Post-modernism is the Trend
The rising income, growing urbanization and the resultant boom in construction business have boosted demand for the services of the architects. Consequently the number of architects is also in the rise. Society of Nepalese Architects (SONA) already has some 450 members. Till a few years ago, the Nepalis had to go abroad for a degree in architectural engineering. Now several Nepali colleges are producing architects within the country itself.
This has brought about a lot of changes in the Nepali architectural field.
However, according to Bishnu Panthee, who received his Master’s degree in Architectural Engineering from Belarus and has been practicing in Nepal for the last a decade or so heading an architectural consulting firm Cage Consults Pvt. Ltd., the new trend in Nepal, as is the case everywhere else, is simply post-modernism.
Simply put, post-modernism in architecture means environment-friendly structures, use of processed building raw materials, high-rise buildings (vertical structures leaving more land open), light look and low maintenance cost.
Accordingly, the building material used now are more and more of glass, aluminum and other metals whereas in the past it used to be mostly brick and wood. The reasons are several. “While these are processed material, they are convenient to use and cheaper. Moreover, there are technologies available to maintain a convenient temperature within such houses,” says Panthee. According to him, though the initial cost is high to construct such buildings, the maintenance cost is much lower than in brick and wood buildings. Hence the growing demand for such houses, he adds.
Another major recent trend is the importance given to Vastu, the Hindu principles of building. And Panthee says he has been observing the principles of Vastu also in his post-modern designs because, as he puts it, he does not like his designs to be demolished some years later for adjusting it according to Vastu. In this connection he recalls sights of huge buildings being demolished in China because the owners found that the buildings were no according to Feng Shui, the traditional building principles of China. “Also the cost of the project does not get affected by incorporating Vastu. Therefore, there is no reason why Vastu should not be incorporated,” he comments.
Though Panthee has completed a number of big projects such as Fewa City Hospital in Pokhara, Alfa Beta Complex in Kathmandu’s New Baneswore and a swimming pool and health club in Birgunj (client Birgunj Municipality Corporation), most noticeable is perhaps the United World Trade Centre (UWTC) building at Tripureswore of Kathmandu (see table for more detailed list of his projects).
Explaining the UWTC design, he claims that it is perhaps the only building inside Kathmandu that fulfils all the requirements to be called a mall though the owners later had to change the interior to some extent to make it commercially viable (for example, the separate shops were not provided for in the initial design). Once inside the UWTC building, a visitor will feel not within a building but still on the street bazaar minus sound and smoke pollution. The high atrium gives a feeling as if the person is still under the open sky. Pillars are kept to the minimum providing an open and expansive space which gives liberty to the owner to change the interiors as desired in the future.
“My focus is on designing multifunctional building. That’s why I minimize pillars in the middle of the building so that the client gets maximum open space and can change the interior as per his requirement,” he says.
One serious problem the Nepali architects are facing is due to the lack of a definite policy of the government regarding land use plan, says Panthee. Therefore, the architects are going by their own assumption. For example, they assume that an area that has wide road is a commercial zone. So, they are designing commercial buildings along such roads.
But a policy of zoning the land area (declaring one particular area as commercial zone and the other as residential or conservation zone) would go a long way in developing the locality in a planned manner. In this connection, Panthee gives the example of NOIDA near Delhi which is developed in this way and it has become now a tourist centre.
In his opinion, even the housing colonies being developed in Kathmandu are not helping much in proper development of the city. “Due to the lack of zoning by the government, the housing colonies are proving only as new concentrations,” he says and advises for satellite townships. “For this, they have to develop areas like Sankhu, Lele or Dahachok as separate townships, located away from the main city centres. Only such townships can help to reduce the congestion in the city centres, he says and again gives the example of NOIDA to learn from.
Another suggestion is to go for high rise construction for corporate buildings as far as allowed by geology so that the land can be saved for other purposes such as providing minimum disturbance to skyscape. Such buildings will be landmarks on their own, he says. Though Kathmandu’s geology is considered not suitable for high rise buildings, Panthee says in fact there are several places where the geology is suitable. “There also are technologies available to treat the geology to make it suitable for such buildings,” he adds.
Till recently, the trend was to construct a house first and use it for whatever purpose available. Thus there can be found plenty of examples in which residential buildings are being used for offices or hotels and factories are being used as schools. But these days, Nepal market has developed a trend to go for purposeful construction, i.e. the purpose for which the building is going to be used is kept in mind in the design stage itself and after completion it is used for that specific purpose. The growing exposure that the Nepali people have been gaining about the outside world has been increasing the demand for post-modern buildings, Panthee says.
