Is Nepal ready for investment?

Nepal Power Investment Summit 2016 will showcase projects for foreign investment and provide a platform to meet, interact and conduct business

 
Sujata Awale
Kathmandu

With an aim to attract foreign investors in renewable energy projects, Energy Development Council ( EDC) is organising the largest international energy summit ‘ Nepal Power Investment Summit 2016’ ( NPIS) in Kathmandu. The Investment Board of Nepal ( IBN) is the government organiser and the Ministry of Energy ( MoE) is co- host of the summit that intends to send the message that Nepal is ready for business. The conference offers business- to- business and business- to- government opportunities and a match making platform for foreign investors with potential energy related projects in Nepal.

About NPIS

 Foreign investors across the globe will be participating in the four- day long summit scheduled for May 31 to June 3. China International Water and Electric Corporation, Infraco Asia Singapore, WAPCOS India, Dragon Capital Thailand and Power Trade Corporation of India among others are some of the significant companies participating in the summit. The government and private sectors from Nepal will showcase various hydropower projects totaling 2,500 MW capacity, 20 high voltage transmission line projects and other clean and renewable energy projects.

At the conference, national and international high- ranking delegates and speakers will share their expertise, views and experiences on various topics related to the energy sector. Allard Nooy, CEO of Infraco Asia, Radhesh Pant, CEO of IBN, SC Agrawal, CEO of SAPDC, and Kuenga Namgay, Director of O& M Druk Green Power Corporation are among the prominent speakers. The summit also includes a ‘ Project Expo’ where national and international energy related companies will showcase their projects and products.
According to organisers, the summit is the best platform to showcase, meet, interact and conduct business with key decision makers from the energy sector from South Asian countries. “ This is probably the first time a summit will bring together foreign investors, contractors, consultants and high powered speakers from all over the world,” said Sujit Acharya, Chairman at EDC. 

Citing that this summit is a combination of conference and exhibition, he said, “ This event is an initiation for business deals where investors and project developers can interact on a project level.” While every year the country hosts various conferences on hydropower and other related issues, the question of actual outcome is always questionable. When asked what is different about this summit and how it will actually attract investment, Acharya said, “ Through this summit, EDC will present why Nepal is the number one destination in South Asia for investment and among the top three emerging markets in Asia for renewable energy investments.” Furthermore, he said, “ If any investor finds a showcased project attractive, EDC will definitely help facilitate invetsment at every step.” Improving investment environment It is a fact that investors will not come to Nepal for the love of the nation. The investment climate and rate of returns should be attractive, comparative and competitive with other countries. Process of getting license, approvals, risk mitigation schemes, ease of doing business, clear policies and other rewards should be highlighted to attract investments.

Acharya stated that the risk lies in the frequent change of government and the hassles it brings in doing business in Nepal. He also pointed out that with such risks investors also certainly find corresponding higher rewards than in other countries.

He is of the opinion that it is the responsibility of the government and private organisations to step in to mitigate risks in required areas. He claimed that Nepal offers the highest power purchase rates in South Asia for hydropower and solar energy. And the country offers immense scope for urban solar and hydropower projects development. 
EDC plans to take NPIS overseas next year where the investors are located. “ There is no doubt that development of the energy sector can only transform the nation and we will continue our duty to invite and assist foreign investors to Nepal,” he added.

 Positive outlook

 “ Investors from around the world have shown keen interest in investing in hydropower projects after the promulgation of the new constitution,” said Radhesh Pant, CEO at IBN. Citing that this is the right time to conduct the summit in order to send the message that Nepal is ready for business, he said, “ Hydropower developers, investors, contractors and suppliers are all positive and attracted towards Nepal for investment and this summit will certainly send a positive message.” Stating that the investment climate has changed lately, Pant said, “ As the country is no more in transitional phase, we are ready to move in for economic transformation through hydropower development.” 

