Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PPIAF Assistance in Nepal June 2012 The Federal Democratic Republic of Nepal (Nepal) is a landlocked country located in the Himalayas and bordered to the north by the People's Republic of China, and to the south, east, and west by the Republic of India. With an area of 147,181 square kilometers and a population of approximately 27 million, Nepal is the world's 93 rd largest country by land mass and the 41 st most populous country. Nepal is among the poorest and least developed countries in the world, with almost one-quarter of its population living below the poverty line. Agriculture is the mainstay of the economy, providing a livelihood for three-fourths of the population and accounting for about one-third of GDP. Industrial activity mainly involves the processing of agricultural products, including pulses, jute, sugarcane, tobacco, and grain. PPIAF has been engaged in Nepal since 1999. Technical Assistance for Nepal s Telecommunications Sector In December 1999 Nepal s Ministry of Information and Communications requested PPIAF assistance for the organization of a competitive bidding for a rural telecommunications license in the country s eastern region. PPIAF assistance consisted of drafting key documents such as the Request for Proposal package, including an operating license, an interconnection and revenue sharing agreement, a tariff policy, and a spectrum license. Following PPIAF assistance, the government awarded a 10-year license in 2004 to STM Telecom Sanchar Private Limited to provide very small aperture terminal (VSAT)-based rural telecommunication services based on the PPIAF-funded inputs. In August 2000 the Ministry of Information and Communications requested follow-up PPIAF assistance to prepare a detailed policy agenda and provide training to strengthen the Ministry of Information and Communications ability to carry out its policy function. A capacity building program and study tour for senior Ministry of Information and Communications and Nepal Telecommunications Authority officials were carried out, as were consensus building workshops to discuss the draft policy. The training provided reinforced the Ministry s capacity, and the PPIAF-funded consultancy led to the establishment of a threeyear work plan for regulatory and policy agenda for competition in 2000, which eventually facilitated the award of two new mobile licenses in 2000 and 2002. Policies prepared or legal or regulatory changes recommended Results of PPIAF s Activities in Nepal s Telecommunications Sector Project cycle-related assistance Transaction support Capacity and awareness building Workshops/seminars Draft of three-year work plan for regulatory and policy agenda for competition, August 2001 Draft of key documents such as Request for Proposal package for a rural telecommunications license in the country s eastern region, June 2000 Capacity building program and study tour for senior Ministry of Information and Communications and Nepal Telecommunications Authority officials, August 2001 Consensus building workshops to discuss the draft telecommunications policy, August 2001 1
Outcomes Policies adopted, legislation passed/amended, or regulation issued/revised Three-year work plan for regulatory and policy agenda for competition adopted, August 2001 Institutions created or strengthened Project cycle-related assistance Transactions facilitated Ministry of Information and Communications and Nepal Telecommunications Authority strengthened, August 2001 Ten-year license awarded to STM Telecom Sanchar Private Limited to provide VSAT based rural telecommunication services, 2004 Impacts Additional private investment in the sector $10 million in private investment in the mobile telecommunications sector, 2004 2005 $108.9 million in private investment in the mobile telecommunications sector, 2002 2007 Increased number of people with infrastructure services 4.6 million inhabitants gained access to mobile telecommunications Fiscal impact on government $16.4 million in mobile license fees to the government, 2000 2002 Technical Assistance for Nepal s Water Sector In September 2000 the Government of Nepal requested PPIAF assistance as it intended to transfer the operation and management of water supply and sanitation in Kathmandu Valley to a private operator under a management contract. At that time, the sector was characterized by a lack of clear sector policies and legislation. A consistent and effective institutional framework for water resource management and water supply and sanitation that clearly distinguished between policy formulation, implementation, and regulation of service provision was crucial to implement the management contract. In this context PPIAF assistance consisted of financing a report on institutional arrangements for the urban water/wastewater sector in Katmandu Valley Design of Institutional Framework for Water Supply and Sanitation in Kathmandu Valley, Nepal and organizing workshops for senior-level decision makers and stakeholders on the institutional framework. A major conclusion of the report was that the functions of asset ownership and environmental regulations should be dissociated. Other recommendations of the report included: A new Municipal Water Services Act should be prepared to replace the two draft acts ( A Bill Made to Make Provisions for Drinking Water Supply and Draft Bill made to Make Provisions for Drinking Water Monitoring and Tariff Fixation Commission ). The new Municipal Water Services Act should reflect the government s stated policy in the urban water sector, particularly the government s sector policy with respect to decentralization. 2
