April 2006
BIZ NEWS

Business Demands Thermal Power

With no solution in sight for the ongoing power shortage till 2015, the business sector has demanded that the government provide facilities to the industries to set up captive diesel generators. The Federation of Nepalese Chamber of Commerce and Industry (FNCCI) has also suggested that the Nepal Electricity Authority (NEA) set up a thermal power plant of about 40 MW at or around Birgunj.

According to Kush Kumar Joshi, the second vice-president of FNCCI, the industrialists in Birgunj and around have promised to buy power from such a plant if the per unit price of the power is around Rs. 12.

The existing power problem, according to FNCCI, is concentrated in the Kathmandu valley and Birgunj where the combined demand is about 200 MW whereas the supply is only about 120 MW. In Birgunj alone, the demand is for 65 MW at 65 KV. However, the power supply capacity is not suited for this level of demand. The Hetauda transformer that supplies power to Birgunj has a capacity of 30 MW only. Moreover, the transmission line capacity from Pathalaiya to Birgunj is only 65 MW. Because of this constraint, the Kulekhani storage power plant has to be operated beyond its capacity to supply power to Birgunj. And the water level in Kulekhani is fast receding with the likelihood of its complete depletion within a few days.

More importantly, though there is the alternative of importing power from India in Biratnagar and the western parts of the country, this is not the case in Birgunj.

According to a survey by FNCCI, the industrial units and hotels in Birgunj and Kathmandu valley have a number of diesel plants with a combined capacity to generate about 60 MW of electricity. But as these are emergency back up plants, they can run for only about three hours a day, thus making them incapable of helping reduce the current load shedding which lasts over six hours per day. Even if these plants are operated, they can supply electricity only for the respective industry thus leaving no surplus to go to the national grid. This makes it imperative to have continuous diesel plants.

Though the diesel plants are opposed for the high cost of power generation (Rs. 30 per unit according to the critics), Joshi says, the actual cost is about Rs. 18 per unit and the pay back period for such plants is around 10 years. More importantly, as all the hydropower plants in Nepal, except the 90 MW Kulekhani, are run-of-the-river type depending entirely on the river flow, Nepal is to have perpetual power shortage during the dry season. "Diesel plants are thus needed to maintain the system stability," says Joshi.

FNCCI has also asked the NEA to waive the demand charge for the industries as they are not getting the minimum assured electricity for which the demand charge is levied. Such waiver is demanded for the period beginning the load shedding till when the minimum supply is not resumed. If this charge is waived and the power from the proposed diesel plant is available at around Rs. 12, the industries can at least continue their operation though at a lower profitability, he says.

NB Bank to be the Second Largest of the Country

Nepal Bangladesh Bank is set to become the second largest commercial bank in the country in terms of paid up capital after the proposed merger with two finance companies is completed.

The AGM of the bank concluded on April 13 has approved the proposal to merge into it Nepal Bangladesh Finance and Leasing Company Ltd. and Nepal Sri Lanka Merchant banking and Finance Company Ltd. AGMs of both these finance companies have already approved the proposal to merge them into the NB Bank. Nepal Rastra Bank (NRB) has ordered the merger to be completed within six months from the date of latest NB Bank AGM.

Post-merger, the bank will have a paid up capital of Rs. 849.8 million, which will be lower than that of state-controlled Rastriya Banijya Bank only. NB Bank has announced a plan to increase the capital base further by issuing debentures.

NRB has also instructed the process for the merger of NB Bank and Nepal Credit and Commerce Bank to be started within the next two years. Both of these banks and the to-be merged two finance companies are promoted by NB Group. The Bank and Financial Institutions Ordinance has prohibited a single business house from having a holding stake in more than one bank or financial institution. n

Nepal an Exception Amidst Fast Growing Asia: ADB

While the developing Asia, including the conflict-hit countries, was growing fast, Nepal remained an exception in the year 2005, said Asian Development Bank in its Asian Development Outlook issued recently. It has forecast the same situation for 2006 too.