Furthermore, he said, “ IBN has already signed in two bankable documents — Project Development Agreements ( PDAs) of international standard which has created conducive environment for other export oriented projects also.” Citing that earlier Nepal had a limited market for energy consumption, Pant said, “ After the bilateral Power Trade Agreement ( PTA) in 2014 between Nepal and India, the problems of the market has been solved as Nepal can sell generated power to India.” Moreover, he said that SAARC Framework Agreement for Energy Cooperation ( Electricity) has expanded the electricity market with scope for SAARC countries. Talking about the market requirement of India, Pant said, “ The energy requirement of India alone will be 730,000 MW by 2030. This means on the basis of PTA, Nepal can export generated power to India.” Political consensus is a key component for the development of any sector. “ The government has introduced the ‘ Energy Crisis Reduction and Development Decade’ which is a positive step and it has given room to develop hydropower projects with less hassles,” he added.

Nepal has enormous potentiality in renewable energy development for up to 83,000 MW or more. But the government can only generate 700 MW till date. “ The gap between potential and what we are actually generating is huge. And this offers huge opportunity to invest for both foreign and domestic developers,” Pant explained.

According to him, IBN has 3,800 MW hydropower projects in hand waiting for investment. Agreeing that the country has a tedious and time consuming process of getting approvals, he said, “ In order to make the process less time consuming, the government should declare onewindow system via IBN.” He suggests the government have a positive attitude towards foreign investment projects and behave as partners as after 25 years or so those projects will comes under the government’s portfolio. “ Rigid policies are always hurdles so the government should be open to revise the policies and lead action to form practical laws to make a comparable and competitive investment environment in Nepal than other countries,” he added.

Flexible approach

 “ The investment environment for foreign investors is not mature, however, the government is always open to making an easier environment to attract them,” said Suman Prasad Sharma, Secretary at MoE. Citing that the concept paper that the government has endorsed as an emergency plan is a positive step, he informed, “ We are drafting the Act to implement that concept paper.” Citing that the investment environment is improving, he said, “ Tax rebate, tax holiday, PPA in dollar till loan repayment are some of the provisions that make Nepal a good investment destination.” According to him, Karnali 900 MW, Satlug 900 MW, West Seti 700 MW, Upper Trishuli A 216 MW are some projects with foreign investment. He said that land acquisition process, elongated bureaucratic process for license and approvals are actually not very different from other countries.

(The article was published on The Himalayan Times, Perspectives, May 29, 2016)

http://epaper.thehimalayantimes.com/epaperpdf/2952016/2952016-md-hr-17.pdf

Marred by uncertainty

Despite being self reliant, the plywood industry face a hard time


Sujata Awale
Kathmandu

With the ongoing protest in Tarai, the plywood industry is facing a hard time. Ninety per cent of the total factories are not operational for a month now due to continuous bandh. With low production, the market is gradually witnessing a shortage of products. The industry which was going through a difficult situation since the earthquake, is further marred by the Tarai unrest.

Moreover, the sluggish real estate industry, stagnant economy and political instability have led to a dip in demand.“We face difficulties in distributing products in the market as our factories are not operational due to the strike,” said Devananda Sarawagi, Managing Director of Sarawagi Ply Industries. He further added, “The economy is stagnant and the real estate business is not doing very well.

Also, the plywood market is competitive. All these factors add to our burden.” Citing that they used to export plywood to India, he said, “With the existing situation and other problems, we have not been able to export for a year now.” Sarawagi stated that political stability is must to spread positivity in all industries. He further said, “The industry also faces problems of labour and load shedding that ultimately hikes  the cost of production.”Utis tree which is regarded as soft wood is the main raw material for plywood manufacturers.
These trees are generally found in Ilam, Phidim, Panchthar, Dhankuta, Hile, Sindhupalchowk, Dolakha among others. Additionally, other needed raw material and chemicals are imported from India.

“We are witnessing a growth in demand of five to six per cent every year. However, this year, we feel that the business will face losses due to the political instability,” said Pradeep Chaudhary, Vice President of Nepal Plywood Manufacturers Association (NPMA). Citing that the plywood industry is self reliant, he said, “Domestic manufacturers are producing various grade products such as A, B, C and D as per their usage. And three per cent of total production is exported to India.”

