PEs continue to perform poorly, post Rs 3.49 billion net loss

The government has been failing to effectively operate public entities, as the number of loss making Public Enterprises (PEs) has been increasing every year – adding eight more in 2011-12 compared to 2010-11 – along with plunging productivity.

Likewise, Public Enterprises (PEs) government investment on them has also seen remarkable increase every year.

Of the total 37 PEs, only 15 PEs recorded net profit, while 21 PEs – as Nepal Engineering Consultancy Service Centre Ltd did not record any transaction – have posted a net loss of Rs 3.49 billion in the fiscal year 2011-12 as eight more PEs went into red compared to a year ago, according to the annual report of the PEs published by the Finance Ministry here today. “The PEs had posted a net profit of Rs 6.58 billion in the fiscal year 2010-11.”
Similarly, government’s debt on these public entities stood around Rs 101.23 billion. The government had invested Rs 102.41 billion in shares and Rs 101.23 billion in loan in the PEs by the end of the fiscal year 2011-12.
Until the fiscal year 2010-11, the investment in shares and loan stood at Rs 92.19 billion and Rs 95.16 billion, respectively.
Nepal Oil Corporation (NOC), Janakpur Cigarette Factory, Nepal Oriend Magnetite and Nepal Drugs contributed to the huge loss in the public entities.
The state oil monopoly Nepal Oil Corporation (NOC) had a negative shareholders fund by Rs 9.47 billion, alone. Due to huge loss of NOC trading sector – one of the six sectors among the 37 PEs – have recorded loss.

Sectorwise, three – service, social and financial sector PEs – have posted profits, while the remaining three sectors – trading, industrial and public utility sectors – have posted loss.

However, the public sector companies have posted an operating profit of Rs 185.79 billion – an increase by 22.3 per cent – in the fiscal year 2011-12

Of the total PES, only two – Nepal Telecom and Rastriya Banijya Bank – paid return to the government. They paid Rs 6.26 billion – some 6.1 per cent of the total government investment in PEs – dividend compared to a 2.56 per cent a fiscal year ago, the report added. In the fiscal year 2010-11, the government had received Rs 5.49 billion dividends from the PEs.

The PEs’ operating income has contributed 12.1 per cent to Rs 185.79 billion to the GDP, said finance minister Shankar Prasad Koirala, releasing the PEs annual report here today. “Of the six sectors, social sector PEs has less contribution at 0.08 per cent to GDP, while trading sector has the highest contribution of 6.21 per cent to the GDP,” he said, adding that the reports has also pointed out the need to long term reform of the PEs with annual targets for each company according to their objectives and work. “If they are not reformed on time, it will be a huge burden on the government.”

Chronic disputes in PEs need to be resolved with the help of tripartite committee of concerned ministry, management and employees, he added.

Regular political bickering and increased unionisation have eroded the competitiveness of the PEs, the report said, suggesting that the Public Enterprises Direction Board should work effectively to boost competitiveness and professionalism of the PEs.
Of the total 37 PEs, only 21 has completed their auditing, while rest of the them have yet to complete their audit,” Koirala, said, suggesting to take action action against the PEs failing to complete audit. "Rastriya Beema Sansthan, Udayapur Cement and Oriend Magnesite have not completed their audit since last eight years."

Profitering PEs
 Nepal Telecom – Rs 10.89 billion

Civil Aviation Authority of Nepal – Rs 2.14 billion
Rastriya Beema Sansthan – Rs 1.19 billion
Rastriya Banijya Bank – Rs 1.13 billion
Citizen Investment Trust – Rs 694.60 million

(Source: Finance Ministry)

Loss-making PEs
Nepal Electricity Authority – Rs 4.78 billion
Nepal Oil Corporation – Rs 2.62 billion
Udayapur Cement – Rs 250.70 million
Nepal Television – Rs 116.90 million
Nepal Orient Magnetite – Rs 48.60 million
(Source: Finance Ministry)

Challenges of PEs

·        Excessive employees but shortage of skilled manpower

·        Trend of appointing temporary employees and/or on contract basis

·        Rising administrative costs that increased by 13.87 per cent to Rs 32.94 billion in the fiscal year 2011-12 from Rs 28.93 billion a fiscal year ago

·        Financial and managerial aspects of PEs weak

·        Trade unionisation and political bickering

·        Lack of latest technology and infrastructure

·        Pension liabilities have been increasing

(Source: Finance Ministry)

Government to pay off closed Janakpur Cigarette Factory staff

The government finally seems to have come to terms with reality and is planning to pay off staff of the closed Janakpur Cigarette Factory (JCF).

