Tuesday, January 16, 2018

Slow capital spending this year as well and more

The government’s capital spending hovered around Rs47 billion in the first six months of the fiscal year, which is only 14 percent of total capital budget of Rs335.2 billion allocated for 2017-18. Three main reasons for underutilisation of the capital budget: (i) flooding in Terai in August delayed progress in implementing infrastructure projects; (ii) state and federal elections meant that government staff were deputed to conduct and monitor elections, and workers returned back to their hometown to cast vote; and (iii) confusion over transfer of projects to local bodies and implementation agency. Other reasons include delay in preparation of detailed project design, land acquisition, establishment of project management offices and preparation of procurement plans.

  1. Increase investment in physical and social infrastructures
  2. Sound fiscal management and governance regimes
  3. Coherent planning and policies among the three tiers of government
  4. Bureaucratic reform for better budget execution and public service delivery
  5. Accelerated post-earthquake reconstruction

In Nepal, half a dozen contractors exercise monopoly over construction contracts. The cartel holds sway over entire construction administration and political sector. They huddle together before bidding for large infrastructure projects. […]After the deal, the contractors divide civil works among themselves. The contractor who is receiving the contract proposes a cost one percent less than the estimated cost. In order to show it was a competitive bidding, another contractor of the group proposes a slightly higher cost. As a result, one of the group members wins the contract.

In the last few years, against the fundamental principles of law, procurement policies have been modified so that only certain companies can bid for tender without any competition or by limiting competition. The report details how collusion affected more than Rs 25 billion worth of road projects.

Local bodies lack planning and budgeting expertise

Local bodies in Gulmi have been approving short-term populist programs instead of medium-term projects that help to raise local productive capacity. They don’t have the capacity to do planning, select projects and approve budget. 

Resunga municipality approved 648 project, of which 103 are of NRs10,000-NRs50,000. There are 211 projects with a budget of just NRs100,000. Similarly, they have allocated NRs30.6 million to upgrade 150 local roads. Isma village council (gaupalika) has approved 42 drinking water projects, of which 10 have allocations below NRs300,000. 

Govt to break up Air India into four parts to speed up privatisation process

The proposed privatisation of Air India Ltd has gained momentum, with the government deciding to break the airline into four units and offer to sell at least 51% in each of them besides transferring most of the non-core debt owed by the carrier to its own balance sheet. The core airline business comprising Air India and Air India Express—the low-cost overseas arm—will be offered as one company, and the process will be completed by the end of 2018, minister of state for aviation Jayant Sinha said in an interview with Bloomberg on Monday. Its regional arm, ground handling and engineering operations will also be sold separately in the same process.

The government has also eased rules allowing foreign airlines to buy a stake of up to 49% in Air India with prior government approval but with the caveat that substantial ownership and effective control of Air India will remain with Indian nationals as is the case with all domestic airlines. The airline has a fleet of about 140 planes, with a 17% share of traffic on routes linking India to international destinations and about 13% share of the domestic market.