The proposed Municipal Water Services Act should define roles and responsibilities of all major actors in the municipal water sector, including the National Water Supply Regulatory Board, Asset Owner, Nepal Water Supply Corporation, and municipalities or groupings of municipalities. A stakeholder consultation for consensus building on the key issues was also conducted in Kathmandu in May 2001. The participants comprised representatives from government, corporations, municipalities, donors, Non-Governmental Organizations (NGOs), and the private sector. The recommendation of the study to have a new Municipal Water Services Act was well received by the government. However, a conclusive decision on the type of institution was not arrived at, and the management contract project was put on hold. Kathmandu Valley is suffering from chronic water shortages and inefficient service delivery. To improve the present conditions of water supply and wastewater services in Kathmandu Valley, the Government of Nepal, with the assistance of several development partners, has embarked on a two-pronged improvement strategy that includes capital investments for infrastructure development (i.e., supply augmentation and system improvement) and institutional reforms. The Government of Nepal has achieved substantial progress in institutional reforms in the water services sector of Kathmandu Valley, albeit slowly, including the separation of asset ownership from management, establishment of an independent regulatory commission for regulating the water tariffs, and setting up an autonomous water operator company under the Company Act. Three key entities have been established, namely: i) the Kathmandu Valley Water Supply Management Board, asset owner of water and wastewater systems within the Kathmandu Valley; ii) the Water Supply Tariff Fixation Commission, responsible for the economic regulation of the sector; and iii) the Kathmandu Upatyaka Khanepani Limited, in charge of operating the assets under lease and license from the Kathmandu Valley Water Supply Management Board. All the three entities have been established and are currently fully functional, however are in need of start-up operational and capacity enhancement support. PPIAF assistance was requested to support the three newly created entities responsible for water services operation, policy making, and regulations in Kathmandu Valley in carrying out a baseline study on water services and training and exposure visits for capacity enhancement. This will enable the water utility as well as the regulatory agencies to monitor and evaluate the performance of water services based on objective performance indicators as well as to identify key areas for intervention. In turn, this will lead to equitable and sustainable water service delivery to all consumers including poor consumers, who are the worst sufferers of water scarcity. A four-day capacity building workshop was organized in Kathmandu and had the following key objectives: Help strengthen the Kathmandu Upatyaka Khanepani Limited benchmarking unit Develop the capacity of relevant Kathmandu Upatyaka Khanepani Limited staff to periodically monitor and update the benchmarked indicators Introduce performance analysis and performance improvement using the benchmarked indicators to the benchmarking unit and relevant Kathmandu Upatyaka Khanepani Limited staff Cover aspects of financial management that are relevant to Kathmandu Upatyaka Khanepani Limited The four-day training program was conducted through lectures, presentations, discussions, small group sessions, and workbook exercises. Workbook exercises were used to introduce the use of workbooks in the compilation of performance data and computation of performance indicators. The final baseline survey was completed in October 2010. 3
Analyses/assessments prepared Capacity and awareness building Results of PPIAF s Activities in Nepal s Water Sector Design of Institutional Framework for Water Supply and Sanitation in Kathmandu Valley, Nepal, September 2002 Kathmandu Valley Water Distribution, Sewerage, and Urban Development Project Supplier-End Baseline Survey, October 2010 Workshops/seminars Stakeholder consultation for consensus building in Kathmandu, May 2001 Four-day capacity building workshop organized in Kathmandu, Nepal, August 17 20, 2010 Study tour in Armenia, September 19, 2010 Technical Assistance for Nepal s Enabling Environment Since the early 1990s Nepal s new democratic government has undertaken a series of market-oriented policy reforms to spur domestic growth and ease into integration with the global economy. The reforms have included moving toward currency convertibility, simplifying licensing procedures, and introducing investment incentives. These reforms led to an initial boost in private investment in the early 1990s, but the post reform growth was not sustained through the end of the decade. Since 1996 GDP growth has fallen back to the pre-reform rate of 4%, manufacturing employment has declined to 19%, and real private fixed investment has stagnated. As poverty levels in Nepal remain the highest in South Asia, the government, with the aid of donors, is pursuing further reform aimed at creating a business environment that will encourage greater private investment. As the Government of Nepal was interested in encouraging greater private sector investment in all infrastructure sectors, it requested PPIAF assistance in December 2000 to support the first steps toward enhancing private participation in Nepal s infrastructure through a survey of government policy and barriers to private involvement in infrastructure. In particular, the diagnostic study focused on: i) providing a detailed survey of the country s infrastructure sectors and resources, and identifying key areas and opportunities for private involvement; ii) reviewing the country s policy, regulatory, and institutional environment