According to the NPMA, there are 50 plywood manufacturing factories which directly employ 10,000 employees. Chaudhary further informed that five other companies are in the pipeline for investment in the sector. Citing that there is unhealthy competition in the market, he stated, “Duplication of logos is the main problem. Many companies copy from established brands and sell low quality products at low price which creates imbalance in the market.” According to him, the industry has Rs seven billion turnover annually while still operating at 60 per cent of installed capacity.

Lack of skilled manpower, problems of trade union and load shedding are other hassles faced by the industry. “We have a severe crunch of skilled manpower in the country. Every year we have to import skilled manpower from Bihar and Uttar Pradesh,” he informed. 

“The business of plywood has dipped by as much as 50 per cent at present due to the ongoing strike in Tarai and as an effect of the earthquake,” said Ganesh Pokharel, Proprietor of Shikar Trade Link. He said that as the government has banned the construction of residential buildings, it directly affected the demand for plywood. 

According to him, plywood is basically used for manufacturing furniture and shuttering while constructing buildings. Citing that the supply has also dipped, he said, “The demand for furniture has gone up but we could only fulfill 30 per cent of that due to the bandh.” 

According to him, earlier they used to supply five trucks of plywood a month.Pokharel said that Kathmandu comprises 51 per cent of the market for plywood business and other parts of the country account for 49 per cent. Stating that customers are not aware about quality, he said, “Customers seek affordability rather than quality. 

This allows many unprofessional players to penetrate the market.” There are branded products such as Duro, Mayur, Sagun, Surya, Greenply, Himalayan et cetera and local products in the market as well which differ in price by 40 per cent.

Published on September 20, The Himalayan Times, Perspectives
http://epaper.thehimalayantimes.com/epapermain.aspx?queryed=9&eddate=9/20/2015

Is Pancheswhar multipurpose project heading in the right direction?

Photo Courtesy: Mahendra Bahadur Gurung

Sujata Awale

Kathmandu

The Mahakali Treaty between Nepal and India was signed in 1996 and the main highlight of the treaty was to develop the 6,720 MW Pancheshwar Multipurpose Project (PMP). Though discussed and talked about the many benefits which include hydropower, irrigation, fishery, flood management, et cetera, the project never really budged until 2009.

In 2009, a Joint Committee on Water Resources was formed which was headed by energy secretaries of Nepal and India. Held in Pokhara, that committee agreed to construct a re-regulating dam, Chief Executive Officer (CEO) nomination through open competition and establishment of a project head office in Mahendranagar.

However, it was only in July 2014 with the Indian Prime Minister Narendra Modi’s visit to Nepal that the project gathered full steam with commitment to develop the PMP on a 50/50 sharing basis. To push forward this mega project, both governments decided to establish a eight member Pancheshwar Development Authority (PDA) in November 2014 and with both energy secretaries as co-chairpersons. Of the eight positions, Nepal got to appoint the position of CEO, Legal Executive Director, Environment Executive Director and Administration Executive Director, while India got the post of Acting Chief Officer (ACO), Technical Executive Director, Finance Executive Director and Rehabilitation and Resettlement Executive Director.

Nomination conflict
It was decided to complete filling these executive member positions by September 2014 but due to conflict of interest in the nomination process it has been delayed by almost a year. While Nepal was lingering in the appointment process, India, as per the Memorandum of Understanding (MoU) initiated a detailed project report (DPR) by WAPCOS.

Though the CEO was to be appointed through free and fair competition, Energy Minister Radha Gyawali appointed Mahendra Bahadur Gurung as the CEO on June 5. Likewise, Dilip Kumar Sadaula was appointed Environment Executive Director, Rudra Sitaula as Legal Executive Director and Babu Ram Adhikari as Administration Executive Director. On the other hand, the Indian side nominated executive directors through free competition.

“Although Nepal has appointed the CEO, it could lead to a loss for the country,” said DB Singh, Former Director General of the Department of Electricity Development. Singh who is also a Former Project Director of Pancheshwar Project, further said, “PMP is a mega storage type hydropower project.

But either due to the government’s ignorance or indifference, it has nominated an irrigation engineer as CEO for this massive hydel project who is himself ignorant about the issue.” Comparing the appointees from the Indian side, he informed that both ACO and Technical Executive Director are experienced hydro engineers with a proven track record.

