One-third of public enterprises post net loss despite heavy funding

- RAJESH KHANAL, Kathmandu

Jun 3, 2019-

The dismal financial performance of the state-run enterprises continued in the last fiscal year with one-third of enterprises still reporting negative net income.

Out of 39 public enterprises, only 26 earned profits in 2017-18. The government injected Rs164.42 billion in credit to these enterprises to run them, a rise by 0.67 percent as compared to previous fiscal year, according to the Annual Performance Review Report of Public Enterprises released by the Finance Ministry.

Similarly, the state equity investment in the public enterprises stood at Rs237 billion. The government, however, received Rs9.89 billion as dividend, up 27.28 percent as compared to previous year. When compared with huge capital injection for the public enterprises by the government, the dividend returns is just 4 percent.

The performance of enterprises in the manufacturing sector, in particular, appeared pathetic as the state has not received any return from them in the last five years.

These manufacturing businesses are—Dairy Development Corporation, Herbs Production and Processing Company, Hetauda Cement Industries, Janakpur Cigarette Factory, Nepal Drugs, Udayapur Cement Industries and Nepal Orind Magnesite.

Instead, there was an increase in cumulative loss in five of these enterprises except Hetauda Cement and Udayapur Cement industries.  

The net profit of 26 enterprises rose by a mere 4.88 percent to Rs43.44 billion in the review period.

The report shows that net earnings of once troubled and perennially broke Nepal Oil Corporation and Nepal Electricity Authority have improved. With low efficiencies of the enterprises, their unfunded liabilities, the payment amount which are not backed by reserve funds, also rose 8.19 percent to Rs38.82 billion. This means that the government will have to take the financial burden of these enterprises to settle their liabilities in the future, if they are unable to pay on their own. As of 2017-18, the government spent Rs5.5 billion in settlement of liabilities of the crisis-ridden public enterprises.

In addition, a large number of public enterprises failed to carry out their audit on time. This has raised questions on the financial discipline of these enterprises, said a Finance Ministry official. According to the report, 12 enterprises failed to carry out their financial audits on a regular basis. Herbs Production and Processing Company, Nepal Orind Magnesite, Nepal Water Supply Corporation, Rastriya Beema Sansthan and Rastriya Beema Company are yet to finish the assessment of their financial transactions of more than five years.

Lack of clarity in the policy has long been delaying the government’s plan to privatise the crisis-ridden enterprises, raising the financial liabilities to the government.

Through the budget this time, the government has planned to operationalise the sick industries in collaboration with the government, private sector and cooperatives. The budget also talks about enforcing integrated law to improve managerial capacity of such public enterprises.

Bimal Wagle, former chairman of Public Enterprises Board, said the government needs to devise a firm policy to address the problems that has been plaguing the enterprises.

Expressing his dissatisfaction over the government parameter to consider net profit and loss to assess the performance of the public enterprises, Wagle stressed on the need to analyse overall aspects of these enterprises before making decision on whether or not to continue to operating them.

“The rate of returns on the state’s investment, managerial efficiency and economic efficiency of the enterprises and the trickledown effects that they can produce should be part of a assessment that the government should consider to reach any specific decision,” said Wagle.

Published: 03-06-2019 09:07

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