Implementation of projects under Investment Board is drawn-out processAlthough envisaged to fast-track foreign investment, the bureaucracy throttles the process and the new Act will delay projects further, experts say.
Prithvi Man Shrestha
At first glance, the numbers are impressive.
Investments worth $5,964 million have been approved. In addition to 12 projects in various phases of implementation, 20 others are in the pre-feasibility and feasibility stages. As many as 34 projects are in the project bank, of which 12 have already submitted their expressions of interest. Seven of the projects with expressions of interest include as many integrated agricultural projects which have cold storage and warehouses components in seven provinces.
But dig a little deeper, according to officials and investors with the knowledge of how the Board functions, behind the facade of such impressive numbers are multiple factors including the red tape and legal hurdles that hinder the progress.
In its nine years of existence, the Investment Board Nepal has only one project– Hongshi Cement–that is up and running. Four others–the much talked-about Arun Hydropower and Upper Karnali Hydropower projects, Huaxin Cement and Venture Waste to Energy– are under implementation.
The board does not even know how much foreign investment has actually come into the country through it.
“We do not know how much of the $5,964 million has actually arrived in Nepal,” said Dharmendra Kumar Mishra, spokesman for the board. “The central bank keeps a record of it. The investors do not bring all the funds at once and money keeps coming in instalments as the project moves forward.”
The Investment Board has been in the spotlight once again in recent days since the appointment of a new chief executive officer.
The Oli administration appointed Sushil Bhatta as the new chief of the board on August 3 to replace Maha Prasad Adhikari who was appointed the governor of Nepal Rastra Bank on April 6.
The appointment had run into controversy. Even a case was filed at Patan High Court against him. An interim order barring him from discharging his duties, however, was later discontinued, and a final verdict is awaited.
Only time will tell how Bhatta will be able to lead the board and how much investments it will be able to bring under his leadership.
As far as how the board has fared over the last nine years is concerned, multiple officials the Post spoke to said it is badly hamstrung by byzantine bureaucracy, endless red tape and legal hassles, even though it was supposed to be an agency to fast-track investments.
“Problems arise especially after the financial closure–when it is the time for project implementation,” said Radhesh Pant, the first chief executive officer of the board who served from August 2011 to June 2016. “Different ministries take months, even years, to approve the clearance of forests for land and for environmental clearance. There is a rent-seeking tendency in different government offices, which leads to discouragement and disappointment of foreign investors.”
The board was formed in 2011, amidst much fanfare, with the objective of dealing with potential foreign investors for large projects with investments worth more than Rs10 billion and hydropower projects with capacity of 500MW or more.
Rameshore Khanal, who worked as the chief economic advisor of then prime minister Baburam Bhattarai during whose tenure the board was formed, said it was envisioned to deal with large projects following concerns that Nepali bureaucrats were facing difficulties while dealing with big investors.
“There were concerns that many were not fluent in English, a prerequisite for negotiations and dealings,” said Khanal. “And then there were also concerns that many could be influenced easily by small gifts from large investors. Hence, an independent agency was envisioned so as to bring more large investments.”
Many who have closely worked with or observed the functioning of the board provided the example of Dangote, the largest cement producer in Africa, to explain the labyrinthine process the investors have to go through.
“Dangote did not get the limestone mine required for cement production as the concerned government department was not positive about it,” said a former official at the board who wished to remain anonymous. “One reason behind this was strong lobbying from local cement manufacturers who felt threatened from the entry of such a large foreign investor.”
Dangote was one of the first foreign investors interested in investing in Nepal.
Nigeria’s Dangote Cement, which got approval for the highest foreign direct investment in the cement sector worth $550 million in 2013, failed to get limestone mines for seven years in the lack of facilitation from the government.
The future of the investment now hangs in the balance with the company still hopeful of a positive response.
According to Suraj Vaidya, former president of the Federation of Nepalese Chamber of Commerce and Industry, the Investment Board in Nepal does not enjoy as much authority as similar agencies in other countries do.
“The Investment Board of Nepal may make decisions, but the files have to go through several layers of bureaucracy for the approval,” said Vaidya, who is also the local joint venture partner of the upcoming Huaxin Cement. “Since ministries do not work with the board as a partner, they feel that the board has snatched their authority away.”
That may result in non-cooperation and delay, according to Vaidya.
Given the role of the bureaucracy, and by extension that of politicians, in getting an investment project moving is all encompassing, foreign investors seek the help of local agents who know whose palms to grease.
“Investors rely on local agents and they do the rounds of politicians and bureaucrats with the help of these agents,” said Gandhi Pandit, a corporate lawyer. “They end up paying all of them, but there is still no guarantee that their work will get done.”
Multiple officials hinted at political interference also because the board is chaired by the prime minister, but they chose not to speak explicitly against the provision of the prime minister chairing the board.
When Bhatta was appointed, media reports suggested that Prime Minister KP Sharma Oli had hand picked him.
His brother Deepak Bhatta is local representative of China Gezhouba Group which was awarded the 1200MW Budhigandaki Hydropower Project without competition, and this many believe is due to influence of the Bhattas. There are also concerns, as raised by Pandit, the advocate, about conflict of interests.
The former official at the board too highlighted the “oversized role” of agents in Nepal.
The official shared what he said he “had heard” by virtue of his association with the board in relation to the Three Gorges Group of China.
“One of the reasons China’s Three Gorges pulled out of the West Seti Hydropower Project was that the agent sought a 20 percent stake,” the official told the Post. He, however, could provide little evidence to substantiate his claims.
Advocate Pandit shared his own experience of facing difficulties in moving the processes forward.
A Chinese company, which was one of his clients, pulled out a 500MW power project after waiting for years to sign a power purchase agreement with the Nepal Electricity Authority, he said.
“It later went to Myanmar where it is now developing a 1000MW power project,” Pandit told the Post.
As though the board was not already burdened by bureaucratic hassles, the new Public-Private Partnership Act-2020 supersedes the Investment Board Nepal Act- 2010, which will mean bureaucracy will have a larger role in investments being overseen by the board.
The law allows the government to depute more bureaucrats to the board. Currently, there are 16 bureaucrats and 32 consulting staff at the board.
“What we are hearing now is that the strength of bureaucracy is being increased,” a board official told the Post. “The new law has also weakened the board as its enforcement authority has been clipped.”
According to the Investment Board Nepal website, the board functions as a “central fast-track” government agency to facilitate economic development in Nepal by creating an investment-friendly environment, mobilising and managing domestic as well as foreign investments.
But those familiar with the board’s functioning say “fast-track” and “facilitation” are but a chimera.
Former CEO Pant said that he was not in favour of bureaucratic influence on the board which requires prompt decision-making to woo investors.
“My vision for the Investment Board was it should be run like a private enterprise led by professionals and experts,” Pant told the Post.
It’s not that the board lacked the provisions to fast-track the process to facilitate investors.
As per Section 9 (2) of the Investment Board Act-2010, if an investor faces any obstacle, the board would have to make a decision on addressing the investor’s concerns and direct the concerned government authority to abide by the decision.
“But the new law does not give the board the authority to issue necessary instructions to other government agencies and it just bestows on it the role of coordinating,” said the official who is currently serving at the board.
What could be said good about the new law is, according to investors, it has expanded the scope of the board, allowing it to look into projects with fixed capital of Rs6 billion or more and the hydropower projects with capacity of 200MW as well.
But unless the government supports investors, nothing makes sense, said Vaidya. “We need to please a lot of people in order to invest in Nepal.”