......... 10
2.2 EMPIRICAL REVIEW ................................................................................................. 11
2.2.1 PRIVATIZATION IN NEPAL ............................................................................... 11
2.2.2 PRIVATIZED ENTERPRISES IN NEPAL ........................................................... 12
2.2.3 CURRENT TRENDS OF PRIVATIZATION IN NEPAL .................................... 13
2.2.4 GROWTH OF PUBLIC ENTERPRISES…………………………...……………14
CHAPTER III: CONCLUSION……………………………………………………………...16
REFERENCES ......................................................................................................................... 17
 LIST OF TABLES

Table No. Title Page No.

1. Name of privatized enterprises of Nepal. 12

2. Growth of public enterprises in different plan periods. 14

 CHAPTER 1
Introduction
1.1 Background of the study
Generally, the term privatization refers to the transfer of state ownership from government to
private sector. It also refers to narrow down the government activities and broaden or widen
private sector activities and efficiency in the economy. Privatization also the means to reduce
the government involvement in the economy and adopt the market driven, liberalization, and
free economy policy. Essentially, privatization is a process that covers the transfer from the
public to the private sector of the ownership and/or control of productive assets, their allocation
and pricing, and entitlement to the residual profit flows generated by them (Adam et al.,
1992:6). In Nepal, The Privatization Act, 1994 defined the term ‘privatization’ as “involving
private sector in the management of the enterprise, or to sell or lease it, or to transfer
government ownership into public ownership, or an act to infuse participation by any means,
either wholly or partly, or private sector or of the employees or workers, or of all desirous
groups”.

Economic affluence reduces people’s dependence on government and increases their

acceptance of privatized approaches. The goal of those who approach the matter
philosophically—some would say ideologically—is less government, or one that plays a
smaller role as in a private institution

Privatization, the most significant economic, social, and political phenomena (Miller, 1997)
was adopted on a worldwide scale in the 1980s, covering both rich and poor countries, large
and small nations, and governments subscribing to the full spectrum of ideologies (Rama murti,
1992). The ideological considerations exemplified by such statements as, “governments have
no business to be in business” – have often been paramount in driving privatization in various
parts of the world. Lieberman (1993) views privatization of public enterprises (PEs) not an end
it itself, but as a critical element of economic adjustment.
Government pursue privatization in order to promote increased efficiency, introduce
competition, expose public enterprises to market discipline, encourage foreign investment,
foster wider share ownership and raise revenue for the state (Megginson, 2000). Vickers and
Yarrow (1988) observe that privatization as a policy has been adopted with the following aims:

• Improving efficiency;
• Reducing government involvement in enterprise decision making
 2

• Reducing the public sector borrowing requirement;

• Easing problems of public sector pay determination;
• Gaining political ownership.

Privatization can be thought of as a tool to drive the process of liberalization by putting private
sectors at the forefront with the presumption of increased efficiency and thereby to gradually
reduce the role of government in the economic decision making. But making a case for
privatization entirely on the experiences of western countries where the outcomes of the
process were largely positive may be unfavorable for the least developed countries where
serious bottlenecks persists which are more of a non-economic nature for e.g., bad governance.

Techniques of Privatization Pirie (1988) has identified a number of privatization techniques

categorized according to the five dimensions of privatization as follows:

• Changes in ownership

• Changes in performance arrangements

• Changes in the financial base

• Measures to remove or reduce opposition to privatization

1.2 Statement of the problem

There is ongoing debate concerning whether the implementation of the privatization policy is
a viable option in regards to increasing efficiency, reducing the burden on the government with
respect to PEs, generating employment, market-oriented competitiveness, and so forth. In order
to address the above debate, the main assumptions (hypotheses) of this research are as follows
(based on the available literature related to the Nepal’s privatization policy):

Privatization policy has been implemented not only as a necessity of the country (internally)
but also as a requirement imposed by the donor community. Privatization policy has been
implemented to achieve some stated goals but they have not been achieved as expected.
Privatization policy has some barriers of implementation that affect the policy’s ability to meet
its objectives. Privatization has brought about some positive changes, i.e., it has assisted in
reducing the financial burden on the government, create the catalyst, facilitator, regulator,
promoter and parental role of the government in the economy, contributed to enhancing the
 3

efficiency of enterprises, and facilitated popular participation by private sector in management;

these benefits, however, are negligible. Privatization policy per se is not necessarily conducive
to improving the efficiency of the enterprises. The above hypotheses will not be tested in rigid
terms but they will be checked (falsified) on the basis of the research findings. In summary, by
this study I do not intend to prove a theoretical proposition or test quantitative hypotheses, but
rather to explore and describe the specific phenomenon of implementing privatization policy
in Nepal. The problems are listed below:

1. What is the impact of privatization in Nepal?

2. What are the causes of privatization in Nepal?
3. What is the current trend of privatization in Nepal?

1.3 Objective of the study

Privatization policy has been implemented not only as a necessity of the country but also as a
requirement imposed by the donor community. The objectives of this study are:

1. To study the impact of privatization in Nepal

2. To find out the causes of privatization in Nepal
3. To show the current trend of privatization in Nepal

1.4 Methodology
This study is entirely based on secondary sources of information – literature review has been
conducted in order to collect information on various aspects, including causes and impacts of
privatization in Nepal. The major literature comprises of studies after 1990, after which the
Nepalese economy saw a major economic reform process under the aegis of globalization and
liberalization. Similarly, in order to present and analyze the reviewed studies, content analysis
data are categorized under topic headings and all responses are kept under respective headings.
As such the study is conducted by agreeing upon the main theme and sub-themes emerging
from the information.
 4

CHAPTER 2
Description and analysis
2.1 Theoretical review
2.1.1 History of privatization in Nepal
Nepal is a landlocked and least developing country in the world. Geographically it is divided
in three regions and among them 17% is covered by plain land (Terai), 15% by mountain
(Himal) and 68% by hill (Pahad). The total population is 25 million and population growth rate
is 2.25 percent per year. Topographically the land of Nepal is started form 60 meter above sea
level to 8848 meters. The Roof of the World (Mount Everest) also lies in Nepal. The Economic
condition of Nepal is very poor and more than 80 percent people are totally depending on
agriculture sector. The 80 percent economy condition of the country is fully depended on
agriculture sector and only 10 percent economy is covered by industrial and trade sector. The
agricultural sector could not be sole tools to achieve the economic development objective of
the nation in the present global context. It has been started to pace in new economy by adopting
different development tools. The industrial development had started by establishing the
Biratnagar Jut Mill since 1993. However, it was becoming the first industry in Nepal. But this
development process could not remain constant due to the tyranny Rana regime. Historically
Nepal always remains as an independent and sovereign country in the world. But the different
political systems have been used to govern the country’s regime by the different types of rulers.
For 238 years the constitutional monarchy system has been existed in Nepal. But within this
period the tyranny ruler Rana was ruled until 104 years. At this period the development process
of the country was zero. Rana Prime Minister was governed the country for their self-interest
and benefit.

After the establishment of the democracy in 1950, the development process of the country was
begun. But until 1959 the political situation of the country was not stable due to the political
instability. Within this nine years period the 11 government was formed headed by different
person. But after 1960, the king Mahendra had dethroned the democratically elected prime
minister Bisheshwor Prasad Koirala and took the regime and imposed the autocracy
“Panchayat” system as a political system in the country. Nepal has been adopting the mixed
economy system in the country after the new panchayat system. Due to the lack of capital and
qualified entrepreneurs, government was being compiled to open the service as well as trade
industries in the country as a welfare government. Within this period government was
established 62 public enterprises in the country. In 1990 the democracy has been restored in
the country and democratically elected government has decided to adopt the liberalization and
 5

market economic system in the country and made decision to privatize the public owned
enterprises gradually and government only involve those sectors and where the private sectors
are not interested and not viable economically and physically.

The government also formulated new Privatization Act, 1994 at first time in the country and
government phase out the privatization program.Public enterprise is identified with three
characteristics. First, they are classified as part of the public sector and so must be owned by
the government. Second, they are an enterprise and therefore must be engaged in the production
of goods and services for sale. Third, sales revenues of PEs should bear some relation to cost
(Paudel, 2006).

2.1.2 Objectives of PEs during 1950s

The private investment was not common due to infant corporate culture and Nepal adopted an
inward-oriented development strategy that emphasized import-substituting industrialization
and accorded a dominant role to the state in the articulation and implementation of the strategy.
As a result, from the sixties to the early eighties, there was an upsurge in the establishment of
PEs which expand from a mere holding in a commercial bank in early 50s to a total number of
63 public enterprises by the end of mid 70s. A report on performance of privatized enterprises
(1999) spelt out following six objectives of establishing PEs:

-To stimulate economic activities in the country as there is absence of significant role-play
by the private sector in this regard;
-To avail goods and services to the general people at fair prices and in abundant quantity;
-To create employment opportunities in the organized sector;
-To substitute imports and save foreign exchange;
-To utilize the foreign aid;
-To develop economic and social infrastructure.