Projects by Ar. Bishnu Panthee
• Birgunj swimming pool
• Load dispatch centre at Syuchatar, Kathmandu (Nepal Electricity Authority)
• Three colleges (including Fewa hospital, Pokhara and Kantipur Dental Collage & Hospital)
• A swimming pool and health club in Birgunj ( Birgunj Municipality)
• Lomus Pharma’s office
• Sumi Pharmaceuticals’ factory
• Alfa Beta Complex
• Extension part of Royal Singhe Hotel
• Mikasha Hotel in Lumbini (for a Japanese investor)
• A Monastery (under construction inside Lumbini with American funding)
• Rupak Memorial Building at Satdobato
• White House College Building
• Trade Tower Nepal building (a building coming up at the premises of Khadya Sansthan’s Dhan Godam at Thapathali)
Infrastructure Infrastructure devlopment Challenges & Remedies
Many South Asian countries, including Nepal, have become members of the World Trade Organization (WTO). Due to its membership in the WTO, Nepal needs further liberalization in its economic policies to attract more foreign investment into the country. While foreign investment is attracted to a place which has a well-developed infrastructure, foreign investment can also be attracted for the development of infrastructure such as roads, power projects, airports etc.
With the formation of SAFTA and likely free movement of capital and resources amongst the South Asian countries, Nepal needs special focus on infrastructure development. Recent dialogues on the proposal for Nepal to be a transit country between India and China and beyond provide a lot of prospects for the construction of a highway through Nepal to facilitate India-China trade.
In the current context, no country including Nepal can afford to ignore the globalization process and continue its business in isolation in the same traditional ways. Continuation of business in this manner would mean that Nepal would soon become marginalised and lag behind in economic development. As the way forward, we need to provide adequate focus on infrastructure development and need to formulate and implement necessary policies to support and attract private sector participation.
With the prospect of political stability, the country is now ready to improve in its economic activities. A number of big projects have been conceived and are in the pipeline awaiting implementation.
The total yearly Gross Domestic Product (GDP) of the country is only USD 11.069 billion (NRs 719.476 billion), as of mid-July 2007. GDP can grow only if large projects are taken up and completed. This would provide a platform to jump-start the Nepali economy. Furthermore, the establishment of such large projects will also begin to address the problem of unemployment, which is responsible for political instability.
The resources available in Nepal, both financial and technical are far below what is required to implement such large projects. As at mid-July 2007, the total deposits with the banking system (including Development Banks, Finance Companies, NGOs etc.) stood at USD 6.018 billion (NRs. 391.152 billion). Moreover only a small percentage of these deposits are available for long-term investment in large infrastructure projects. The liquidity available in the market is meagre and not available for large projects.
On the other hand, financial institutions (and the country itself) lack sufficient knowledge and experience in handling large infrastructure projects. The financial institutions in Nepal do not possess the skill to assess project viability, make project analysis and supervise project management. Moreover, due to the lack of long-term funding capacity of financial institutions, they are not really prepared to make long-term commitments in infrastructure development projects. In regards to technology, we need to import it from abroad for infrastructure related projects.
Based on the present economic situation of the country, foreign participation is a must for both funding and technical support for large infrastructure projects. However, there are a number of hurdles to be overcome if such foreign participation is to be successful.
Foreign exchange regulation perspective
At present Nepali individuals, firms and companies are, by the “Restriction to Foreign Investment Act 2021” (RFIA-21),prohibited from investing outside Nepal. This Act results in a bottleneck, holding back the development of large infrastructure projects.
Reform in the Foreign Exchange Regulation is required to allow foreign holding institutions and companies abroad to own and run projects in Nepal. Such large institutions or companies will be very reluctant to invest directly in Nepal as the capital market is still nascent and rudimentary and there is a dearth of sufficient cash flow into the country.
These companies may be prepared to take the initial construction risk if the expected rate of return is above 15 percent per annum. Such large institutions or companies normally divest their holding after a few years of successful operation of the project. Since the Nepali capital market is not well-developed, they have to use the capital markets abroad for such divestment. RFIA-21 does not allow this.
Therefore, Nepali individuals and institutions should be allowed to invest in such off-shore holding companies. Permission to this effect should be given only if the promoters have a good track record and are well supported by multilateral agencies such as the Asian Development Bank, International Financial Corporation or if there is foreign government participation. This will help mitigate suspicion of capital flight.