"The government is bringing a pay off plan in the budget for next fiscal year 2013-14," according to senior economic adviser to the finance ministry Dr Chiranjivi Nepal.

The factory that was once the largest contributor to the government coffer has been closed for the last two years. However, the ministry had been paying around Rs 80 million annually as salary to employees without any output.

The inefficiency and indecisiveness of successive governments will not only cost the government Rs 3 billion to pay off all the staff -- Rs 4.5 million per head -- but is also against the liberal market economy. However, two committees formed to study the current status of the cigarette factory have stated that it has assets worth Rs 10 billion.

"The private sector is strong enough to operate industries," said Nepal, adding that the government's role is to facilitate the private sector and not to operate cigarette and alcohol industries.

All the public enterprises that have been adding liability to the government exchequer and cannot contribute to production has to be closed, Nepal added. The Public Enterprise Coordination Department has also suggested the government to close down unproductive public enterprises.

Established in 1962, Janakpur Cigarette Factory used to be the largest single contributor to the national exchequer with four per cent to revenues.

The government, fearing that it will cost a huge amount to pay off the 758 staff, has been unable to decide.

The ministry has already lent the closed factory Rs 56.6 million in the current fiscal year.

According to the Economic Survey 2012-13, in fiscal year 2010-11, some 21 public enterprises were running at a net profit, where as 14 were in net loss. "Likewise, the net profit of all the 37 public enterprises had also declined to Rs 6.68 billion in fiscal year 2010-11, compared to Rs 10.56 billion in the previous fiscal year 2009-10," it said, adding that in fiscal year 2009-10, the net fixed assets of 37 public enterprises amounted to Rs 139.36 billion, which had decreased to Rs 118.28 billion in fiscal year 2010-11. "Among the public enterprises under the industrial sector, Janakpur Cigarette Factory has incurred the heaviest loss of Rs 218.1 million."

The government has already lent a total of Rs 141.90 million to public enterprises in the current fiscal year.

Government expenses on PEs' employees increase

Though the number of employees in Public Enterprises (PEs) has gone down, average expenditure on them has gone up despite poor performance.
"The average expenditure per employee per month has gone up to Rs 34,126 in 2009-10,” according to the Economic Survey.
The number of employees has come down to 33,526 in 2009-10 from a year ago’s 33,603. In a fiscal year per employee expenses has increased by Rs 7,016 from a year ago’s Rs 27,110, the annual performance report published by the Finance Ministry said, adding that the number of government entity in profit has, however, increased to 22 from 18.
But their contribution compared to government’s investment on them is lower than current interest rates. "The return stood at 5.8 per cent that is lower than the current interest rates, the report added.
The contribution of trading sector PEs is higher than the industrial sector PEs that also proves government’s total failure in running the industries.
The report revealed that only two PEs – Nepal Telecom and Industrial Sector Management Company –contributed Rs 4.80 billion – to the government coffer as dividends, though the 22 profit making PEs net profit increased by only Rs 8.3 million in a year to Rs 10.55 billion. The 14 PEs are still in red, though the government has appointed profession management on the basis of competition this year.
“Of the total Rs 179.94 billion revenue the government mobilised in 2009-10, the PEs dividends stood at a mere 2.67 per cent giving enough room to the government’s investment worthiness on the public entities. The government report also accepted that the regular strike by the unions has hurt government coffer.
The government investment on PEs comes to 11.88 per cent of the total capital expenditure.


