November 10, 2014 Sujeev Shakya

Concrete Gains

Starting today, an Infrastructure Summit is taking place in Kathmandu, bringing together people from different fields to explore ways to make infrastructure projects happen in Nepal. For Nepal’s development to accelerate, a lot of investment is required in infrastructure. Experts put this requirement at $30 to 40 billion in the coming 10 years. However, we are yet to have a mindset that is required for a global view on infrastructure projects. We Nepalis get excited when we hear of a one billion dollar credit line from India, while we should be talking about many more billion dollar investments and credit lines.

Our myopia has led us to only eye daily allowances on foreign travel relating to projects, certain commissions one can make as local agents, and creating impediments and then resolving it to make some money! To make infrastructure projects happen, we need to have big dreams, aspirations, and the intent to deliver. Furthermore, as Arif Hasan, a respected urban planner from Karachi, in his talk at a Himal Southasian project in New Delhi last Friday quipped, we are only interested in ‘projects’ and not ‘planning’. Infrastructure projects cannot be looked in isolation, there is a lot of planning to do and the culture of planning is something very alien, not only to Nepal, but also South Asia in general.

Land and money

Large infrastructure projects, be they transport, energy, housing, or social infrastructure, require land to be acquired. And generally, these are fragmented agricultural holdings that are providing livelihood opportunities to many. In any land acquisition, there are people with the backing of political forces who get into the fray and make the biggest chunk of money. As in agriculture or other small scale production, the middlemen benefit the most and they have little to lose if the deals do not go through. We have seen end recipients suffering, even as a bunch of brokers appear to make money on this opportunity in Nepal and elsewhere. In Kolkata, during the 80s, it took two decades to build a few kilometres of a Metro train, while in Delhi, more kilometres of metro track have been built each year than in the previous years. Similarly, in Rwanda, the government has embarked on a 50-year plan for the city and land acquisition for roads and other infrastructure.

There is no way we can get soft money and aid to build our infrastructure. All infrastructure projects have to be financially viable and if there are shortfalls, the government should step in to make it worthwhile for investors to invest. Financial closure, involving international financial institutions, is not easy. In Nepal, we tend to think that there are scores of financial institutions that are queuing up to invest in Nepal. On the contrary, Nepal needs to reach out, which it has never done. The risk of doing business in Nepal is high due to unpredictability. The recent news of locals, led by politicians, from ruling parties demanding shares in the Bhote Koshi Power Company after 13 years of operations, does not sit well with investors. For investors, there are countries in Asia and Africa making big pitches for projects and ensuring that risk for investors are reduced. Nepal needs to follow suit. Our primitive controls on foreign exchange laws and the stricter regulations the Central Bank is embarking upon due to a few erring cases does not exude confidence for international debt and equity investors. There is no point in discussing infrastructure projects if we cannot meet the precedent conditions posed by lenders and investors.

Labour and private sector

In Nepal, while there are many agencies putting money into unemployment, there is little skilled labour available in the construction sector. Migrant workers from India are seen across construction sites. In a billion dollar project, thousands of workers are required, who can perform different activities. With more mechanisation of the construction process, we need more people who can handle equipment and are also tech savvy. We have lost most of our skilled construction people to different parts of the world. We will have to develop a programme to bring them back.

One of the major problems in Nepal relating to infrastructure projects is, what the role of the local private sector partner will be. The tendency of a local sponsor, who is only to put in equity to take a share in equipment supply from car hire to hotel accommodation, really brings about tremendous issues of trust with international investors and financial institutions. The Nepali private sector needs to decide whether they are sponsors for the project and only then take on the role of an investor, or if they are basically commission agents taking a cut on everything possible, which is also a business. If it is the latter, then they should not be seen as investors/sponsors of the project. Many Nepali hydro projects have not moved forward as local companies have not been able to cut out a clear role for themselves.

A delayed infrastructure project is a dead project. A year’s delay in the project can eat away all profits as additional financing costs will take away all projected surpluses. In Nepal, with government-sponsored projects, delay is lucrative, as the project extends. We need to internalise the issue of timing and plan to ensure that projects finish in time. The acid test would be if we can start and end sessions of this Infrastructure Summit in time. If we cannot even start and end a conference in time, then it will be difficult to believe we can deliver infrastructure projects on time.

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