August 2005
BIZ NEWS

Why is Colgate- Palmolive leaving Nepal?

Colgate-Palmolive India Ltd. silently suspended its Nepal operations in toothpaste production permanently but the shock in the Nepali business community is strong. The already jittery economy is further hit hard by the fear that the negative message this spreads can be very costly. Could this have been prevented? On scrutiny of the issue, there seem to be several other reasons behind this than just security.

Established in 1997 with an investment of Rs.540m, Colgate-Palmolive (Nepal) Pvt. Ltd (CPNPL), a wholly owned subsidiary of Colgate India, was making sound profit initially. With the production capacity of 12,000 metric tons of toothpaste and 10,000 metric tons of toothpowder, it was leading the Hetauda industrial area with its exports exceeding more than half of the total exports of Makwanpur district. Three packaging industries—Essel Packaging (Nepal) Pvt. Ltd, Radhika Plastic Pvt. Ltd and Ace Packaging Pvt. Ltd.—were ancillaries to CPNPL making tubes, lids and cartons respectively. Nepal not being the sufficient market, 97 percent of the production was being exported to India since its inception.

Now citing security and government policy reasons CPNPL has permanently suspended its toothpaste production which accounted for around half the production capacity of the unit. However, it is continuing with toothpowder production.

Obviously the company was in rough water because of lack of security. The Maoists had forced it to close down for a month last year along with other manufacturing units. An explosion in the toothpaste plant by the Maoists recently pushed the company into further trouble. The supply of raw materials was also shaky due to frequent road blockades in the past.

While the security issues could have checked the production capacity and increased the cost of production, equally challenging seems to be the export business becoming increasingly not viable commercially. The unstable industrial and tax policies of the government, procedural problems and Nepal’s inability to negotiate with the Indian government to check the Indian central and state tax authorities to levy tax separately were not less problematic.

Moreover, the expiry of tax exemption this unit had received since its inception and the withdrawal of several tax related benefits by the government even before the expiry date are also considered responsible. Likewise, violating the provisions of the trade treaty, Indian authorities are imposing quota on CPNPL’s exports to India.

The paste plant is being shifted to a new unit of Colgate being set up in Himachal Pradesh of India where a tax exemption for 10 years is promised, according to sources. Colgate officers are also saying that the company may expand the toothpowder plant if Nepal provides additional facilities to the company.

Since the FY 2058/59 CPNPL’s competitor Unilever Nepal, a subsidiary of Unilever, has also stopped exporting toothpaste to India and this also supports the fact that competing with Indian products is becoming difficult. While Unilever Nepal is now focusing on the local market with its diversified products which include toothpaste, toothpowder, washing and toilet soaps, fairness cream shampoo, etc., CPNPL with its production limited to toothpaste and toothpowder was heavily dependent on the Indian market. So these export-related hassles and policies of the subsequent governments in Nepal have especially cost a lot to this company.

With the closure of this toothpaste plant 52 out of 130 CPNPL employees lost jobs while the remaining continue to work for toothpowder production. About 100 others directly employed at the three ancillary units are also likely to lose their jobs. Radhika Plastics is completely owned by Nepali investors with a fixed capital of Rs. 6 m and a working capital of about Rs. 4 m. It produces injection moulded plastic caps and has a production capacity of 70 metric tons per year.

Likewise, another packaging unit, Essel, whose total capital ranges to the tune of around Rs. 440 m, produces laminated collapsible tube and has a capacity to produce 120 million tubes per year.

Ace Packaging, a Rs. 46.6 million joint venture between Enteppe Food Pvt. Ltd, Nepal (25 percent share), Nalanda Packaging Pvt. Ltd., India (37.5 percent share) and Sankalpa Packaging Pvt. Ltd, India (37.5 percent share), has a capacity to produce 125.1 million pieces of corrugated boxes, grayboard boxes and printed cartons per year. These units employ 20, 40, and 94 people respectively. The management of these units is known to have started procedures to reduce employment by about a 100 in total.

While the direct impact of the permanent suspension of CPNPL toothpaste production is in itself large, it can also scare away a substantial amount of foreign investments in Nepal. This recent development has highlighted that not only the conflict but the loopholes in policies are posing equally formidable disincentives to business.

(Rammani Dahal from Hetauda)

Best Annual Reports

Laxmi Bank Ltd. has received the Best Presented Account (BPA) National Award for its annual report for the fiscal year 2003-04. The award is presented by The Institute of Chartered Accountants of Nepal (ICAN) and it had been awarded to Standard Chartered Bank Nepal Ltd. for its annual report of 2002-03.

