Distorted sugar market, new destination for NAC and more

Imported sugar trickles into market after being stranded at Dry Port

From The Kathmandu Post: Salt Trading Corporation has released 10,000 sacks of sugar that had been lying idle for four and a half months at the Dry Port in Sirsiya, Birgunj, following the import restriction imposed by the government. The sugar was imported targeting the Dashain, Tihar and Chhat festivals when demand for sugar increases significantly.

On September 17, 2018, the government imposed quantitative restriction on imported sugar. The government took the measure in the name of protecting domestic sugar producers who were complaining about not being able to sell the domestic product as cheaper imported sugar had dominated the market. The dry port does not charge any amount to the importers till five days on the entry of goods at the Dry Port. After five days to 10 days, the warehouse charge is Rs77 per tonne excluding VAT. For 11 to 20 days, the terminal charges Rs99 per tonne and Rs157 per tonne from 21 days onward. The corporation had purchased sugar from Renuka Sugar Mills in West Bangal of India.

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Nepal Airlines gets CAAN’s nod to fly from Nepal to Japan

From The Himalayan Times: The national flag-carrier Nepal Airlines Corporation (NAC) has gained an Air Operator’s Certificate (AOC) through the Civil Aviation Authority of Nepal (CAAN) to operate flights from Nepal to Japan. According to NAC Assistant Spokesperson Nawaraj Koirala, CAAN granted it an AOC to use its new A-330 wide-body for Kathmandu-Osaka flights on Friday. Likewise, the national flag carrier – that plans to launch Kathmandu-Osaka flights in the upcoming month – will soon seek green signal from Japan Civil Aviation Bureau (JCAB) to materialise the plan, informed officials.

It has been learnt that the corporation has managed human resources to handle the flights to Osaka as well as Kathmandu-China flights for which authorities are yet to give a nod. At present the NAC operates international flights to New Delhi, Bangalore, Mumbai, Malaysia, Singapore, Bangkok and Qatar. Meanwhile, efforts are underway to add China, South Korea, and the Saudi Arabia in NACs’ straight flight destinations.

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Local units told not to levy production, export taxes

From myRepublica: Ministry of Federal Affairs and General Administration has issued a circular to all 753 local units across the country, instructing them against levying taxes on production and exports.From the very beginning of the new fiscal year, industrialists have been speaking out about the increasing cost that they have been facing as a result of taxes on ‘production’ and ‘export’ by local governments.  Though some local units withdrew such taxes, industrialists were facing similar situation till January. Representative bodies of the private sector, especially the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and its units, had been seeking strong instruction against the local units from the Ministry of Federal Affairs and General Administration.


The ministry, finally, issued a circular on Sunday, informing the local units to not levy production and export taxes on industries. The ministry has said that the issued circular is in accordance to a secretary-level meeting held earlier in September.In the first week of July, 2017, the ministry had written a letter to local units to not overstep the rights enshrined in Article 228 of the Constitution of Nepal 2015. However, the local units had paid no heeds to the ministry’s words. Article 228 of the Constitution states that no tax shall be levied and collected except in accordance with law. “The local level shall impose tax in areas within its jurisdiction, without causing any adverse impact in the national economic policy, transportation of goods, services, capital and labor, and on neighboring or local levels,” the constitutional provision states.

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Qatar interested in West Seti hydropower project and Nijgarh internaitonal airport

From The Kathmandu Post: atar has approached Nepal to build an estimated $1.2 billion mega-airport project in Nijgadh, Bara, in a bid to strengthen its presence in Southeast Asia and China in the wake of the blockade imposed by a number of major Arab nations in June 2017.The airport scheme envisions building a modern airport in Nijgadh, 175km from Kathmandu in the southern plains, as an alternative to congestion and winter fog at Tribhuvan International Airport--the country’s sole aerial gateway. A highly placed source at the Tourism Ministry revealed that Nepal and Qatar governments “are in talks” to build a new international airport in Nepal, which has been on the drawing board for more than two decades.

One proposal to build the airport has come from a London-based company on November 17, 2016. WGP Global, in association with its project partner Uniel Holdings, has expressed its interest to lead a team to design, construct, finance and manage the project. “We would be able to introduce leading global financial institutions and other parties which have the experience, capability and interest to participate in the financing of the project--whether in the form of a public-private partnership; BOOT model; or anything else,” WGP Global has said in its proposal.

Similarly, the Malaysian government had on January 6, 2016, proposed implementing a fully-financed construction of the airport under a ‘design, finance, build, operate and transfer’ (DFBOT) model through a government-to-government deal. “We understand that the Second International Airport [now Nijgadh International Airport] is very critical for the development and growth of Nepal. The Malaysian government and its consortium have a proven track record in terms of experience and expertise in developing and managing international airports all over the world,” said the Prime Minister’s Department, Malaysia in the proposal sent to Nepal’s Tourism Ministry.


