Policy Options for Public Enterprises Reform in Nepal: A look at two public enterprises

The concept of Public Enterprises (PEs) entered the Nepalese economic realm after the promulgation of the first industrial policy in 1957 (Paudel, 2006). This paper takes under consideration two of the thirty-six existing PEs of Nepal. Nepal Airlines Corporation (NAC) which is one of the two institution under study in this paper is facing problems of corruption (Ghimire, 2013), political intervention, nepotism, impunity (Adhikari,2013), labor issue and operational inefficiency (Nepal Airlines Corporation,2013). Hetauda Cement Industry (HCI) which is the other institution being studied by this paper is also facing problems of operational inefficiency, heavy competition, lack of technical manpower, labor issues, and lack of clear action plan (Hetauda Cement Industry Ltd., 2012). Both of these public enterprises are facing high cumulative losses and have unfunded liabilities (Ministry of Finance, 2013). Since the operational inefficiency and loss incurred by PEs presents a direct challenge of additional burden to taxpayers, we examine two policy options to address this challenge: the first being institutional reforms (improving governance) and the other being institutional restructuring (bringing changes in ownership structure through privatization, public-private partnership, strategic partnership etc.) (Fudda, 2013). Against this background, this paper attempts to analyze the costs of failure in managing PEs efficiently and also makes recommendations on suitable structural reform measures based on the costs and benefits of the proposed reforms.