To lead a multilateral mega project experience and technical know how is a must. Singh said, “For a football match if you send basket ball players what can you expect? This is what the government has done by choosing an inexperienced CEO for such a major hydro project.” He further pointed out that due to lack of political will and vision among team players even in 1999 that led to the Nepal-Indo Joint Project Office collapse in 2002 without finalising the DPR. “I suspect the PDA will face the same fate as again the government has nominated the wrong person,” he opined.

On this, CEO of PDA Mahendra Bahadur Gurung said, “Pancheshwar is a multipurpose project that includes hydropower, irrigation and flood control. As I have served in these three sectors as the director general, it would not be fair to question my ability and experience.” He further said, “I was on a decision making role in previous posts which made me more competent for this post and I believe I will run this project smoothly.”

Project prospects

PMP is a bi-national storage type hydropower project to be developed on the Mahakali River bordering Nepal and India. The 6,720 MW project will produce an annual average energy of 12.32 billion units and a live storage of 6.56 billion cubic metre of fresh water.

There will be equal sized underground power houses of 3,240 MW constructed on each side of the Mahakali river in India and Nepal. Moreover, the project will also offer benefits of regulated water for irrigation in Nepal and India and control flooding.

Singh informed that the project cost is determined at Rs 500 billion as per the DPR conducted by the Pancheshwar Project in 2006-07.

According to him, Nepal can get benefits of Rs 34.50 billion from electricity, Rs nine billion from fisheries, Rs 5.55 billion from irrigation of 93,000 hectors of agricultural land, Rs 4.42 billion from carbon trading and Rs four billion from other benefits.

“The total of benefits after project construction will be Rs 53.41 billion which should not be decreased by any means in the present context,” he stressed. However, it is presumed that the project will dislocate 22,765 people on the Nepali side and 60,000 people on the Indian side.

“PMP is a highly economically viable project which can create a big difference in terms of electricity production, water issues, investment scenario and psychological effect,” said Bishal Thapa, Vice Chairman of the Energy Development Council. However, he pointed out, “The project has been talked about since the last two decades but it has not gone smoothly.

For the smooth run of the project, political space and backing for implementation is a must. Both countries political leaders should acknowledge this fact about the benefits and put this project on high priority.”

Stating that the formation of PDA with a full committee is a good sign, Thapa further said, “Formation of the authority is not the end point for development of the project. From past experience, we have realised that those heading the project had no voice.” He stressed that the head of the authority should have the capability to communicate clearly and strategically, be more proactive than passive and reactive. According to him, Nepal should learn from the past and not repeat the same mistakes.

The project demands strong political will, studying of the situation and tie up with not only the central government of India but also with the state government at the project area.

Crawling ahead
With the appointment of the CEO work for the project head office has started. According to Gurung, they are planning to establish a Corpus Fund of IRs 200 million from each country. He said, “WAPCOS is working on the DPR and as the executive committee has been formed we will conduct meetings with them and scrutinise technical aspects.” He said that the DPR will be finalised on November 2015, two months later than the stipulated date.

Optimistic about project implementation, Gurung targets to at least finalise the DPR, procurement of work and laying the foundation in his three year tenure. Citing that it is a dream project of both countries, he said, “Political will is most important to implement the project.”

As per the MOU between Nepal and India, the CEO and Finance Executive Director will not be from the same country. The tenure of each member will be three years with rotation between Nepal and India for the CEO.

Published on The Himalayan Times Perspective on September 13

 

  http://epaper.thehimalayantimes.com/epaperpdf/1392015/1392015-md-hr-17.pdf 

Furniture business hit by political unrest

Traders worried about the festive Season as products are stuck at different customs

Himalayan News Service

Kathmandu

Be it domestic manufacturers or importers of furniture, both are facing a tough time due to the unrest in Tarai. Manufacturers are hassled  by the lack of raw material, which largely comes from the Tarai, while importers don’t have options other than importing furniture through the border (Tarai). Moreover, furniture traders are also worried about whether they will get to import products for the festive season, which is the prime time for business. According to traders, the sale of furniture will dip significantly if they do not get products on time.