2.1.3 Periods of public enterprises plan

Most of the PEs came into existence during second, third, and fourth plans in the 1960s and
first half of the 1970s and have permeated to almost all sectors of the economy, namely,
manufacturing, public utilities, banking, trading, and social services. The table (table 1) shows
 6

expansion and then by contraction of PEs during different plan periods which Manandhar
(1993) in his PhD thesis has further divided into four periods as;

i. Growth period (1952-1975),

ii. Period of reconciliation (1975-1980),
iii. Period of restrain (1980-1990),
iv. Promise of privatization (after 1990).

2.1.4 Public enterprises in Nepal

Public enterprises in Nepal emerged comparatively recently. Most of these enterprises came
into existence during the Second, Third and Fourth plans in the 1960s and the first half of the
‘70s. With the initiation of the first five-year plan in 1956, public enterprises have been
promoted in Nepal. For the first time the industrial policy of 1957 formally recognized the
responsibility of the government in “promoting, assisting and regulating” industrial
development in the country and the First Plan intended to establish state monopolies in the
fields of transportation, telecommunication, hydro-electric power generation and irrigation,
and to run some big industries, such as cement, sugar, cigarettes, textiles, iron and steel (GON,
1956:55). The emergence of public enterprises was stimulated by the inability of the private
sector to adequately fulfill national objectives. The corporate form of public enterprise
appeared only in 1952 when the government that came to power after the revolution of 1951
decided to go for the majority holding—from 40% share ownership to 51% in Nepal Bank
Limited, the only commercial bank operating in the country. The objective was clearly to
control the financial market.

2.1.5 Functions of PEs in Nepal

Three struggling units (jute, cement and tea) were taken over by the government and two
electrical companies were nationalized. Most of the enterprises were either established by the
government or established by the donor countries (Manandhar, 1993:46). Similarly, at 26 the
same time India was preparing its first five-year plan after it got independence. The plan
presented to the government by the Planning Commission in December 1952 indicated the need
for “a rapid expansion of the economic and social responsibilities of the state” to satisfy the
“legitimate expectations of the people”. It stated, however, that this “need not involve complete
nationalization of the means of production or elimination of private agencies in agriculture or
business and industry”. Only a “progressive widening of the public sector and a reorientation
of the private sector to the needs of planned economy” was envisaged (Narain, 2003:21).
 7

Hence, the ideology of the controlling the economy by the government was obvious at that
time, not only in Nepal but also in its neighboring countries. There was successive growth in
public enterprises with the exercise of development planning in the country. Public enterprises
in Nepal were established mainly to serve the following objectives:

• Infrastructural facilities and services;

• Basic consumer and development goods;

• Adequate supplies of essential goods;

• Managerial support to needy enterprises;

• Entrepreneurial support to needy enterprises (Shrestha, 1990:73).

2.1.6 Performance of Public Enterprises Performance

The degree to which a development intervention or a development partner operates according
to specific criteria/standards/guidelines or achieves results in accordance with stated goals or
plans. Linking with the previous definition of performance, the ‘performance’ of a public
enterprise could be defined as the attainment of goals by the enterprise. In the context of public
enterprises, ‘performance’ refers to the extent to which a public enterprise achieves the
objectives that have been set for it. More specifically, performance is interpreted in terms of
success in achieving the stated objectives. Performance is thus essentially correlated with the
objectives. The performance of public enterprises in Nepal has been an area of public concern
and criticism. Successive government reports, documents, and research studies have
unequivocally criticized their poor performance, inefficiency, and wastefulness. Some have
even questioned their objectives and existence. It is widely believed that in most developing
countries the performance of the PE sector has been disappointing.

