Nepal's Ambitious Plan to Revive State-Owned Infrastructure Construction

Kathmandu. Nepal's infrastructure development is in a dismal state. Projects worth billions have been left abandoned for years. Often, contracts are awarded but work remains stalled, or contractors show no interest even after multiple tenders are called. From national pride projects to local infrastructure, many are in a dilapidated condition.

To untangle this policy and practical knot, the current government has proposed an ambitious plan in its 100-day governance reform agenda. The government has announced that projects that have failed to attract bidders twice or have been abandoned due to unsuccessful tender processes will now be directly implemented through a state-owned 'Infrastructure Construction Company'.

The government is committed to preparing the necessary legal framework within the next 30 days and equipping the company with resources, tools, and skilled manpower.

But will the activation of a state-owned company alone change the fate of Nepal's infrastructure development?

In the analysis of infrastructure expert and lawmaker Ashish Gajurel, a strong state presence in Nepal's infrastructure sector has become essential. He says, 'Many might think today that a government company cannot work because our old public enterprises have collapsed. But if we look at the example of neighboring China, state-owned companies there have built infrastructure that has stunned the world.'

According to Gajurel, the liberal thinking that only the private sector can handle all work has failed in many places in Nepal. Many projects have become stagnant due to the lethargy and lack of capacity of the private sector. In such a situation, there is no alternative to the state intervening and taking ownership. However, he also offers a serious warning.

He argues that there should be a deep review of why institutions like the 'National Construction Company Nepal' (NCCN) failed in the past. 'In the past, NCCN was turned into a center for political recruitment; instead of professional leadership, political cronies were made executive heads, and those institutions were deliberately crippled,' says Gajurel. 'Therefore, the first condition for the success of the new company must be honest intentions and professional independence.'

However, construction entrepreneurs see this government move as difficult to implement in practice. Construction entrepreneur Pramod Lamichhane expressed deep skepticism about the success of the government's plan in the current situation. Lamichhane, who has been active in the construction sector for 27-28 years and worked in the management of NCCN for 6 years, stated that it would fail due to government working styles and cumbersome legal processes.

• Past experience: Legal and managerial challenges

Although the government says it will work through a new company, the experience of NCCN, which was established with similar objectives in the past, is not pleasant. Established in 2018 BS with the help of Israeli technology, NCCN initially did good work according to international standards. However, the government caused the company, which had assets worth billions, to collapse and shut it down in 2066 BS.

According to entrepreneur Lamichhane, it is not believable that the government, which could not save a company with a strong system in the past, will now complete large projects through a company that is currently just a branch of the Ministry of Infrastructure. 'Looking at the current government mechanism and management, there is no sign that work will be done through this company,' he said.

Lamichhane argues that the main obstacles for a government company will be the current procurement regulations and the cumbersome bureaucracy. According to government rules, a tender must be called to purchase goods worth more than 1 million rupees. However, during construction, there are situations where cement and steel worth millions must be purchased immediately.

'When you need to buy goods worth millions at once, trying to fulfill government procedures stops the work,' Lamichhane added. 'In the construction sector, many things require immediate decisions, which is not possible in the government framework.'

He stated that while it is already difficult to work in the private sector, a government company will not be able to keep material, manpower, and financial management efficient.

If the government wants to make this plan successful, Lamichhane suggested adopting a joint venture model between private and government parties through a separate act. He believes that some improvement can only happen if both the efficiency of the private sector and government ownership are combined.

Although the government says it will make laws and gather resources within 30 days, it looks very challenging in practice. Since there is a precedent of companies like NCCN being led to losses and closed down in the past, construction entrepreneurs do not seem confident about how the new infrastructure company will work.

• A milestone for incomplete projects: Expert Kishor Thapa

Infrastructure expert Kishor Thapa, however, has called this government move positive and timely. He argues that the presence of a government company is essential to complete projects that private sector companies have been unable to work on or have abandoned midway for various reasons.

The problem of contractors leaving work midway in some projects and no one bidding even after repeated tender calls in others is severe. Infrastructure expert Thapa says, 'Where private companies cannot work due to various technical or economic reasons, another private company hesitates to step in. Projects remain abandoned for years because no one wants to take over work left by another. A government company has become essential to fill this gap.'

According to Thapa, since both time and cost increase when going through the cumbersome process of new tendering, it is easier to get work done in an emergency when there is a strong government body. 'Ultimately, the public needs service and development, whoever builds it. When the government works through its own mechanism, public benefit is reached faster,' he added.

In the past, NCCN was active in Nepal, which used to build large and strategically important infrastructure. However, the government abolished it under a policy to encourage the private sector. Thapa says, 'The private sector has become more capable than before, but due to our procurement act and processes, situations sometimes arise where contractors without capacity get the work and later cannot perform. That is why the lack of a government company is being felt again.'

The government is preparing to make laws within the next 30 days and operate the infrastructure company, which already existed but had become almost inactive, at full capacity.

The government company does not currently have enough machinery and skilled manpower of its own. In such a situation, expert Thapa says it is not necessary for all equipment and manpower to be the government's own. He says, 'The government company can mobilize manpower and machinery available in the market.' He mentioned that work can also be done by giving 'sub-contracts' to small construction companies. 'The main thing is that the government company takes the leadership and responsibility, which makes the procurement process faster and more transparent,' he said.

There is also apprehension among some that this government move might displace the private sector. However, expert Thapa suggests that the government should not compete with the private sector. 'The government company should not eye every contract. Its main job is to be active only where the private sector is unwilling to go, where tenders are not placed even twice, or where crises like natural disasters occur,' he clarified.

• 'Infrastructure Construction Company should not become a place for employment'

Public procurement expert Rajendra Prasad Adhikari says that the infrastructure construction company established by the government has no experience or resources to work. He argues that this company, brought into a new form after making the past NCCN inactive, is currently limited only to 'providing jobs'.

According to Adhikari, technical efficiency and sufficient equipment are necessary for any construction company to be successful. 'The current new company has neither experience nor sufficient resources,' he said. 'If the old NCCN had been revived, the old experience could have been useful, but the current company does not have the capacity to compete in the market.'

He further said, 'If this company asks for 100 civil engineers with 5 years of experience today, it is hard to find them in the market. The government also does not seem to have enough budget to buy the necessary equipment for this company. In such a situation, how will it do the work of large projects?'

He claims that the process of directly giving work to the Infrastructure Construction Company if no one takes it even after calling for tenders twice is theoretically wrong.

'Is there a flaw in the cost estimate or the process itself that tenders are not placed twice? Handing it over directly to a government company without looking into that is against transparency,' he said. 'The private sector is working at 20-30 percent lower bids while competing, but giving contracts to a government company at 100 percent budget puts a financial burden on the state and leads to distortions.'

Adhikari stated that although the Public Procurement Act envisions competition, giving work to the Infrastructure Construction Company without competition also raises questions about its quality and accountability. His analysis is that since it takes months to complete a tender process and only then giving work to the government company will increase both the time and cost of the project.