Citing that the furniture market witnessed 15 per cent growth last year, President of Nepal Furniture and Furnishing Association (NFFA), Kabindra Joshi said, “We doubt we can retain the same growth this year due to the ongoing strike in Tarai.”  Informing that around 50 containers with furniture are stuck at various custom offices in Tarai due to bandh, he said, “We were compelled to postpone our annual Furnex Expo 2015 that slated for October 1.” Stating that the furniture business was not affected by the earthquake, he said, “If the Tarai bandhs continue, it is for sure the industry will be hit hard. However, we are hopeful that the situation will be back to normal soon.”

Citing that the furniture industry is becoming dependent on imports, Joshi said, “Due to lack of skilled manpower, electricity and other raw material, domestic productions are gradually declining and traders are now attracted towards importing readymade products.” According to him, China, Thailand, Malaysia and America are prime countries from where furniture is imported.

The Nepali furniture market is separated into three segments — domestic, Chinese and branded products. Affordable pricing, aesthetic look and fine design are reasons why customers are gradually opting for imported furniture. However, the charm of domestic products is still alive owing to its durability, quality and design. According to him, 60 per cent of the furniture market is dominated by imported furniture whereas domestic furniture enjoys 40 per cent market share.

Marketing Director of Bira Furniture at Patan Industrial Area, Sarju Shrestha said, “We have not been able to import raw materials due to the bandh whereas the business was already affected by the earthquake.” Informing that the demand for furniture dipped during the earthquake, he said, “We are optimistic about the upcoming festive season only if the Tarai unrest is resolved.”

According to him, local, branded and Chinese furniture have their own separate markets with their individual merits and demerits. “There will be price hike in furniture products by 10 to 15 per cent for domestic products owing to labour crisis and lack of raw material available due to the present situation,” he added.

“The demand for branded furniture was down for the last two months because of the earthquake,” said Nikhil Tuladhar, Marketing Manager at Index Furniture, adding that the business is hit hard due to the bandhs as products are stuck at Birgunj Customs. Tuladhar further said, “Customers are aware about branded products in furniture and value them for quality and design.”

Published on THT Property Plus, September 12

http://epaper.thehimalayantimes.com/epaperpdf/1292015/1292015-md-hr-14.pdf  

 

Carrying traditional essence and safety together

Lack of periodic restoration and maintenance of structures is the major cause of structural weakness

Photo: THT

Himalayan News Service

Kathmandu

 
Many traditional buildings either collapsed or were partially damaged by the deadly earthquake of April 25. After the quake people have developed the feeling that a reinforced concrete building is much durable and quake resistant than traditionally built buildings. However, experts stated that both traditional as well as modern buildings can be durable and earthquake resistant if built adopting seismic resistant technology.

Any structure built violating or without taking care of the engineering norms are vulnerable to possible damage by quakes. Professionals stated that even  masonry buildings following norms can last for many decades. However, such structures build by neglecting structural strengthening, addition of stories without considering its capacity to bear load are the main cause for their collapse.

There is a clear indication that lack of periodic restoration and maintenance of structures had a major affect on the endurance of structures during earthquake. “People were not aware about periodic structural strengthening and retrofitting of their houses,” said Senior Structural Engineer Rajan Suwal stressing on the need to have a periodic study on the condition of structures and conducting restoration with updated traditional techniques to sustain the buildings. According to him, the government should learn a lesson from the past and should work to strengthen the existing buildings.

“One should not feel that traditional buildings are weaker than reinforced buildings as both structures have withstood and collapsed as well during the quake,” Suwal said, adding that it depends on the techniques being used to construct the building. He stressed on the need to restore traditional buildings to preserve the essence of the culture.

Citing that there could be shortage of required construction materials like timber, traditional styled bricks, mud with workmanship to rebuild massive structures, Suwal said, “The government should give priority to reconstruction and give subsidies if anyone wants to build their residential houses in a traditional way.” Stating that there is a lack of skilled manpower to work with traditional structures, he said, “If the government prioritises work and provides training, the available resources will be enough to work promptly.”