For example, in Nepal, SOEs have become an unsustainable burden on the budget and the
banking system, absorbing scarce public resources. Despite measures to improve the
performance of SOEs in the 1980s, public sector financial losses remained to constitute an
ongoing burden to the treasury and to the economy. In 1992, gross transfers to the SOEs were
more than the combined expenditure on health and education and total losses in the public
sector were equal to 1% of GDP.
 8

2.1.7 Groups of public enterprises

Public enterprises in Nepal and elsewhere suffer from similar problems. They are very often
over-manned, due to politicians and bureaucrats loading them with supporters, friends, and
often relatives. Most importantly, bureaucrats and politicians make management decisions for
political reasons; profitability, customer service and efficiency should be the primary concerns,
but unfortunately, these only get the requisite attention when businessmen operate those same
businesses (Clarke, 1999). Such allegations could be found in the Nepalese case also, as the
PEs are accused of low performance, overstaffing and operating under a lack of autonomy due
to political interference, and so forth. Performance of public enterprises could be measured in
various ways; Victor Powel has explained that there are several indicators for measuring public
enterprise performance. However, the indices can be classified into the following six groups:

• General performance indices

• Management performance

• Financial performance

• Investment performance

• Costs breakdown (input co-efficient),

• Physical performance (i.e., resource use).

During this period, the profit level of public utility enterprises has been positive, while losses
of service and social sector have been transformed into profit. Operating losses of PEs
belonging to industrial and trading sectors, however, have gone up. Aggregate operating
profit of PEs 33 in FY 2003/04 is totals Rs. 3.89 billion.
2.1.8 Problems of PEs in Nepal:
They are a constant drain on the government budget. They use their leverage as state-run
enterprises to accumulate bad debts at state controlled commercial banks. They are wasteful of
scarce resources. Their boards of directors are ineffective in representing the interests of the
owners who are the government and ultimately the people of Nepal. Management has no
commercial managerial ability or dynamism, and has a public service mindset under which
they ‘administer’ rather than ‘manage’ the companies. Companies are bound by, and run along,
public service lines and restricted by public service regulation and procedure. There is a lack
of technical expertise, even in basic areas such as accountancy, labor management, and
production planning. There is an absence of responsible fiscal management and no sense of
responsibility to either the government as the shareholder, or to other creditors. Over-manning
 9

is practiced at every level and is particularly acute in the ‘administrative’ grades. There is no
consideration for the interest of the consumer. There is no consideration for the interest of
suppliers or the people with whom the enterprise does business.

Policy Recommendations Based on the discussion in the regarding the problems and prospects
of privatization in Nepal, the following recommendations have been made for the improvement
of the policy:

• As we have found, there are no representatives of trade unions, management and employees
of the PEs to be privatized in the Privatization Committee; it is urgently necessary to include
them in the committee to ensure that there are no misunderstandings regarding the PEs and that
all voices are heard. Also, this provision would ensure the transparency of the process and help
to get cooperation from all stakeholders.

• As we have found that there was no political consensus among the major political parties,
especially on the privatization process, attempts should be made to achieve a broader consensus
among the major political parties, including the civil society members, trade union leaders and
employees of the PEs, media and academicians.

• To reach consensus on the program, to ensure the transparency and soliciting greater support
for the program, an awareness program would be helpful. Hence, the use of media such as
radio, television, newspapers, etc. would be useful.

• Similarly, counseling programs for the employees/workers and stakeholders prior to the
announcement of candidature should be carried out to obtain a higher-level cooperation from
them.

• As the private sector is still at an early stage, privatization should not be target based but
need-based. Similarly, economically unviable enterprises should be closed down rather than
trying to privatize those, which the private sector is not willing to take over. The industrial
environment of the country has deteriorated day-by-day as the internal conflict deepens. The
privatization program has also been affected since the private sector is unwilling to buy the
PEs, the government should not aim to privatize loss-making PEs.

• The government should ensure the transparency of the valuation process and measures
adopted while awarding the contract, by publishing valuation procedures and values
ascertained for each company or keeping the valuation report in public libraries after
concluding the agreement with the successful bidder. The Privatization Cell could interact with
 10

the media by disseminating the basis of the valuation and final award in due course, which will
certainly stop accusations of undervaluation and so on.

• Pre-privatization restructuring of the company should be undertaken based on the experts’

recommendation prior to the invitation of proposals from interested bidders. If necessary, the
issues of overstaffing, over-capitalization, problems of liability, etc. should be addressed for
the smooth operation of the company after privatization.

