Koshi Province Shifts to 'Project Bank' System to Curb Political Interference in Budgeting

In Nepal's federal structure, provincial governments are attempting to present their own unique development models. Koshi Province is no exception. In the past, Koshi Province proposed and implemented numerous multi-year projects.

Proponents of federalism used these completed projects to send a message that 'provinces can also deliver.' However, it was not all positive; political interference in budget formulation and project selection, along with 'pocket projects' and small-scale schemes designed to appease party cadres, raised questions about the effectiveness of the budget.

To address these concerns, the Koshi Province Planning Commission has announced that this year's budget will be introduced solely through a 'Project Bank.' But will this be implemented? In this context, we spoke with Tara Niraula, Vice-Chairman of the Koshi Province Planning Commission, regarding the commission's preparations, budget priorities, and implementation challenges. Presented here is an edited excerpt of that conversation.

• The rush to formulate the budget for the upcoming fiscal year has begun. The Planning Commission has also introduced an integrated procedure to include projects in the budget only through the Project Bank. Will this procedure be followed?

The Provincial Planning Commission is working very seriously on the budget formulation for the upcoming fiscal year. We aim to move projects forward systematically and make them result-oriented. For this, we have 'merged' two separate procedures to bring an 'integrated procedure.' In the past, there were procedures, but there were few examples of them being implemented. This time, we have made the system itself the main foundation.

The main objective of the Project Bank is to bind everything from project identification to implementation within a fixed method. We have set three to four bases for project selection. The first basis is 'what kind of project is needed?' It is important to know what kind of project the local residents need. We categorize projects related to economic development, social development, or infrastructure development. Once a project is identified, it is entered into the system.

• How is priority determined when selecting projects? Everyone wants their projects to be prioritized, right?

Yes, everyone wants to see their project prioritized, but we have framed this into a scientific method. We call it the 'Six Matrix.' In this, projects are divided into high, medium, and low priority. Even within high priority, there are three categories—high-high, high-medium, and high-low.

Similarly, there are three categories each for medium and low. Thus, projects are classified into a total of 9 levels. Projects falling into the lowest priority category remain on the Project Bank list but do not receive priority in terms of budget.

We have set some concrete indicators for determining priority. For example: How much does the project contribute to rapid economic development? What is its role in uplifting the living standards of the people? In how much time can the project yield results—one year, two years, or three years? We evaluate all these aspects across about 8-9 areas. There is a framework of 70 points for this, and the remaining 30 points are linked to sustainable development goals and the identification of needs. In this 100-point indicator, whoever gets the highest score gets priority.

• In the past, there was a trend of carrying project files to ministries. What are you doing to stop this?

This is a very important question. This time, we have developed a 'faceless' system. Now, no one needs to come to the ministry or the Planning Commission carrying project files. We are training local level chiefs, deputy chiefs, chief administrative officers, and IT officers.

Local levels will have to classify their projects themselves and enter them into the system. They can propose projects from their own desks. The system itself will show how many points the projects they filled received and what priority they fell into. Once entered, it cannot be changed. This eliminates the possibility of projects being added or removed under the pressure of middlemen and power centers.

There are still over 51,000 projects in the Project Bank. There was a problem with implementation when there were 51,000-52,000 projects without considering the budget framework. Now, we have arranged to filter them and bring only real and necessary projects into the system.

• There is a complaint that the provincial government also brings small projects of 5-10 lakhs. How will you control this?

This time, we have set clear limits. The provincial government's thinking is that the province will not look at projects below 2.5 million rupees; those should be left to the local levels. Small projects fall under the jurisdiction of the local levels. We have tried to set a minimum limit of 10 million and a maximum of 300 million for infrastructure construction. There is also a 300 million limit for multi-year projects. However, for some special types of projects—such as large health infrastructure in hilly areas or the construction of constituent campuses of universities—we have kept the path open to go above the 300 million limit, but we will strictly enforce the 2.5 million minimum limit for ordinary roads and small infrastructure.

• What is the guarantee that projects will be transparent just by putting them into the system?