“The raw material and quality of products are a challenge to build masonry buildings,” he said, adding that timber being expensive, the government should work to make it accessible. According to him, constructing traditional house becomes 25 per cent more expensive than constructing using reinforced building.

Researcher in Structural Earthquake Engineering Dipendra Gautam said that reuse of rubble can contribute to restoration of traditional buildings. “We have found that the majority of masonry buildings failed to tie middle walls and front walls and that resulted in their  fall,” he said, adding, “In this regard, if the binding component is done properly, most traditional buildings can be safe and long-lasting.” Moreover, he said that introducing seismic strengthening technology to abide two walls with steel rebars can increase the durability and sustainability of the building.

According to Gautam, the government should conduct special research on typical Nepali styled traditional masonry buildings as the National Building Code lacks specific parameters and design. Pointing out that there lacks timely maintenance and repair works on traditional buildings, he said, “It is very important to elongate the life of these buildings. And the other silly mistake that we all make is haphazardly piling up storeys, which weakens the building.”

Citing that the traditional look of heritage sites and the city is important for preservation of the ancient art and architecture, he said, “The government should focus on maintaining traditional buildings and take out the framework to reuse available construction materials and seismic strengthening technology.”

Published on September 5, 2015, The Himalayan Times THT Property Plus

http://epaper.thehimalayantimes.com/epaperpdf/592015/592015-md-hr-14.pdf 

 

Individual houses in growing demand

Delay in revised NBC and Building Bylaws leave developers in dilemma 

Himalayan News Service
Kathmandu
After the April 25 earthquake, real estate developers have witnessed a significant growth in inquiries for standalone houses. According to developers, customers are now more aware about structures built in a planned way, safe neighbourhoods and well designed houses. Although inquiries and demand for standalone houses is on the rise, developers have not been able to cashin on the opportunity. Developers are compelled to put on hold new projects as they await the revised National Building Code (NBC) and Building Bylaws, which the government is yet to introduce.

“We have taken the earthquake as an opportunity to expand our business,”  said Rupesh Mahato, Deputy General Manager of Green Hill City, adding that they are concerned about the safety of the houses they build. Citing that inquiries for standalone houses have significantly increased, he said, “People have realised the importance of safety that housing colonies provide.”

As the government is yet to introduce the revised NBC and Building Bylaws, he said that customers are in a dilemma whether to place bookings or not at the moment. “With the growing demand, we see brighter future prospects for individual houses,” he shared.

According to Mahato, they have witnessed significant growth in inquiries for properties at Green Hill City, Jorpati. He further said that they have two new projects in the pipeline which are on hold till the new policy arrives. Stating that the price of these houses will not hike much, he said, “As the government’s policy will direct us to maintain more open spaces, mandatory road width and greenery in our projects, it will surely lead to a hike in the price of properties. However, the hike in price will not be severe.” The minimum price of these houses starts at Rs nine million.

Citing that the demand for individual houses after the quake has grown, Bhim Kharel, Advisor of Civil Homes, said, “Over two dozen houses  have been booked post-earthquake and we have been receiving constant inquiries for the same.” According to him, they have opened bookings for individual houses at Civil Homes Phase VII, Sitapaila and two of their projects are in the pipeline. He informed that they have not revised the prices of these houses till date and the starting minimum price of their standalone house begins at Rs 10 million.

“The government’s announcement to develop a smart city has conferred us an opportunity to expand projects outside the valley,” said Kharel.  According to him, the price of the upcoming projects will depend on the revised NBC, minimum evaluation of land, cost of raw material, manpower and home loans.

The government was supposed to introduce the revised NBC by July, how-ever, it has not been introduced yet. “We are working to introduce the revised policy and we will soon send it to the ministry for approval,” said Parikchit Kadariya, Section Chief of the Building Code Section at Department of Urban Development and Building Construction.

With the delay in introduction of the policy, developers as well as end users are hassled. “We are holding up our land acquisition process for three new projects just to make sure that our projects won’t defy the upcoming laws,” said Bijay Rajbhandary, Chairman of CE Construction. Citing that inquiries have grown by 100 per cent as compared to the corresponding period last year, Rajbhandary said, the price of individual houses would go up by around 30 per cent with the introduction of the new policy. He also assumes that two and a half storeyed houses built in four to six annas of land will be in demand.

