Nepal : privatization of state-owned enterprises -- recommended assistance plan -- final report

This study reviews Nepal"s privatization program, assesses the agribusinesses that could be included in it, and proposes an assistance plan for USAID. Nepal"s legal and institutional framework for privatization apparently functions satisfactorily, but it has yet to be tested on any large or politically sensitive enterprise. Only 12 enterprises have been privatized so far, representing only about 3% of state-owned enterprises. This study identifies 15 agribusiness enterprises that appear suitable for privatization; these range from small enterprises in which the government owns only a minority interest and which could be sold easily, to the Dairy Development Corporation, which is wholly owned, large, and politically sensitive. The Government"s Privatization Cell will need a range of assistance to privatize these enterprises. The study recommends the following assistance plan for USAID. (1) U.S. dollar funds should be used to finance a resident advisor for 18 months, as well as short-term TA. This assistance should be integrated with that of the Overseas Development Administration, the only other donor currently planning to assist directly Nepal"s privatization program. (2) Local currency funds should be used for local consultants, and to develop a public awareness program, train the Privatization Cell staff and other senior officials, meet some of the redundancy and retraining costs associated with privatization of agribusinesses, and provide general support to the Privatization Cell. (3) Pipeline funds, as required by the terms of their commitment, should be used to support private dairy enterprises. Given USAID"s experience with local contractors, the Agro Enterprise Centre should first be asked to develop projects for the use of these funds. Finally, despite the important steps made in implementing a privatization program over the last 5 years, political and economic constraints may create significant delays in implementing these recommendations. Should such delays occur, particularly with the privatization of the dairy sector, USAID should review its assistance for privatization in Nepal.