Nepal's Government Moves to Revive Stagnant State-Owned Industries

Kathmandu. The government led by Balendra Shah (Balen) is in the process of reviving state-owned industries that were previously operational but are currently closed. The government had adopted a policy to revive sick industries in the budget for the current fiscal year. According to this policy, the evaluation process for four industries has already moved forward.

S & S Associates, which was tasked with conducting the Due Diligence Audit (DDA) of the ailing Gorakhkali Rubber Industry, has already submitted its report to Finance Minister Dr. Swarnim Wagle.

Industries that have remained sick for years after billions in state investment have become white elephants. During the election, Prime Minister Shah had indicated through his campaign speeches that the government would operate these industries. While entering the election fray, he had said, 'The government itself will operate the closed government industries and increase domestic production.'

There is public interest in how Prime Minister Shah, who became Prime Minister with a near two-thirds majority, will implement what he said in election rallies. Furthermore, after the formation of the government, Home Minister Sudan Gurung said at a program held at the Police Headquarters on Chait 17, 'The uniforms worn by the Nepal Police will now be produced in Nepal's own industries.'

Home Minister Gurung's statement about producing police uniforms in domestic industries is linked to the Hetauda Textile Industry or Butwal Spinning Mill. There are preparations to revive these industries and use domestic products to meet the demand for billions worth of uniforms for the state's security agencies (Police, Armed Police, and Army). The current government seems prepared to move forward with a new modality of giving new life to sick industries through Public-Private Partnership (PPP) and private sector involvement, rather than the traditional approach.

Prime Minister Shah had conducted field visits to sick industries while touring the country during the election. Upon reaching the Udayapur Cement Industry, he expressed the view that 'these industries are our pride, and the government must protect and operate them.'

Finance Minister Dr. Swarnim Wagle stated that the government's industrial strategy plans to move forward based on practicality rather than populism. Finance Minister Wagle said this during a discussion with the Nepal Economic Journalists Association (NAFIJ) a few days ago. 'It is difficult for the government to run industries directly, but it will be taken forward in partnership with the private sector while protecting government assets,' he said.

In a recent address, Finance Minister Dr. Wagle said that the government would study the condition of sick industries and revive or manage them. According to him, the 'Due Diligence Audit' (realistic audit) of 2-3 major sick industries, including the Gorakhkali Rubber Industry, has been completed. Based on that report, the government is doing homework on how to move those industries forward.

Finance Minister Dr. Wagle signaled that the path forward would be private sector involvement or a public-private partnership model. 'It is not practical for the government to go and make tires or run industries itself,' he said, 'but we are clear on how to involve the private sector while protecting government assets.'

DDA Process and Revival of Sick Industries

The government has formed a high-level study committee to operate, dissolve, merge, or manage sick industries. A committee coordinated by Sevanta Pokharel, head of the Financial Sector Management and Institute Coordination Division of the Ministry of Finance, is working on the selection of consultants.

The first step of the process is the 'Due Diligence Audit' (DDA). The Ministry of Finance has started the process of evaluating the assets and liabilities of seven major sick institutions. The DDA report of the Gorakhkali Rubber Industry has been prepared and submitted to Minister Dr. Wagle.

Consultants have been 'shortlisted' for four industries: Janakpur Cigarette Factory, Butwal Spinning Mill, Nepal Metal Company, and Nepal Orind and Magnesite. The ministry has stated that a detailed study on this will begin soon. Although Udayapur and Hetauda Cement are currently operating, they are in a very weak state. A study is underway on how to adapt them to modern technology.

Finance Minister Dr. Wagle said that the study has clarified the liabilities (debt) and asset status of those industries, and a concrete policy regarding this will be brought through the upcoming budget. 'Our party and the current government have a clear economic policy - a liberal economy with social justice. This is exactly like the Scandinavian model of a social market economy. Where the private sector is made dynamic, but the state's regulatory role is strong and clean.' He said that the government does not want to burden the private sector with taxes and regulations, but there will be no compromise on compliance with laws and rules.

The history of privatization in Nepal is not pleasant. There has been criticism that industries were sold for pennies in the past. Therefore, the government led by Balen has signaled that it will prioritize the PPP (Public-Private Partnership) model. According to this, the land and ownership of the industry will remain with the government, while it will be given to the private sector to operate for a certain period. The private sector will bring new technology and investment, which will allow the government to get a share of the profits and create employment.