PEs in profit (in 2009-10)
1. Dairy Development Corporation
2. Hetauda Cement
3. Nepal Orient Magnesite
4. Krishi Samagri Company
5. National Seed Company
6. Nepal Food Corporation
7. Timber Corporation of Nepal
8. Industrial Estate Management
9. Nepal Transit and Warehousing Corporation
10. Nepal Airline Corporation
11. Civil Aviation Authority of Nepal
12. Gorkhapatra Corporation
13. Rural Housing Corporation
14. Nepal Doorsanchar Company
15. Agriculture Development Bank
16. National Life Insurance
17. Nepal Industrial Development Corporation
18. Rastriya Banijya Bank
19. Deposit and Credit Guarantee Corporation
20. Nepal Housing Finance
21. Nepal Stock Exchange
22. Citizen Investment Fund


PEs in loss (in 2009-10)
1. Herbs Production & Processing Corporation
2. Janakpur Cigarette Factory
3. Nepal Medicine
4. Udhaypur Cement Industry
5. National Trading
6. Nepal Oil Corporation
7. National Construction Company
8. Nepal Engineering Consultancy Service Centre
9. National Productivity and Economic. Development Centre
10. Cultural Corporation
11. Janak Education Materials Centre
12. Nepal Television
13. Nepal Drinking Water Corporation
14. Nepal Electricity Authority

Janakpur Cigarette Factory plans to double production

Janakpur Cigarette Factory -- the state-owned factory -- has planned to double its production from next month.
"We are planning to sale Rs 50 million worth cigarette in this month," said the general manager Shyam Kumar Mahato. "Last month we sold cigarette worth Rs 30 million," said the general manager, who has been asppointed two months ago.
The factory established in 1965 has resumed its production from October after two months of closure due to lack of capital. It was producing 10 million sticks of cigarette some years back plunged into a serious financial and logistic crisis due to regular political bickering by the successive governments.
The state enterprises has a total of Rs 1 billion debt. "But we can rescue the factory that has 900 staff," Mahato, a Chartered Accountants, said, promising that he could turn the factory into a profitable enterprises.
However, there is a policy delema on government part as a high-level commission formed by the government to recommend the possible future of the state-owned enterprises of public enterprises (PEs) has categorically suggested to divest government shares from Janakpur Cigarette Factory, Hetauda Cement Industries, Nepal Housing Development Finance Company and Nepal Bank Ltd.
The commission had divided the PEs into six different groups based on their performance and asked the government to liquate four public enterprises and merge six others.
Once the largest tax payer to the government the cigarette factory has been selling only three brands -- Yak filter, Deurali and Gaida -- from its range of brands including Garud, Singh, Chuchura, Asha, Jwala, Laligurash and Sayapatri.
"We are starting t produce Laligurash brand as it still has a huge demand," he said, adding that the factory has around 35 per cent to 40 per cent market share in the total cigarette market.

Government panel recommends divestment of seven state-owned institutions

A government panel has suggested the government to sell seven state-run loss making institutions.
The panel — formed to ‘Review Government Budget Management and Spending System' — presenting a final draft of its recommendation suggested the government to divest its shares from Hetauda Cement Factory, Janakpur Cigeratte Factory, Udayapur Cement Factory, Nepal Aushadhi Ltd, Grameen Awash Company, Nepal Awas Bikas Bitta Company and Nepal Bank Ltd.
The state-owned institutions are operating under losses due to leakage, financial indispline, and lack of professional management due to confusion over their goal on whether they are commercial or social entities, the report added.
The first commercial bank is also suggested to divest. Despite being the oldest and one of the largest banks, it is still under the control of central bank.
Similarly, once the profit making Hetauda Cement Factory, Udayapur Cement Factory and Janakpur Cigeratte Factory — that is currently at a loss of over Rs 530 million including Rs 500 million overdrafts and Rs 30 million interests — are also suggested for divestment as their financial health is deteriorating.
Finance Ministry has tried to revive the Nepal Aushadhi Ltd (NAL). However, the sale of medicines produced by NAL continuously dropped and plunged by more than 60 per cent in the past four years. Its annual turnover dropped to Rs 20.6 million during fiscal year 2008-09 from Rs 50.3 million recorded in 2005-06. It has overall liability of Rs 270 million to different financial institutions.
Earlier, the government has divested some of its shares of Nepal Telecomm (NT) and floated to the public turning it into a public company. It is listed at Nepse currently.
The panel has suggested four alternatives — reform and operate as government entity or reform and operate under public, private partnership (PPP), divestment, send to liquidation, and merge and operate under PPP. The government has been incurring heavy losses running these loss-making entities despite their under performance.
It has also suggested to liquidate five state-owned companies — Nepal Orind Magnesite Pvt Ltd, National Trading Ltd, Timber Corporation of Nepal, National Construction Company Nepal and Nepal Engineering Consultancy Centre.
However, the panel has recommended the government to operate Nepal Food Corporation, Civil Aviation Authority of Nepal, Gorkhpatra Corporation, Nepal Television, Nepal Electricity Authority and Nepal Water Supply Corporation (NWSC) — after reforms.
Under reforms it has suggested policy reforms, structural reform, management reform, financial reform and reforms in divestment also.