While Laxmi Bank’s annual report was rated best among those from the banks and financial institutions for 2003-04, those from Standard Chartered Bank Nepal Ltd. and Nepal Investment Bank Ltd. were rated the second and third respectively.

From among the companies belonging to the manufacturing sector, the annual report of Unilever Nepal Ltd. received the first award and Butwal Power Company received the second award for the fiscal year 2003-04.

All the award-winning annual reports shall be representing Nepal at the South Asian contest of the Best Presented Account Reports 2005, according to ICAN.

Though the South Asian contest has provision to award the annual account reports in five different categories, Nepal will be contesting only in two categories this year—the financial sector and the manufacturing sector. ICAN says that it plans to select the BPA also in other sectors in the near future. Among them the award in the corporate governance category is to be instituted soon, states ICAN.

Legal Line Up

Economic reform requires legal reform. Added to this is the country’s commitment to amend some existing laws and enact some new ones while acquiring the WTO membership. How is the progress report so far?

Nubiz has learnt about the status of some new laws:

1. Companies Ordinance. The cabinet has passed it and regulations under it have been already worked out. Therefore, this law is likely to be made public very soon, which would revamp the existing company law. The major features of the draft law; non-profit companies will be possible, disclosure practices are emphasised, the director’s responsibilities are specified (e.g. if a director is continuing the operation of a negative net-worth company, he should be liable for the company’s losses), the auditor’s responsibilities are specified, foreign companies will be allowed to open branches in Nepal. (As a result Indian Airlines, Thai Airways, foreign contractors, ALICO—all should be registered here as branches and follow all the rules of Nepal.)

2. Insolvency Ordinance. This new law will replace the liquidation aspects of the existing company law. The cabinet has also passed this law.

3. Stock Exchange Ordinance . This too has been passed by the cabinet. It will be making the Insurance Board powerful and accountable.

4. Securities Ordinance (Secured Transactions Ordinance) This too has been passed by the cabinet. It will create a registry of securities (e.g. of machines, papers etc.). It will stop the practice of mortgaging the same property with different creditors

In addition to the above, some new laws or amendments promised by the Finance Minister while announcing the budget for fiscal year 2005-06 include:

1. Labour Law amendment

2. Privatisation Act amendment

3. Trust Act (new Act as an umbrella Act to regulate Non-Government Organisations)

4. Microfinancing Act (new Act)

5. Insurance Business Act amendment

6. Anti-Corruption Act (new Act to replace the existing one)

NIDC & Birgunj Sugar's Property Valuation to Start

The Ministry of Finance has issued a notice inviting bids from property valuators to assess the value of the property of Nepal Industrial Development Corporation (NIDC) and Birgunj Sugar Factory Ltd.

While NIDC is to be privatised, the sugar factory is to be liquidated.

Power Development Fund Rules Ready

Power Development Fund (PDF) has made public the rules to be followed while granting loans over USD 35 million for small and medium power projects.

The rules have envisioned two windows to provide help to the power projects. One for projects upto 10 MW and the other for between 10 and 50 MW. The Fund will finance up to USD 25 million for a single project not exceeding 40 percent of the project cost for 10-50 MW projects and 60 percent for 1-10 MW projects.

The loan period can be up to 23 years for 10-50 MW projects. For 1-10 MW projects the loan period will be 23 years for a loan taken in USD and 15 years for a loan taken in Nepali rupees. The interest rate for a loan in USD will be equal to the London Inter Bank Offered Rate (LIBOR) for six month deposits with an appropriate premium based on tenor, equity contribution and debt from PDF.

For financing 1-10 MW project, the fund has brought out the concept of Participating Credit Institution (PCI) to involve Nepali banks in the funding. Under this concept the loan seekers have to approach the PCI which will then approach PDF. For every three rupee invested by PDF on the project, PCI has to invest one rupee and the PCI has to bear the risk of all the four rupees invested.

The Fund is set up with the USD 35 million loan received by the government from the International Development Agency, an affiliate of the World Bank. Nepal Bangladesh Bank is appointed the administrator of the Fund.

(Also see Visiting Business People on page 16)

Microsoft Releases Nepali Locale for Windows XP SP2

Microsoft Corporation has released the locale for Windows XP Service Pack 2 paving the path to releasing the final version of Nepali version of Windows XP and Office 2003.

With this important piece of software, users in Nepal will be able to type in their text as Nepali language and not having to choose the locales of other languages like Hindi or Sanskrit, making other advanced language processing easier.