The Foreign Exchange Regulation Act (FERA) was enacted in Nepal in the year 2019 BS (46 years ago) and few, if any, changes have been made to it since then. In today’s context of globalization, the Act has become antiquated and there is a pressing need to reform this Act in line with globalization, current Nepali economic reality and the importance of foreign investment for the development of the country.
Income Tax Act perspective
Tax holiday facilities should be provided to infrastructure development projects. Such holiday provisions were made in the Income Tax Act 2031, which was later withdrawn by the Income Tax Act 2058.
The holiday period should be for a minimum of ten years and during such period, all revenue generated from infrastructure development related activities should be tax-exempted. The period of ten years should be counted from the year in which such project commences its operation. Also the dividend tax should be exempted during the tax holiday period.
Furthermore, investment by the general public in bonds, debentures or shares in infrastructure development projects should benefit from tax concessions. This would enable the raising of indigenous funds, encourage broader participation, and develop a deeper public and national consciousness about the importance of infrastructure development and the creation of opportunity in the country.
For reference, we may take the following provisions of Indian Income Tax Act:
a. Section 10 (23G) – Exemption to income of an infrastructure capital fund / company – Income generated by way of dividend, interest, commission from infrastructure related activities are tax-exempt.
b. Section 54 (EC) – Any long-term capital gain arising to any assessee is exempted if such assessee makes investment in the Bonds of infrastructure related companies. The exemption is to the extent of such investment.
c. Section 80IA – Under this section entire income generated by industrial undertaking or enterprises engaged in infrastructure development activities can be claimed as deduction for a period of ten years.
d. Section 88 – Under this section a salaried individual can claim deduction from his/her salary income, if such individual makes investment in debentures / equity shares in public companies engaged in infrastructure development.
Electricity Act perspective
Under the Electricity Act, 2 percent of the net profits are required to be distributed to employees as a bonus. For large power generating companies, a 2 percent of net profit becomes a very substantial amount, therefore it acts as a deterrent to promoters of such enterprise. The Act should be amended to make it a maximum of six months’ salary.
The export tax as specified in Electricity Act should be abolished. The financial benefits to the country from the export of electricity far outweigh the tax revenue generated, which in fact will act as a disincentive to prospective investors. Under section 22 of the Electricity Act, the government has been authorized to specify the rate of export tax.
Other Acts, Rules and Regulations
Under the Foreign Investment and Technology Transfer Act 2049, any investment by a foreign national or institution in Nepal requires the approval of the Foreign Investment Board (FIB). In general, the amount of foreign investment is required to be physically remitted into Nepal. However, the FIB occasionally permits direct payment to the suppliers and service providers or accepts other than non-cash considerations (in the form of goods or services) in lieu of the physical cash remittances into the country. In the days ahead, in order to attract large infrastructure-related projects, FIB should be liberal in accepting other means of participation, other than physical remittance of cash into the country, provided the participation in such other manners can be verified.
Under the “Securities Issue and Registration Directive 2057” promulgated by the Securities Board of Nepal, a company can initiate public issue only after one year of commercial operation and publication of its financial statements. Thus this directive has completely ignored infrastructure development activities and projects. If the company successfully completes the construction stage and the infrastructure project comes into operation, there is little or no risk (apart from the vagaries of the normal business risks) involved. Furthermore, such projects will require large capital injections during the initial construction stages and will not require capital (from public) at the later stages. The general public should also be given an opportunity to take risk during construction stages of the project so that returns on their investment are far larger upon successful completion and implementation of the project. Therefore, necessary exemption should be provided in the directive by the Securities Board for the companies engaged in the infrastructure development activities.
Remedies
1.Amendments and changes in the Acts / Policies
As highlighted above, several reforms in the overall policies and amendments in the various statutes are required to give due emphasis to infrastructure development of the country.
The changes highlighted above are only a few instances and there are many more changes and amendments to be made. For this purpose, a detailed study of the current provisions is required. Nepal Rastra Bank and the Ministry of Finance should take joint initiatives to form a high-level committee to study hurdles in the current regulations and the legal system as a whole and provide necessary recommendations for overall reform in the policies and the laws.
2.Possible scheme by Government to support infrastructure
There may be a number of infrastructure projects, which are important for the country and the economy, but from a potential entrepreneur’s point of view, are not viable financially. In such situation, the government should introduce a system of providing (or help in providing) ‘Viability Gap Funding’ in order to make such projects attractive to the private sector.
