Times are quite challenging for a developing country like Nepal to resume normalcy after facing two years of economic turbulence created by the Covid-19 pandemic. Things are particularly difficult also in the sense that the country is struggling to manage the federal system of governance which it adopted five years ago after the promulgation of the federal constitution in 2015. Radhesh Pant, Chairman of VRock & Company, has been observing all these developments with keen eyes thinks that there is no alternative to making federalism a success in Nepal. His company is currently working with local and provincial governments in helping them formulate rules and regulations, implements projects, and iron out the issues related to economy and development. Pant, who was a banker for a long time, also served as the CEO of the Office of the Investment Board Nepal before starting VRock and Company, a project management consulting and advisory firm with a core focus on infrastructure projects. In an exclusive interview with the HRM team, he shared his observations on the performance of the sub-national governments, the problems they face, issues in attracting FDIs, the current macroeconomic scenario, among other topics. Excerpts:
It’s been over five years since the establishment of VRock and Company as a consulting and advisory firm. What are the major areas that VRock is currently engaged in? What major achievements for the company would you like to highlight in these years?
We are working in the infrastructure sector and focusing on private investments with a specific focus on Public-Private Partnerships (PPPs) because we believe that Nepal, for its development goals, needs to make sure that there is sufficient investment. Currently, we’re working in the energy sector alongside our project advisory support in investment policy and PPP implementation across all tiers of government. We work closely with the Nepal Electricity Authority, the Ministry of Energy, Water Resources and Irrigation, the Investment Authority, Province 1, Nepal Infrastructure Bank, and investors from the private sector in the energy and infrastructure spaces.
Our core strength is in the area of project finance. This includes areas such as understanding risks associated with project development and financing structure for the viability of projects. Public-private partnerships (PPPs) are an important area of focus for us as we believe that the strengths of the public and private sectors must be harnessed to ensure proper risk management for the timely implementation of infrastructure projects. This is something which we are working with the municipal and provincial governments at the sub-national level. Besides, we also help the governments in their policy efforts. In the past, we have helped subnational governments draft necessary laws and regulations to enable infrastructure development under the PPP modality. Our focus with such assistance is to come up with viable project pipelines to make the projects ready for investors.
As you’ve mentioned, one of the areas that your company in the last 3-4 years, worked has been with the sub-national governments. Coincidentally, this year is the fifth year of the formation of these governments after the country adopted the federal system of governance. What is your experience working with them?
In our experience, it is easier to work with sub-national governments and municipalities. The reason is because such governments are closely knit, are small in size, and there are not as many bureaucratic hassles. During my tenure as the CEO of the Office of the Investment Board Nepal, I had to coordinate and cooperate with multiple institutions and ministries even for small matters. At the sub-national level, decision-making is quick. The head of the local government or municipality can organize a swift meeting of municipal officials at a short notice and take swift decisions. By ensuring effective two-way communications during these meetings, the real concerns of officials providing services to the public can be heard, making policy decisions very effective. In fact, for Nepal to develop, the decision-making process has to be ground up.
We are yet to the stage where we can safely claim to develop large-scale projects by ourselves. We have to start building capacity at the ground level. And this is where focusing on the sub-national governments will really help us. The capacity of the municipalities that we have worked with, has gone up to the extent that in one of the municipalities, the Bharatpur Metropolitan City, we actually inculcated the whole PPP process and implemented a real-world project. We helped them draft the laws, and assisted in interactions and consultations with the private sector – a critical, yet often overlooked process in ensuring broader public ownership in policy decisions. The metropolitan city had a list of a few PPP projects and in one of the projects i.e., the construction of the multipurpose building, VRock was involved in the whole cycle – from the expression of interest (EOI) stage to the awarding of the project. It took us about a year and a half to complete the whole process.
I think this can be replicated in other municipalities of the country. We’re working with other municipal authorities now on projects such as solid waste management and herbal plant processing. If we work ground up, I think getting investors at a high level would be easier.
Right now, if we look at most of the municipalities, I don’t think they can leverage private sector investments to the required level to bridge the infrastructure gap. This is because there is an inherent lack of understanding about private sector investments, the need for adequate incentives, and application of risk management techniques. So far as my experience tells, investment readiness at local governments is inhibited by their capacity limitations across both the private and public sectors. Initially, local governments will require technical assistance, and that’s where our specialist project advisory services come into the picture.
There were a lot of apprehensions about the federal structure. Questions were raised from a certain segment of the society that whether sub-national governments would be able to work or not. Given your company’s extensive engagement with local governments in these years, do you think federalism is actually working in Nepal?
At the municipal level, it is working. I think that’s where the power should be. However, at the provincial level, a lot of work needs to be done. It is because the provincial setup is an entirely new practice in Nepal and politicians and people in the bureaucracy lack know-how and the capability to make things happen. There has been a lot of duplicity, making processes inefficient and costly. There are existing revenue limitations that forbid the federal government to provide them with enough assistance, which is needed for a newly established governance structure.
To make it work, there are a lot of areas that require investments and development at the provincial level also. For example, we’re working with Province 1 government, which was the first province to establish an Investment Authority at the provincial level. They have a CEO who is from the private sector.