The locale of any computer has the information settings for a given location to suit the user’s environment depending upon the language and cultural conventions, collation sequence, date and time formats, numeric formatting, monetary and currency formatting, and also formats of informative and diagnostic messages and interactive responses so that the software is able to correctly adjust it.

The settings of Nepal is based upon the National Standards of Cultural Conventions as set by High Level Commission of Information Technology, Government of Nepal.

The localization of Windows XP and Office 2003 in Nepali language has been contracted out to Nepali company Unlimited Numedia (P) Ltd by Microsoft.

An IT Company Employing only Women

It is indeed an innovative initiative. A Swedish IT company has opened its subsidiary in Thamel, Kathmandu recently employing only women. This is not just a temporary agenda but the objective of Fair Enterprises Network AB of Sweden to provide top-end IT jobs to Nepali women at its wholly owned subsidiary Nepal WebSearch Professional Pvt. Ltd. It already has six Nepali women employees.

WebSearch Professional specializes in Internet marketing and placing websites on the top of Google, Yahoo and Altavista search engines. It provides high-end web solutions to companies in Nepal, America and Europe. The company plans to develop websites of the international standards.

The managing Director of the company Bjorn Soderberg says that his company will produce role models for girls and young women, which would inspire the parents to provide higher education to their daughters. He hopes to show that there are a number of alternatives for women than just being a housewife.

Women are outnumbered by men in any field of work. A web designer at WebSearch Prefessional, Sudha Bhattarai, says, being a women it is quite difficult to get a job in the IT field which is so male dominated. There are a number of qualified women with the right skills but without the right opportunity.” The MD of the company Soderberg recalls that when the vacancy notice was published inviting women only, the number of male applicants had exceeded that of the females.

The parent company of WebSerach Professional, Fair Enterprise Network is actively involved in contributing to sustainable development in Nepal through establishment of social enterprises. It has previously started Watabaran - a factory producing recycled paper. This factory also has provided jobs to women and discriminated groups only. Recognizing its remarkable contribution in Nepal, the MD of the company, Soderberg, 23, has been awarded with Sweden’s most inspiring entrepreneur honour.

Apart from its impact in the empowerment of Nepali women, the company would be of importance for the Nepali companies. As Soderberg puts it, there is no use of the web sites that cannot be found. By placing the websites on the top of the search engines, the company hopes to help the export and tourism business of Nepal.

Miyahara Inducts Partner in Hotel Himalaya

Japanese investor Takashi Miyahara has inducted strategic local partner in Hotel Himalaya. This news comes at a time when some hotel properties are reported preparing to close down and change business.

Though Miyahara could not be reached to confirm the news as he is currently in Japan, some employees contacted by Nubiz said they are informed that 40 percent of the shares in the hotel company are now in the hands of Nabin Tuladhar, a non-resident Nepali, based in Vietnam with business spreading across South East Asia.

Trans Himalayan Travel and Tours holds 5 percent shares in Hotel Himalaya while 3 percent is owned by other Nepalis.

Following the change in the ownership structure Miyahara has handed over the management to the new partners and the new management team is headed by Badri Tamang as General Manager. Tamang was earlier the General Manager of The Everest Hotel.

Himalayan Kanko Kaihatsu, a Japanese company with about 80 percent shares held by Miyahara was holding about 90 percent stake in Hotel Himalaya.

According to information received by Nubiz, Miyahara has not sold any stake in other entities he owns in Nepal. Meanwhile, Hotel Sherpa and Hotel Blue Star are reported closing down and being converted into department stores. While Blue Star property is all set to be leased in by Bluebird Department store (owned by members of the same family that owns the hotel), the change in Hotel Sherpa is learnt to be delayed as the negotiation with the buyers (Thamserku Trekking) are still not finalized.

Corporate Scorecard

Nepal Bank Ltd. published its audited financial report for the fiscal year 2003-04. During the year the bank earned a net profit of Rs. 710 million, however, the bank has a cumulative loss of Rs. 10,332 million till the date. The bank has not held its AGM for some years.

Siddhartha Bank Ltd. concluded its AGM for the fiscal year 2003-04. During the year the bank earned a net profit of Rs. 17 million whereas it incurred a Rs. 1.3 million loss in the previous fiscal year 2002-03. After settlement of last year's loss and provisioning of general reserve, the bank has an accumulated profit of Rs. 12.7 million. The bank is going public in the near future by issuing shares amounting to Rs. 150 million and it is the only private sector bank that has not gone public.

Finance companies brought out their unaudited annual financial report for the fiscal year 2004-05. An increasing trend is shown in the operating performance of the companies, as compared to the previous six months.