INSET
FM vows to bring budget
KATHMANDU: Finance Minister Surendra pandey has vowed to bring the budget despite the UCPN-Maoists protest that have been making budget a bargaining chip for the power sharing in the government. The Maoists have been claiming that the current care-taker government cannot bring the full-fledged budget but Pandey said that he will present the full-fledged budget within 10 days as the Special Budget, he brought in June was for the essential expenses for the four months. The political stalemet after the 'surprising' resignation of Prime Minister Madhav Kumar Nepal in June has hit the economy hard in absence of the full-fledged budget for the current fiscal year.

Government fails to run industries

It could be an eye-opener for the government that it has completely failed in operating industries.
During 2007-08, major loss-making ventures of the government were Udayapur Cement Industry and Janakpur Cigarette Factory (JCF) with losses amounting to Rs 266 million and 154.5 million respectively. "The net loss of seven PEs of the industrial sector doubled to Rs 435.9 million from Rs 272.7 million in 2006-07," said a report of the Finance Ministry.
The demand for cement is growing because of the construction boom but Udayapur Cement Industry posted loss. "Total sales of Udayapur Cement Industry has declined due to reduction in its production. Its loss increased due to its inability to minimize the cost of production proportionate to the decline in production," said the report.
The cumulative loss of Nepal Orind Magnesite Private has reached Rs 3.58 billion including this year's loss of Rs 86.1 million. Nepal Drugs Ltd has posted Rs 66.1 million profit -- basically due to sale of fixed assets to the tune of Rs 116.2 million.
Dairy Development Corporation (DDC) incurred net loss of Rs 89.8 million during the period despite a profit of Rs 14.7 million in 2006-07. "This was due to an increase in administrative expenses and provision of gratuity," the report said.
The total outstanding debt of all PEs in the industrial sector amounted to Rs 3.63 billion during 2007-08. However, net fixed assets also increased to Rs 4.67 billion from Rs 1.82 billion. The overall progress of the industrial sector does not seem to be satisfactory, said the government report. There is no improvement in the condition of Nepal Orind Magnesite and its financial burden has been increasing each year.
Of the total number of PEs established in the 60s, currently 36 are operating under full or majority ownership of the government. Of these 36 enterprises, seven are in the industrial sector, six in the trading sector, seven in the service sector, five in the social sector, three in the public utility sector and eight in the financial sector.

JCF neckdeep in trouble
JANAKPURDHAM: Janakpur Cigarette Factory (JCF) is facing a serious financial crisis and the factory is operating by using overdraft for operational costs. The company is currently at a loss of over Rs 530 million, including Rs 500 million overdrafts and Rs 30 million interests. The crunch in operational capital occurred due to high maintenance costs and high wastage due to the old rotary filter cigarette producing machine, AC plant and other equipment. The factory was set up 45 years ago with Russian support. Most of the machinery dates back to inception time. It will cost Rs 440 million to change the machines. Technicians said the factory is in a dilapidated condition and it would require Rs 1 billion immediately to keep the factory operating smoothly. They added that the factory is suffering a monthly loss of over Rs 12.5 million due to old machinery. The factory management has urged the government to arrange funds for the factory by selling its fixedassets like land. The factory owns land worth Rs 2.75 billion. Meanwhile, the factory is facing problems in arranging over Rs 260 million funds to be paid in gratuity funds to over 240 staffers who retired recently. Production in the factory has also been declining due to lack of modern equipment. Last year, the factory produced 1.15 billion sticks of cigarettes against the target of 2.36 billion sticks.