This kind of initiative should take place in all provinces. I don’t know if leaders in the provinces realize but this is definitely a good way to work. Getting back to your question, we’ll have to make it work. We made the political decision in terms of adopting the federal system, and it is up to us to make it work. For this, a lot of coordination, particularly from the federal government, is required.
Many sub-national governments in the country seem to be struggling with managing human resources at the moment. How big do you think this problem is?
It is a problem in the sense that many rural municipalities, as well as provincial governments, have experienced a dearth of qualified and experienced staff at a time when they needed it the most. The federal government, on its part, didn’t depute the staff permanently. Even those who were deputed have been transferred within a year.
As the IBN CEO, you had dealt with Nepal’s development partners and multilateral development agencies. What do they seek while financing and executing projects in Nepal?
One of the major requirements for international partners including the development finance institutions (DFIs) is that they see if investments can make an impact on the lives of ordinary Nepalis or not. Hence, DFIs have a set of do’s and don’ts, i.e., to have a good environmental impact, ensure inclusive growth, have balanced human resources, etc. Having said that, it is up to our government to decide what we want. And that’s something, to a large extent, we have not been consistent at all levels, from federal to the local levels. The DFIs’ funds are usually the taxpayers’ money from their country.
It is up to us to really get together. No matter what happens at the political level, no matter which government comes, all political parties should come together to lay our priorities and be consistent. If we go along those lines, I think there would be much more impact and investments will come.
The signing of the power development agreement (PDA) of two large hydroelectricity projects was one of your major achievements when you were the CEO of IBN. But it took years and a series of negotiations not only with the developers but also with our own political forces. What major hindrances do you observe in infrastructure development in Nepal?
The lack of understanding of the matters among people in the government is the biggest issue here. We have all these so-called ‘gurus’ and ‘experts’ within our political and bureaucratic spheres who actually are not speaking the voices of ordinary citizens. They do not understand the value of the projects. So, I think the biggest problem is to let people know what the project is all about. And that’s exactly what we try to do when I was at the Investment Board. Back then, most of my time was spent in dialogues and discussions with political groups, ministries, media, and experts. We used to have these dialogues every month, inviting them to either at the IBN office or outside and persuade them of the values of the infrastructure projects we’re promoting.
And, by doing so, we got some commitments from them. This is something which I feel needs to happen. We cannot make any projects done just by the wish of a political leader or just by signing an MOU. What is so important is we need to make sure that everyone, all the stakeholders have the right information.
Second, is basically concerned with effective coordination. Having a good level of coordination among the ministries and political parties is very difficult. Unless and until you win the hearts and minds of people, projects are not going to happen. And when I say people, it’s about the stakeholder.
Third, you have to speak their language. We cannot just say Nepal would make this much amount of money after the project is operational. How do you explain that to the locals? You need to go yourselves because I don’t think the government has that kind of mechanism which reaches out to the locals, the affected people and tell them what value are they getting from the projects and how their lives will be better after the project is completed. Here, financing is never a problem. The problems are in implementing, understanding and information.
Nepal had held two investment summits in the last five years. Some new laws and regulations were brought in and some were amended. What, according to you is needed if Nepal has to do to attract FDI? Where should be our focus?
Apart from changing the laws, rules, and regulations, we need to promote and facilitate the current FDI projects. The people in the government need to understand the issues of the investors and make them easy to work in Nepal. Let’s not think that FDIs will only benefit the private sector.
In Nepal, many people think foreign investors come here only to earn and take all profits back home. This is not true. We have rules and regulations for the repatriation of investment and profit. So, the onus lies with us to monitor and regulate them.
Investors who come from another country do a lot of homework before deciding to invest their money. Money will always flow to such places where investments are facilitated and results are achieved.
How do you access the current macro-economic situation where the banking system is in a prolonged liquidity crisis, forex reserves are depleting and, the balance of payment is expanding?
I think ours is a reactive society and we are not proactive. That’s the way I see the current crisis. Both the central bank as well as the government failed to foresee the looming liquidity crisis. In 2019, when the world was foreseeing a slowdown in the Middle East, we failed to forecast what the impact would be on our economy. Then, Covid-19 waves struck wherein our migrant population started returning with all their belongingness, giving us a false sense of zero-impact on our remittance earnings. We must learn from these mistakes and strengthen the country’s research capabilities and adopt a proactive approach to policy development. That’s why we should start looking at data and make decisions based on statistical analyses.
Our economy is trying to recover from the Covid-19 pandemic. It will take some time for the most affected sectors like tourism to fully revive. And, there is now the Ukraine crisis. With prices of oil and other commodities skyrocketing as a result of the war, there are serious concerns about inflationary pressure. Rather than just fighting off the fires, I think we must develop a comprehensive model for our economic forecasting that can help us to manage the economy in difficult times like these.
While we have gone through crises before, the current crisis, I think is serious. Because we just don’t know when the Ukraine war will end or how the global economy will look like as the outcome of the conflict itself is uncertain. We are still recuperating from the adverse impacts of the pandemic. The banking sector has become extremely vulnerable because of the accumulation of loans in huge amounts with repayments delayed in the last two years.