2.1.9 Causes of Privatization: Pre-Privatization Analysis

The causes of privatization can be studied under two categories as domestic and international
causes. The domestic causes are the indigenous internal causes which exerted pressure of
privatizing the enterprises. On the other hand, international causes are related to the pressures
imposed by development partners of the country, and impact of globalization.
• Domestic causes
The domestic causes relate to the internal factors paving path for privatization which can be
further split up into economic and non-economic causes where by economic causes are the
ones which have adversely affected the economy in relation to profitability, sustainability, and
production, among others. Non-economic causes are related to the political causes (change in
economic policy, change in political system).
• International causes
International reasons relate to the external forces that were dominant forcing the country to
adopt privatization in practice. One of the prominent causes might be the coercive pressure
imposed by the development partners in the name of sanctioning the loan. In addition, it might
have happened because of the voluntary adaptation of international policy and/or due to the
impact of globalization, which Nepal felt and so acted accordingly via privatizing.

2.1.10 Impact of privatization: Post-Privatization analysis

• Economic Impact

Like the economic causes, the economic impact focuses on the privatized enterprise
performance, its fiscal management, domestic private investment and foreign investment in the
country.

• Social welfare impact

Social welfare impact relates to relevant actors in the economy, including the workers and
consumers and how are they benefited or harmed by privatization.
 11

• Political impact

It can be said that on the name of privatization and private sector development, there has been
tremendous political patronage to friends and relatives of ruling parties. Thus, the government
has been accused for its improper approach to issues such as; undervaluation of the sold
enterprises; lack of transparency; and improper and unbalanced utilization of the revenue
generated from the proceeds of the sick PEs (Adhikari and Adhikari, 2000).

2.2 Empirical review

2.2.1 Privatization in Nepal
In Nepal, with objective to increase productivity by improving efficiency reducing
administrative and financial burden of the government and increasing private sector as well as
by ensuring effectiveness of service delivery, the process of privatization dissolved and
liquidation of government owned privatization, efforts started since 1990, the first company to
be privatized in Nepal was Nepal bank limited in 1992, and it was sold to a consortium of
private investors. Then, privatization Act was formulated on 1994 as the speed of privatization
increased after the restoration of democratic system in 1990. The privatization of banking
sector was followed by practical privatization of Nepal Electricity Authority. In 2004, the
government of Nepal privatized state-owned Telecommunication Company. The privatization
was seen as a success with Nepal telecom experiencing significant growth in years that
followed. After the formulation of privatization Act in 1994, a high level of privatization
committee was formed under the act open bidding was invented from in interested parties and
highest bidder was invited to sign on the agreement and the ownership was transferred after
the agreement was made. In Nepal first six companies, namely Bhrikuti paper mills, bansbari
leather and shoes Harsiddhi bricks and tiles limited. Birgunj sugar, Bhaktapur brick and tile
factory limited. Balaju textile were first selected for privatization. Mainly three Harsiddhi
bricks and tile factory limited, bhrikuti paper mills limited and Bansbari leather and shoes
factory limited.

According to the privatization act 199, the following procedures can be followed for
privatization

• By selling the shares of enterprises to the general public, employees of the enterprises
and to the interested persons or the company
 12

• By leasing out the property of enterprises

• By selling the property of the enterprises
• By giving the contract to the private sector
• By giving the management contract to the private sector
• Any method that the committee finds appropriate

2.2.2 Privatized enterprises of Nepal

Table-1: Name of Privatized enterprises of Nepal

S.no Name of Enterprises Year Modality

1 Bhrikuti paper factory 1992 Business and assets sales

2 Harisiddhi brick and tile 1992 Business and assets sales

3 Bansbari leather shoes factory 1992 Business and assets sales

(expect sales)

4 Motion picture development 1993 Share disinvestment

company

5 Balaju textile industry 1993 Share disinvestment

6 Raw hide collection and sales center 1993 Share disinvestment

7 Nepal jute development and trading 1993 Liquidation

corporate

8 Nepal bitumen and barrel industry 1994 Share disinvestment

9 Nepal tube oil 1994 Share disinvestment

10 Tobacco development corporate 1994 Liquidation

11 Nepal mental corporate 1996 Share disinvestment

12 Ragupati jute mills 1996 Share disinvestment

13 Nepal bank limited 1997 Share disinvestment

14 Agriculture project service center 2001 Liquidation

15 Nepal tea development corporate 2000 Share disinvestment

 13

16 Biratnagar jute mills 2002 Liquidation

17 Himal cement industry limited 2002 Liquidation

18 Cottage handicraft sales emporium 2002 Liquidation

19 Nepal coal limited 2002 Liquidation

20 Hetauda textile industry 2002 Liquidation

21 Nepal transport cooperation 2002 Dissolve

22 Butwal power company 2003 Share disinvestment

23 Birgunj sugar factory 2003 Liquidation

24 Agriculture tools factory Ltd. 2003 Liquidation

25 Bhaktapur bricks factory 2003 Assets sales and renting out

26 Lumbini sugar mill 2006 Assets sales and renting out

27 Nepal rosin and turpentine Ltd. 2006 Assets sales and renting out

28 Agriculture lime industry Ltd. 2006 Liquidation

29 Nepal drilling company 2006 Liquidation

30 Nepal telecommunication company 2008 Share sale

Ltd.