Viability Gap Funding means a lump sum or one time grant or a (gap funding) grant disbursed over a specific period of time (i.e. disbursed in tranches) and provided with the objective of making a project commercially viable. GON should allocate a budget every year for this purpose. A similar system has been in operation in India.
3.Establishment of infrastructure units in NRB and Ministry of Finance
As an initiative to infrastructure development in the country, NRB and the Ministry of Finance should establish a separate unit or section to handle all the issues pertaining to infrastructure development. Such units should be manned by qualified and experienced professionals.
The unit should co-ordinate and provide necessary support and guidance for the establishment of large infrastructure-related projects. Their responsibilities should include providing necessary input to the GON on formulation of policies and plans to assist infrastructure development in the country.
4.Establishment of an Infrastructure Development Institution
Although infrastructure development is the key to overall economic success of the country, we do not have a dedicated institution to look after this area. In the absence of such a dedicated institution, on the one hand, a lot of time has been wasted for financial closure of very good and financially viable projects while on the other hand, there has been a lot of cost overruns due to lack of knowledge or experience in establishing infrastructure-related projects. We need to establish a large infrastructure development institution with participation of international agencies to alleviate the current problems. The main purpose of such an institution will be:
a) To facilitate the establishment of infrastructure development projects like road, transportation, communication, hydropower and education.
b) To assist commercializing infrastructure development activities by building infrastructure development projects under BOT, BOOT etc.
c) To source and arrange funds required for infrastructure development projects from India and other countries.
d) To develop expertise in order to provide the complete array of services necessary for successful project completion: conceptualizing, documentation, finance, development, management, technology and execution.
5. Reform in the Banking Regulations
The following facilities need to be provided to the Banks & Financial Institutions in general for infrastructure financing:
a) Loan Classification Schedule: Any kind of investment in infrastructure development projects has an inherently long-term nature. The returns from such projects start coming after a long time and the construction period also takes a long time. Therefore, the time schedule specified by NRB directive to classify a loan does not match the long gestation period of infrastructure projects. Hence the NRB directive should be brought into line with the realities of infrastructural project time frames. A minimum of three to five years should be the norm for the classification of an “infrastructure loan” as a “bad” loan. (At present a loan is classified as a bad loan if the principal is not paid within one year.)
b) Adjustment of provision: Write back of loan loss provision should be allowed in case of rescheduling or restructuring of the loans provided to the infrastructure development projects. Restructuring or rescheduling are normally required for large projects mainly due to volatility during construction stage, risks associated during the construction period etc. Furthermore, the minimum provision requirement of 12.5% for restructured or rescheduled loans should be removed.
c) Capitalization of interest should be allowed during the construction period of infrastructure projects.
d) Investment made in the form of loans and advances in the infrastructure development projects should attract a relatively low risk weight - perhaps 50 percent instead of 100 percent.
Banks should be allowed to invest in the shares or debentures of infrastructure development projects. Such investment should be allowed even when the shares are unlisted. Other restriction under Directive VIII for investment should also be waived for investment in infrastructure development related projects. (Directive VIII requires 100 percent provision in case of investment in the shares of non-listed companies. Also investment in shares of an individual company is limited to 10 percent of core capital and it is relaxed to 20 percent of the core capital where the investing bank has a financial interest. Total investment in shares or debentures in all the projects is limited to 30 percent of core capital.)
e) Banks should be allowed to invest directly in the shares of Infrastructure Development Institution licensed by Nepal Rastra Bank. Such investment is presently restricted by the Banks and Financial Institution Act, as section 48 of the Act prohibits investment in shares by one licensed institution to another licensed institution.
f) Single obligor limit should be increased to 50 percent of the core capital for investment in infrastructure development projects. Such provision has already been made for investment in Hydro Power projects and it should be extended to other infrastructure projects as well.
Conclusion
For the overall economic development, poverty alleviation and for the creation of employment opportunities in the country, development in basic infrastructure is a must. Infrastructure development is a time-consuming process whereby a great deal of study, and technical and financial viability analysis is required to conceive the project. As the country needs financial and technical assistance from foreign institutions and governments for infrastructure-related projects, we need to formulate liberal policies in the days ahead to accommodate foreign investment and technical support for the development of the infrastructure projects.
(Shrestha is Deputy General Manager of Nepal Investment Bank Ltd. However, the views expressed in this article do not necessarily represent the views of his organisation)