Nepal's GDP growth rate in 2005 was 2.3 per cent and it is expected to be even lower (2 per cent only) in 2006. According to the report, Afghanistan, Sri Lanka, Bangladesh and Pakistan grew much faster in 2005 than Nepal. The report shows that the growth rate in Afghanistan was 13.8 per cent and Pakistan 6.5 per cent, while it was 5.7 per cent in Sri Lanka and 5.6 per cent in Bangladesh.

* Figures for 2006 & 2006 are projections

The policy prescription of the report for higher growth in Nepal is to speed up the process of economic reforms which have slackened in the recent years.

The report has also warned of the growing trend of bilateral trade agreements in Asia which it says will be against the interests of small countries that are over-dependent on trade. Before 1995 there were only three such agreements involving developing member countries of the Bank. This number increased to 27 in 2005 and many more than this are on the pipeline, it says.

22 Industries in National Priority List

A recently held meeting of the Industrial Promotion Board has added to the list of national priority industries increasing the number of such industries to 22 from 12.

Among the industries added to the list are mine-based cement industry, ropeways and hydropower.

While the earlier list had specified electricity as national priority industry, it was not felt sufficient for the promotion of investment in hydropower. This was because the banks preferred to invest in industries that produced electrical equipment but not in hydropower generation as there was the bottleneck in transmission and distribution of the power. With this change, electricity transmission and distribution too are included in the priority list thus opening the way for flowing more bank loan to this sector.

Meanwhile, homework is on to specify the facilities that the national priority industries would receive. Among the new facilities being considered are related with the speeding up of the clearance for such projects and providing fiscal incentives that are competitive with what is available in Indian states bordering Nepal as well as in China and Bangladesh.

Two Business Incubation Centres Planned

The Department of Cottage and Small Industries is finalising its plan to set up a business incubation centre in its premise in Tripureswor, Kathmandu to help new entrepreneurs develop their innovative ideas into viable businesses.

According to Binod Kumar Upadhyaya, the Director General of the Department, the centre is to be named Byabasayi Prabardhan Kendra and will be set up within the current fiscal year itself. He also informed that proposals have already been sought from the parties interested to get the services from the centre and 10 proposals have been already received.

Similarly, the High Level Commission for Information Technology is also planning to set up another business incubation centre within the premises of the IT Park at Banepa.

Golchha Exits Biratnagar Jute Mills

Nepal's oldest industrial unit Biratnagar Jute Mill has closed down again after Golchha Organisation that had taken it on a five year lease in late 2002 returned it to the government. While this development has rendered some 3,000 workers jobless, it has raised a question on the effectiveness of the contract method of privatisation.

Though the organisation's subsidiary Arihant Multifibres that had the contract for the Mills has cited lack of raw material and workers problem as the reasons for the decision in a notice handed over to the government, Diwakar Golchha, one of the directors of the Organisation says the real reason was the excessive interference of the Board of Directors of the Mills in the day to day affairs. He even accused the board of instigating the workers.

As a result, the labour productivity in the Mills came down to 32 MT per day from 50 MT level reached last year after some measures introduced by the new management. Ideally, the productivity should be around 70 MT per day as per the industry norm, he said.

Regarding the accusation that the organisation left the mills before the mandatory three months were completed from the date of notice served to the management, Golchha says as his organisation is ready to pay the rent for the three months, it is not bound to stick to the problematic mill for that long.

The organisation is also accused of defaulting on payments to the mill and taking out vital machinery from the mill. But Golchha denies the charges and instead says that his organisation has dues to recover from the mill for the investment it made. "The machine parts that we took out were those fitted by us, not the ones that were there in the mill," he said.