Source: ministry of finance, government of Nepal,2009.

After 2008, Nepal telecom was privatized by selling its shares. After this, privatization process
of public enterprises was ineffective due to privileged political instability and transition period
within the country. Privatization has faced lots of criticism, with some arguing that it has led
to joblessness reduced access to essential services and or lack of transparency and
accountability. Adding to this, there have been concerns about this impact of privatization on
the country’s natural resources such as hydropower and water supply.

2.2.3 Current trends of privatization in Nepal

As of recent years, Nepal has seen a range of trends in privatization, reflecting broader global
patterns as well as local priorities. Here are some key trends:
 14

• Expansion of Private Sector Participation

The Nepalese government has increasingly encouraged private sector involvement in various
sectors, including education, healthcare, and infrastructure. This has included partnerships with
private firms for the development and management of public services.

• Privatization of State-Owned Enterprises (SOEs)

There has been a push to privatize or at least partially divest government stakes in several
state-owned enterprises. This trend is aimed at improving efficiency and profitability in sectors
such as telecommunications and energy.

• Public-Private Partnerships (PPPs)

The government has been actively pursuing PPPs to leverage private investment for public
projects. These partnerships are particularly prominent in infrastructure projects like road
construction and urban development.

• Educational and Healthcare Privatization

The privatization trend has extended to education and healthcare, with an increase in private
institutions in these sectors. This shift is partly driven by the need to address service delivery
gaps and improve quality.

• Regulatory and Policy Framework

There have been efforts to create a more favorable regulatory environment for privatization
and private investment. This includes reforms aimed at simplifying the investment process and
protecting investor interests.

These trends reflect Nepal's broader strategy to stimulate economic growth, improve service
delivery, and attract foreign investment while addressing the challenges of a
developing economy.

2.2.4 Growth of public enterprises

Table 2: Growth of public enterprises in different plan periods
Periodic plan Total number Change
Prior to 1956 1 -
First plan (1956-61) 8 7
No plan period (1961-62) 11 3
 15

Second plan (1962-65) 22 11

Third plan (1965-70) 34 12
Fourth plan (1970-75) 61 27
Fifth plan (1975-80) 59 -2
Sixth plan (1980-85) 54 -5
Seventh plan (1985-90) 63 9
No plan period (1990-92) 62 -1
Eighth plan (1992-97) 46 -16
Ninth plan (1997-2002) 43 -3
Tenth plan (2002-07) 36 -7
Source: Paudel, 2006 (original data from NPC)

The above table shows that the majority of public enterprises were established during the sixties
and early seventies (1956-1975). The main reason of this was due to the political regime at the
time, which focused on the planned economy policy, in which the state was seen as economy
policy, in which the state was seen as the dominant player, rather than the private sector
(panday,1999). However, unlike in most developing countries, the growth of Nepalese public
enterprises was not based on the nationalization of private companies, but in many areas, new
enterprises were created, with the support of external donors, including china, former USSR,
the Netherlands, Japan and multinational agencies. In other cases, units already existing as
government departments were converted into statutory corporations and other kinds of
autonomous bodies.
 16

CHAPTER 3
Conclusion
The impacts of privatization are found to be positive so far as its effects in economic fronts are
concerned – it has been able to increase the production with diversification, improve
technology, reduce the fiscal burden of the government, increase private sector investment,
increase the quality of goods and services etc.

It is now, therefore, a high time that a massive awareness program should be launched to
educate the general people, labors, leaders, and policy makers regarding the advantages of
privatization. Before privatizing enterprise, labors and trade unions should be educated about
the possible consequences of privatization on their job security, working conditions, and their
rights and obligations in the enterprise so that the new management and labors work in
harmony.

Privatization is no means of unloading the burden of government, in the sense that government
will have no responsibility in the future. Training and orientation to the new management
should be given an impression that the government is committed to privatization for the private
sector development. Proper regulation and monitoring mechanism are also strictly needed for
environmental protection.
 17

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