According to the 2008/09 report released on July 10, although the overall profit rose to Rs 10.55 billion from Rs 5 billion of FY 2007/08, financial health of most PEs has not been much different. The surge in aggregate profit during FY 2008/09 is largely because Nepal Oil Corporation (NOC) – an all-time loss maker – made profit of over Rs 3.3 billion, thanks to timely price adjustments of petroleum products. The number of profit making PEs reached 18 (out of 36) during 2008/09, a marginal improvement of 1 over last year’s 17. Owing to the unusual profit scenario, annual return on investment reached 11 percent in 2008/09, which used to be around 5 percent before. The total government shareholding and investment in PEs now stands at over Rs 61 billion and Rs 86 billion respectively.
Notwithstanding the cyclical up this year, the profits some PEs make are as ever the results of actual or virtual monopolies they enjoy rather than that of their efficiency. For example, Nepal Telecom Ltd (NTL), whose customer satisfaction rate is one of the lowest among all PEs, is paradoxically the highest profit making PE (over Rs 10 billion in FY 2008/09). It is because the telecom giant still enjoys market monopoly as its competitors are start-up companies, unable to snatch its market share at least for the moment. Other monopolists like Nepal Electricity Authority (NEA) and NOC that enjoy huge captive markets, have much poorer financial health owing to several chronic ills like oversized structure, swollen staff, wasted resources, high leakage in operation and corruption.
The best solution to the problems PEs suffer is privatization with suitable reforms based on past experiences as all other alternatives have failed. ‘Alternatives’ like signing management contracts with the CEOs (tried recently) or with strategic partners (like with Air France in the case of Nepal Airlines Corporation during seventies) or handing over the management to workers or the so-called expert groups (like it was done in the case of Juddha Match Factory, Trolley Bus Company, Agricultural Tools Factory or Biratnagar Jute Mills) failed to improve performances and profitability of those PEs. No more trial and errors now; it is time politicians and policymakers accept some simple truths of economics and that of human behavior. For instance, people lack motivation when they are tasked to make profit for others. That is why when humans invest in business they take control of the management to see that their investment generates profit. But when governments invest in business, it is the ministers and the bureaucrats who take control of the management and in weak democracies like ours they serve their own interests often at the cost of the company.
If privatized companies have performed poorly in our country, it is not because the concept is flawed; it is because both the rulers and private investors here are inept or greedy.
Prospects of growth and development, saved resources for more productive and equitable uses and reduced corruption are bonuses of privatization. What about the harm? Well, there is none provided it is carried out honestly and properly. Privatization has been successful wherever there has been political commitment and good governance such as in UK (during the eighties) or in China (since the last two decades). Although because of political sensitivity, the Chinese use the nomenclature ‘listing in stock exchange’ instead of privatization, the connotation is the same ie, transfer of ownership to private entrepreneurs/investors.
If privatized companies have performed poorly in our country, it is not because the concept is flawed; it is because both the rulers and private investors here are inept or greedy. Anyways, misrule is not limited to privatization alone; we have it everywhere. Therefore, privatization, like other acts of governance, is subject to rectification. Inclusion of suitable safeguards in the deeds of the deal, effective post-divesture follow-ups (to implement those safeguards) and oversight of privatized PEs by regulatory agencies like Nepal Rastra Bank, Securities Board, Stock Exchange, and Company Registrar’s Office (to ensure fair business practices) maybe recommended as measures. Besides, privatization deeds must be fairer and more transparent, both to prevent corruption and to ensure public trust in the process.
Privatization may boost growth and development as private sector is more efficient in business endeavors than governments are, be it in use of resources or production, and marketing and improvement of products. Also, not to waste the scarce resources in bad investments and to channel those savings into more productive, needy and equitable areas like healthcare, education, infrastructures and social welfare, privatization is the best.
After all, why should the taxpayers’ money of a poor nation be spent to pay the huge losses of Janakpur Cigarette Factory that of all the commodities produces cigarettes, can’t stand competition with its private sector rivals and is home to excessive labor activism and political meddling? Why should the state own/run National Trading Ltd, another loss making PE whose job is to import and sell duty-free liquor and cigarettes and few other consumer goods through its fewer outlets? Why do public sector cement factories, one after another, turn insolvent or tend to become so while the private ones flourish? How come even the bus conductors and drivers of Sajha Yatayat make fortunes while the company becomes bankrupt? Examples that speak for themselves and that establish rationale of privatization are endless.
A question may arise as to why there is so much opposition to privatization? Well, sometimes the opposition is justified, but mostly they are the manifestations of conflict of interests or ideological bias.
CONFLICT OF INTERESTS
Different stakeholders like employees (managers, workers and their unions), portfolio ministers, parent ministry officials, non-shareholder directors, etc oppose privatization to protect their personal, group and political interests. Those interests could be in the form of bloated salaries and perks, stealing from the PEs’ coffers, currying favor of powerful people by offering them lavish gifts like a Pajero jeep that belongs to the PE, appointing cronies as directors or highly-paid consultants, hiring relatives and party cadres by manipulating loopholes in the recruitment process, so on and so forth.
Middlemen (like suppliers and commission agents) and power centers (like politicians and others close to power) oppose privatization to retain their clout or their share in business deals.
Privatization is an anathema to traditional communists and socialists who believe in nationalization. Strange it may seem, but people having diverging or conflicting interests often unite to oppose privatization. For example, managers, employees, rival workers’ unions, power centers, ministers, right and left politicians, line ministry bosses, local sales agents of aircraft manufacturers and commission agents of airlines or travel operators like Lauda, Dhamija and Chase Air have time and again stood together to avert the privatization of Nepal Airlines Corporation. It is easy to discern from here that privatization in itself is not bad. It is made out to be so by people with their own petty interests.
jeevan1952@hotmail.com
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