Corporate Kaleidoscope

l Siddarth Insurance, a newly set up company from Kedia Group, has announced the start up of its operations beginning from the Nepali New Year. The company is to have a paid up capital of Rs. 100 million out of which Rs. 40 million is planned to be raised from the general public.

l The merger of Ace Investments in the Ace Finance has been completed.

l Himal International Energy has upped its stake in Bhote Koshi Power Company to 85 per cent from the earlier 10 per cent by purchasing all the shares held by American company Panda Energy. Another American company Harza and International Finance Corporation will retain their 10 per cent and 5 percent shares respectively. Standard Chartered Bank helped by technical and financial assistance for the acquisition. Himal Energy is planning to gift 10 per cent shares to the local community where the 36 MW power plant is located and to reduce its total stake in the company to 51 per cent by selling the rest to the general public or the other existing shareholders.

l National Life and General Insurance Company has been split into two companies. The spun off company NLG Insurance will carry out the non-life insurance business while the original company will deal in life insurance.

l Kuber Merchant Bittiya Sanstha Ltd. has started its operation with a paid up capital of Rs. 27.5 million. The company is planning to issue 45 per cent shares to the general public. It has devised interest rate structure targeting the middle class with 7 per cent interest offered on the deposits.

l Nepal Rosin and Turpentine Company has been sold to Dibya Pashmina under the privatisation programme of the government. Under the arrangement, Dibya Pashmina will buy the machines of the company and lease in the land and buildings for 10 years.

corporate scorecard

l Navadurga Finance Co. held its 9 th AGM approving a 10 per cent stock dividend and 6 per cent cash dividend for the fiscal year 2004-05. During 2004-05, the company increased net profit by 98 per cent over the fiscal year 2003-04. The main reasons for the increased performance are decrease in interest expenses, office expenses and loan loss provision and increase in total income over the previous fiscal year. The company is also going to issue right shares in the near future.

l Yeti Finance Ltd. earned a net profit of Rs. 5.19 million during the fiscal year 2004-05. This profit is 1.57 per cent higher over the previous fiscal year 2003-04. For the fiscal year 2004-05, the recently held AGM of the company has approved a 25 per cent stock dividend to the shareholders. In the previous fiscal year 2003-04, the dividend percentages were 10 per cent cash and 25 per cent bonus share.

l The recently held 11 th AGM of Everest Insurance Co. Ltd. approved a 50 per cent bonus share to its share holders for the fiscal year 2004-05. The company had not paid any dividend in the fiscal year 2003-04. During the fiscal year 2004-05, the company collected Rs. 207 million insurance premium and it is a 24 per cent decline over the fiscal year 2002-03. Similarly, the company’s profitability has also been declining since the previous two fiscal years: 11 per cent and 41 per cent respectively. Increase in operating expenses and decrease in revenues are the main reasons that lead to the decrease in the net profit.

l Jyoti Spinning Mill increased net profit by 178 per cent in the fiscal year 2004-05. This increase in profitability caused a decrease in the cumulative loss by 38 per cent over the previous fiscal year 2003-04. The total cumulative loss of the company in the fiscal year 2003-04 was Rs. 276 million where as it is Rs. 171 in the fiscal year 2004-05. Due to heavy losses, the company has not paid any dividend to preference shareholders till date and the cumulative amount of dividend to be paid is Rs. 186 million.

l Neco Insurance Co. Ltd. held its 10 th AGM recently. The company increased the total premium by 17.93 per cent in the fiscal year 2004-05. But the net profit of the company decreased by 67 per cent over the previous fiscal year 2003-04. Increase in depreciation expenses, insurance expenses, interest expenses and decrease in total interest income were the main reasons for the decline in the profitability.

l Prudential Insurance Co. Ltd. increased the total premium by 12 per cent in the fiscal year 2004-05. In the same period its profitability has increased by 77 per cent. However, despite such high increase in the profitability, the company has not declared any dividend to the shareholders for the fiscal year 2004-05.

l Patan Finance held its 4 th AGM recently. The company earned a net profit of Rs. 0.32 million in the fiscal year 2004-05 and this is a 77 per cent decline over the previous fiscal year’s profit of Rs. 1.4 million. The major factors causing the decline in the profitability are increase in employee expenses, office expenses, write off of bad loan, increase in loan loss provision etc.