State-owned enterprises in Nepal were established decades ago to correct perceived problems in the country’s immature markets. Inadequate supplies of basic goods and lack of management skills in the private sector were most commonly cited as reasons for establishing government-run companies.
But conditions in Nepal are very different today. There are many private airlines serving the domestic sector, for instance, and dozens of international carriers flying to Kathmandu. Nepal Airlines, a SOE and flag carrier, has less than five percent market share and is a sinkhole for nepotism. It wavers back and forth between losing money and making a tiny profit.
Likewise the Nepal Oil Company, a SOE and monopoly provider of petroleum products for the country, loses hundreds of millions of dollars every month; many of of its senior officers were arrested last week on corruption charges.
State-owned enterprises generally are inefficient and wasteful, since they can operate without regard to market forces. Nepal Airlines and the Nepal Oil Corporation are just two examples of failed SOEs in Nepal.
Nepal Drugs, a SOE founded decades ago, closed four years ago after the watchdog health agency pulled its license for failing to meet basic health standards. But there are still over two hundred employees drawing paychecks, and the company is seven million dollars in debt.
The Nepal Railway Company has 162 employees and is about $400,000 in the hole. The curious thing is that there are only 18 miles of operational track in Nepal, and the engines and cars are in utter disrepair.
The National Cultural Corporation, which went a half-million dollars in debt last year, recently asked the government for an additional $800,000 to pay bonuses to its 78 staff members. The corporation put its main asset, a large plot of prime land in the center of the capital, on lease for an upscale mall several years ago, but told the Finance Ministry last month that it cannot collect the past-due rent.
The Herbs Production and Processing Company, National Trading Limited, and the Nepal Metal Company have also asked the Finance Ministry for money to pay salaries – about $300,000 in all – despite the fact that they are all loss-makers.
And in a delicious irony, the National Productivity and Economic Development Centre, a SOE intended to promote industrialization, is more than half a million dollars in the red with very little to show for its 39 years of operation.
Nepal’s SOEs are worth little to the nation, and many of them are making losses year after year. Private businesses are well established (and more successful than the public companies) in trade, petroleum, industrial production, transportation and other sectors. It’s time for Nepal to end the era of the state-owned enterprise.