We have arranged for 'checks and balances' in this. Now, if someone prepares a project, the person who 'approves' it must be someone else. We have removed the system where the person who prepares it also sends it. Only after the project is verified does it come to the ministry, and the ministry tests it and sends it to us.

After it reaches us, the Planning Commission re-tests whether the documents have been uploaded, whether the evaluation method is correct, and whether it is within our budget ceiling. Only after all these processes are completed is the proposal taken to the cabinet. This can prevent weaknesses from staff or the political level to a great extent.

• During budget time, there is huge pressure from MPs and ministers. They insist on including small projects in their constituencies. How do you handle this?

Pressure is natural. MPs are representatives of the people; I do not consider it wrong for them to bring demands, but our stance is that when bringing demands, they must be lawful. Some honorable members told me—'Beware, do not remove projects below 2.5 million, our small projects must also be included.'

I have clearly told them—a pre-feasibility study or a feasibility study report is mandatory for entry into the Project Bank. Projects will no longer be included based on notes or verbal requests.

The system only accepts projects that have been studied by experts, recommended by the municipality, and deemed necessary. Once the system stops it, there is no room to blame me or anyone else. We have also trained our manpower—statisticians and software experts—accordingly and kept them ready.

• There is a trend of sneaking in projects according to the wishes of ministers or MPs at the last minute due to political pressure. How does the Planning Commission stop this?

This is a very challenging issue, but this time we have said that for any project to be entered into the Project Bank, it must be justified. Without a feasibility study or pre-feasibility study report done by experts, a project cannot enter the system.

It is natural for MPs or ministers to say they want a project, but those projects must also come into the system with the necessary documents, following the procedure. The days of putting in projects based on rumors or scraps of paper are gone. We have kept such a 'demarcation' in the software itself that the project will not move forward without the necessary documents being uploaded.

• The provincial government has a large liability for multi-year projects. Does adding new projects cause problems?

This is our biggest challenge. There is information that there is a liability of about 20 billion for multi-year projects. But I am not fully confident in this. We have made them fill in the details sent by the ministries and the actual data. In the past, there was a trend of demanding a 550 million project, putting in a 10 million budget, and sitting idly by calling it multi-year. That will not happen now. We also set a time limit for multi-year projects—3 years, 5 years, or 6 years. The budget is allocated according to that timeframe.

Another thing, we must increase internal resources. The grants given by the federal government are decreasing. Sometimes the fiscal equalization grant is cut, sometimes there is a delay in giving conditional grants. In such a situation, the provincial government cannot complete large projects without increasing its own revenue scope. We are limited to 5 billion in internal revenue; this needs to be increased.

There are 5,500-5,600 projects in the Red Book. We have already circulated to the ministries—what is the status of your multi-year and ongoing projects? How much does it cost and when will it end? Send the actual details of that.

Our priority this year will be to give budget to old and near-completion projects and finish them rather than adding new ones. We want to end the trend of putting a 10 million budget on a 550 million project and stalling it for decades. We are moving towards a system of setting time limits and completing projects.

• Finally, will the Koshi Province government fully follow the method, process, and law when bringing the budget this time?

I have full confidence this time. Because we have strengthened the system rather than individual desires. Our team of statisticians, software developers, and system development experts is working day and night. From the local level to the ministry, everyone is connected to the same system. Until the document is verified, the project will not move forward. Political pressure is one aspect, but making it lawful is our responsibility. I also expect that the honorable MPs will emphasize large and result-oriented projects rather than small ones. This year's budget will be based on method and system. We have kept agriculture, tourism, and infrastructure as our main priorities.

We are also trying to connect the private sector as a partner in development. Many countries in the world have reached the pinnacle of development with the participation of the private sector. We have not been able to reach that place. We are working on establishing agri-business centers, building market networks, and ensuring benefits reach the real farmers. I believe that the Project Bank method we have adopted will lay a solid foundation for the development of Koshi Province in the coming years. I expect everyone's support in this courage and effort we have made.