From Bizmandu: लामो समयदेखि चर्चामा मात्रै सीमित भएको पश्चिम सेती जलविद्युत् आयोजनामा लगानी गर्न कतार सरकारको एक कम्पनीले इच्छा व्यक्त गरेको छ । कतारका लगानीकर्ताले सो आयोजनामा चासो देखाएपछि लगानी बोर्डका अधिकारी र सो कम्पनीका अधिकारीबीच द्विपक्षीय छलफल भएको हो । बोर्डका प्रवक्ता उत्तमभक्त वाग्लेसहितको टोलीले कतारको नेब्रास पावर कम्पनीका अधिकारीसँग विभिन्न आयोजनाका बारेमा छलफल गरेको हो। कतारी कम्पनीसँग छलफल गरेर बोर्डको टोली फर्किसकेको छ। प्रवक्ता वाग्लेले निर्माणमा जान सक्ने तयारीमा रहेको परियोजनाका रुपमा पश्चिम सेती आयोजनाको विषयमा छलफल भएको जानकारी दिए।विस्तृत परियोजना प्रतिवेदन (डिपिआर) समेत तयार भएको सो आयोजना निर्माण जान सक्ने अवस्थामा रहेको बारेमा बोर्डले सो कम्पनीका प्रतिनिधिलाई जानकारी गराएको प्रवक्ता वाग्लेको भनाइ छ । 

Brief overview of the first provincial FY2019 budgets

As per the constitutional provision, finance and planning ministers of the seven provinces presented their FY2019 budget to their respective provincial assemblies in mid-June. The budget envelope is very close to estimated federal fiscal transfer and revenue sharing. This is the first time the provinces have presented a full budget (earlier they presented a trimmed version of FY2018 budget wholly based on fiscal transfers from the federal government).

Province 1 has the highest budget, followed by province 3 and province 2. The provinces have used federal fiscal equalization and conditional grants as well as their share of federal revenue to cover recurrent and capital spending. Capital budget for provincial projects and recurrent budgets for social services (education, healthcare, etc) are pretty much dictated by the way the federal government allocates grants to them. Karnali is the sole province that has allocated spending under financial provision (which is generally used for internal loan and share investment in public enterprises or investment projects). Here is general budget envelope:

• Province 1: NRs35.9 billion 
• Province 2: NRs29.8 billion
• Province 3: NRs35.6 billion
• Province 4: NRs24.0 billion
• Province 5: NRs28.1 billion
• Karnali: NRs28.3 billion
• Province 7: NRs25.1 billion

Federal transfers (fiscal equalization, conditional, special and matching grants) and revenue sharing form the basis for their revenue plan. In fact, total federal fiscal transfer and revenue sharing account for over 90% of provincial budget. The highest internal revenue target is set by province 3 (NRs 9.3 billion), followed by province 1 (NRs 3.7 billion) and province 5 (NRs2.4 billion). The lowest internal revenue target is set by province 2 (about NRs10 million). 

A substantial portion of the budget is allocated for capital spending (federal fiscal transfer constitutes almost all of the capital budget of five provinces). This in a way is consistent with the fiscal equalization and conditional grants from the federal government, which categorizes such spending as recurrent expenditure. So, the total size of the budgeted capital expenditure is going to increase now. Technically, this was the case before as well because sub-national governments were using them in capital projects, but this time there will be proper record of how much is spent at provincial level. There is such allocation for local governments too, but it may be difficult to aggregate their spending like in the case of the first two tiers of government.  

Provinces 2 and Karnali are planning to borrow about one billion rupees to finance budget deficit. It is not clear how exactly they are going to do it (or there are rules and regulations ready for them to do so). So, during the first year of operation itself, these two provinces are going to take loans to cover budget deficit.

Note that this is the first time the provinces are going to actually implement budget on their own, i.e. under their own jurisdiction and accountability mechanism. Previously, these were dictated by federal government. Now, the likelihood of effective and robust governance and accountability feedback is much higher. This should ideally get reflected as higher capital budget absorption rate (federal government’s track record in this is terrible). 

The size of provincial budget is small right now. These will increase as they gradually master the art of raising internal revenue and budget making. It would be interesting to see how they will implement their budget. But for that they will need a slew of subnational laws, policies, regulations and institutional frameworks. So expect under-spending for some years and messy implementation, planning and budget making process. Currently, the budget documents and speeches are either not well prepared following prescribed standard format or are similar to the federal budget speech (province 5 has a pretty good one though). The provincial budgets are truly distributive if we consider the size of their revenue.  

Total budget allocation (federal and provincial) is as follows: 

• Budget: NRs1522 billion (about 44% of GDP)
• Recurrent: NRs930.8 billion (61.2%), about 27% of GDP – this includes fiscal transfers/grants to subnational governments, which then use it to cover both capital as well as recurrent expenses
• Capital: NRs435.1 billion (28.6%), about 12.5% of GDP
• Financial provision: NRs156.1 billion 

Here is an overview of FY2019 budget (more details here and here)