Published on August 15, 2015, The Himalayan Times

http://thehimalayantimes.com/real-estate/individual-houses-in-growing-demand/

Unrefined situation

Limited market and maximum players has the edible oil industry on fire

Sujata Awale

Kathmandu

Despite Nepal being an agriculture based country, the oil industry of the country is totally dependent on imports for necessary raw materials. The demand for refined oil increases by 15 per cent every year which is inversely proportional to the demand of mustard oil. Health consciousness, developing fast food culture and increasing restaurants are major reasons for the increase in demand for refined oil.

Growing demand

"The market for oil is increasing every year with growing purchasing power and awareness about the goodness of refined oil," said Manish Kumar Agrawal, Senior Vice President of Nepal Vegetable Ghee and Oil Manufacturers Association (NVGOMA). However, he added that it is still not sufficient to sustain the remaining dozen or more factories in the country. There are altogether 20 factories across the country, of which only 16 factories are operational. According to NVGOMA, total installed capacity of these factories is 350,000 metric tonnes annually while the market consumption of oil remains at 250,000 metric tonnes.

Citing that Nepali oil was exported to India in the past, he said, “With the introduction of a new policy which entails a supplier to seek prior permission from the government of India, export from the country has come down to nil.”

The question on the quality of edible oil is raised time and again in the market. On this, Agrawal said, “As industrialists have to register the company and product before marketing, we are responsible for our products. However, because of the porous open border smuggling of lower quality products is rampant which leaves no room for accountability,” adding that the Nepal Standard and Nepal Food Quality Control should monitor the market strictly.

According to him, the factory price of soybean oil and sunflower oil for 10 litre packs is Rs 1,070 and Rs 1,009 respectively.

Major hurdles

Despite the growth in demand, industrialists stated that they are facing a hard time as there is cut throat competition among the players. Limited market with maximum players has invited over production and oversupply of edible oil in the market. As the industry depends upon imports, dollar inflation and price of raw materials in the international market directly affects the price of the product in the domestic market. Moreover, like every other industry, the oil industry also faces severe power crisis which ultimately increase the cost of production.

"The government is providing 50 per cent subsidy on 13 per cent VAT and five per cent custom duty since the last six years which has helped the domestic manufacturers survive,” said Sanjeev Kumar Agrawal, President of NVGOMA. However, he further said, “Despite the subsidy, the duty totals to nine per cent which is 2.5 per cent more than taxes in India. Nepali products are not competitive when compared to Indian products which is why traders trade oil illegally from the open borders.” Moreover, he said that the government should step forward to minimise power cuts and put a stop to the undeclared syndicate system in transportation to boost the industrial sector and to make it more competitive in terms of price.

Informing that 20 years ago domestic production of mustard was sufficient for the domestic consumption of oil, Sanjeev said, “With the introduction of VAT in mustard oil, farmers gradually stopped cultivating mustard and soybean for oil production and now we rely 100 per cent on imports for production.”

Room for growth

Stating that the oil consumption in Nepal is still nominal standing at 4.5 kg per person annually, Kumud Dugar, Managing Director of KL Dugar Group said, “There is a scope for growth for the oil industry in days to come. However, the government should solve the problems of power shortage and unauthorised trade of oil.” 

According to him, 30 per cent of products are smuggled through open borders. Citing that the public is still unaware about quality and brands, he said, “The government should initiate campaigns to raise awareness among consumers' about quality. Moreover, the government should take strict action against manufacturers found guilty of substandard products.” Dugar claimed that the company enjoys 25 per cent market share in the edible oil segment.

Industrialists stressed on the need to conduct intensive campaigns and long term plans for the agricultural sector to increase seed cultivation in the long run. Reportedly, Argentina, Brazil, Canada, Russia, Malaysia and Indonesia are major countries for imports of crude edible oil and seeds; raw material necessary for the industry. 


Published on August 9, 2015, The Himalayan Times, Perspectives