to identify risks and barriers to private involvement; and iii) reaching consensus among stakeholders on the survey findings, which could provide a basis for consultation and aid the government and donor groups in developing an action plan to improve private investment in Nepal s infrastructure. The activity covered various infrastructure sectors, including power, telecommunications, water and sanitation, and transport. The diagnostic study identified structural barriers to private involvement in infrastructure in the macroeconomic environment: The foreign investment regime as embodied in the Foreign Investment and Transfer of Technology Act of 1992 and the Industrial Enterprises Act of 1992 was giving the government significant discretionary power to exclude activities and investments by foreign nationals. Commercial borrowing opportunities for large infrastructure projects were limited. Banks only provided relatively short-term loans and focused on trade credit. Nepal had a small capital market, and trading occurred only in equities, not in debt instruments, further limiting the availability of long-term financing for infrastructure. 4
Microfinance institutions for small and medium-size enterprises for infrastructure were nonexistent. The government had moved to decentralize the operation and management of infrastructure and service delivery to local and village levels through the Local Development Act of 1992. But the task remained to build technical and institutional capacity in the local and municipal entities responsible for attracting sustainable private investment in infrastructure projects. The government requested that PPIAF fund a full-scale Country Framework Report in 2002 that would build on the diagnostic report. In November 2002, however, the government, through its National Planning Commission, requested that further work on that report be suspended until after the elections of November 2003, leaving a decision on further action to the new government. Results of PPIAF s Activities for Nepal s Enabling Environment Analyses/assessments prepared Diagnostic report on existing state of private involvement in infrastructure, 2001 Outcomes Institutions created or strengthened Government of Nepal more aware of barriers to private involvement in infrastructure, 2001 Technical Assistance for Nepal s Transport Sector In April 2008 the Ministry of Physical Planning and Works requested PPIAF assistance for the development of a road project: the Kathmandu Terai Fast Track Road. PPIAF support consisted of funding a report to determine the scope for structuring the proposed Kathmandu Terai Fast Track Road Project as a public-private partnership. The study reviewed the project feasibility report, relevant legal instruments, and outlined relevant experience from the hydropower experience in Nepal to provide guidance for introducing public-private partnerships in road development. The conclusion of the study suggested that the Kathmandu Terai road is a good candidate for development through a public-private partnership. The size, scale, and strategic location of the road should be able to attract good interest from private developers and financiers. However, during the course of implementation of the PPIAF-funded technical assistance before the review of the consultant s work, the Government of Nepal decided to launch prematurely the request for proposals inviting private developers against the advice of the consultants. The project is currently in development but has not yet reached financial closure. Results of PPIAF s Activities in Nepal s Transport Sector 5
Project cycle-related assistance Transaction support Capacity and awareness building Workshops/seminars Assistance for Reviewing and Facilitating a Public-Private Partnership in the Transport Sector in Nepal, December 2008 Stakeholder consultation workshop attended by 25 beneficiary representatives, September 26, 2008 Technical Assistance through the Sub-National Technical Assistance (SNTA) Program Nepal has one of the highest urban population growth rates in South Asia, estimated at over 6% per annum. As urban growth continues unabated, the key challenge for Nepal is to maximize the economic opportunities offered by urbanization. In 2011 PPIAF provided assistance for Nepal s urban development to prepare a market-oriented business plan for the Town Development Fund. The Town Development Fund has played a critical role over the last 20 years in supporting the development of Nepal s urban infrastructure by channeling grants and loans to municipalities. However, municipalities in Nepal still suffer from significant infrastructure gaps that require access to a wide range of funding sources to be alleviated. The government views a reshaped Town Development Fund as a key player in financing regional and local development, which requires transforming the Fund into a market-based financial intermediary and developing its capacity to tap capital markets and facilitate public-private partnerships. In this context, through its SNTA program, PPIAF helped the Town Development Fund develop a longterm business plan and institutional development program, with recommendations on the Fund s lending and grant policies, financial plans, and organization. The 15-year business plan funded by this activity will enhance the Town Development Fund s capacity to deliver loans more effectively and promote well developed public-private partnerships in municipalities. Plans/strategies prepared Town Development Fund Business Plan, August 2011 Outcomes Plans/strategies adopted Town Development Fund Business Plan adopted, 2011 Institutions created/strengthened Town Development Fund able to deliver loans more effectively and promote well developed public-private partnerships in municipalities, 2011 6