Nepal Budget: A Few Numbers and Maoist Disagreement

Maoist cadre listening to the budget speech

Keshav Pradhan aka COMRADE BISHWASH, a party worker of CPN (Maoist) listens to the live bradcast of the budget speech at Maoists Dialogue Secretariat at Baneshwar on Wednesday. Finance Minister Dr. Ram Sharan Mahat presented Rs. 143.91 billion for the annual budget for the fiscal year 2006/07 in the parliament in four years after the House was reinstated in April. In previous years, in the absence of a people’s representative body, various governments including the royal cabinet had announced the annual budget through ordinances. . Pic by Bikas Rauniar via Kantipur

Total Budget: Rs 143.91 billion. (Rs 83.76 billion for regular expenditure, Rs 44.97 billion for capital investment and Rs 15.168 for payment of principal amounts of loans.)

Budget aims to raise Rs 85.37 billion from internal revenue, Rs 23.72 billion from foreign grants and Rs 16.90 billion from foreign loans. The deficit budget for the year 2006/07 stands at Rs 22.451 billion.

The government has also increased the annual budget granted to VDCs from Rs. 500,000 to Rs. 1 million.

The Talk of CA

Rs. 1.25 billion to conduct the constituent assembly elections, scheduled to be held by mid-April next year.

Addressing the House, Minister Mahat said that the dialogue between government of Nepal and Nepal Communist Party (Maoist) has commenced to end all forms of conflict prevalent in the country. “The need of the hour is to make institutional arrangement for constitution, policy and structure through national consensus so that Nepali peoples’ rights are never compromised. Therefore, the present government, in accordance with the House of Representatives’ historic Declaration and the consensus reached with Nepal Communist Party (Maoist), is fully determined to expedite the process of formulating interim constitution, managing weapons and forming interim government through the election of Constituent Assembly in an atmosphere free of violence and fear.”

Palace expenditure slashed by 45 pc

In the current fiscal year (2005/06), a total of Rs. 749.1 million was released to the Royal Palace. Of this amount, Rs.405 million was initially allocated in the different headings of the budget and additional Rs. 344.1 million was released during the year. A total of Rs. 219.7 million has been allocated to the Royal Palace for the next fiscal year (2006/07).

This allocation is lower by 70.7 per cent of the total expenditure and lower by 45.8 per cent of the initial allocation.

Budget Highlights

*Nearly Rs. 8 billion for road construction

* Rs.3.96 billion for agricultural development

*Rs. 100 million for women empowerment programmes

* Rs. 920 million for judicial administration

*Monthly allowances for elderly and helpless people increased from Rs. 175 to Rs. 200; widows increased from Rs. 125 to Rs. 150 and for women widowed due to conflict from Rs 125 to Rs 200

*10% dearness allowance to civil servants

*Rs. 1.1 billion for the reconstruction of the destroyed physical structures in the conflict and assistance to the families of those killed in the conflict

*Rs. 1.25 billion allocated to the Poverty Alleviation Fund to implement 667 income generating programmes, 379 community infrastructure development programmes, and 1,714 creative programmes in 1200 VDCs

*Rs 4 billion for expansion of irrigation facility and for control of water-induced disasters

*Rs 1.76 billion for programmes under rural electrification scheme

*VAT exemption for machinery, tools and construction materials used for micro hydropower projects and small hydropower projects up to 3 MW capacity

*Policy on bio-protection to be issued by mid-April 2007

*Restriction imposed on women willing to go for foreign employment as household workers lifted

This budget news report was originally prepared by reporters at eKantipur.

Maoists unhappy over budget presentation

Maoist leader Dev Gurung, who is also a member of the Maoist talks team, told eKantipur that his party would not accept the budget as it was being announced without any consultation with the rebel party.

“This budget is being presented without any consultation with us. There is no question of we agreeing with such a budget,” said Gurung, adding, “The budget presentation violates the eight-point SPA-Maoist agreement.”

Claiming that an interim government including the Maoists should have announced the budget, Gurung said it would be difficult to implement the budget programmes as it was being brought without political settlement. “You first need to settle the political issues to effectively implement the programmes mentioned in the budget,” he said.

Gurung also said that he did not expect the budget to be pro-people and as per the aspirations of the April movement. “I don’t think the budget will bring about any structural transformation. There may be some increase or reduction in certain things but, in essence, the budget is most likely to give continuity to the same old traditions.”

“They are saying this budget will have the palace expenditure reduced and the king’s income taxed but I don’t think this will be effectively implemented,” said Gurung, “Taxing the king’s income is not a big deal. The government should be able to nationalise late Birendra’s property.”

He also said budget presentation was “a side issue” in the present situation. “Programmes and policies, budget- these are side issues. If the government continues to engage in side issues ignoring the main political issue, it may ultimately affect the dialogue process,” he said.

UWB: eKantipur has more coverage on budget. Here is the finance ministry page for the full text of the budget.

Published by UWB

Pioneering blog from Nepal...since 2004.

67 thoughts on “Nepal Budget: A Few Numbers and Maoist Disagreement

  1. st,

    You should understand that our hydropower project is one of the expensive in the world. We always blame for our geographical situation but one Indian consultant asked to our national consultants and government that what is difference between Uttaranchal and Nepal’s geographical situation and distance from the port. At the same time he asked how come it is far expensive compare to Indian production. All became silent…and found expected indian market price is not feasible for us to sale. At the same time India is on the process of implanting Nuclear power to cope their deamand of the electricity at very cheaper price. That is why we can only produce and utilise it at the one of the highest price in the world.

    Reality and theory is different. Open market, competitiveness, WTO all seems very nice in theory but our 14 years’ experience showed that they only cannot survive the nation. Our population is increasing by 2.5% and almost 60-70 lacs younger generation either in India or outside. The population going to increase almost double within 10 years of time and till now we are not thinking about generating employment for that coming generation. No government can sustaion for long if people will not get the employment to survive. There is going to be more civil war and unrest if the goverment do not introduce the new economic policies (instead of following the same one) and job opportunities. How long we will say that our 80% are dependent to agriculture. It is just the escape-goat figures. There is going to be more challanges in future to coming government than all the previous ones. If we will not think it seriously, we are going to be a failure state.

  2. Fanta,
    I really must beg to differ. Please go and ask poeple in Butwal Power, Chilime Hydro etc. and ask them if what you have said is correct. These people are in the field and know better, and where to place hydro plants that are feasible. The question is about feasibility, and the projects are very much feasible. Now if you start adding corruption money these projects will never take off (maybe the silence with regard to the Indian was his hinting at the corruption costs that go into these projects). But again I really did not understand clearly what you were trying to say about this Indian guy, and you must also remember the dynamics of power are changing every day. Oil prices were $20 per barrel not many years ago and now it is $78 per barrel, the need for cheaper sources of energy is a crying issue and is becoming more and more so(not to mention the pressure on these industrial nations for cleaner sources of energy as well). The question of nuclear power that India proposes to obtain (and for the upteenth time;I don’t think you read my comments fully) is a non issue because again I will say it only provides for 1% of Indias total demand and that too if it is approved by the US.
    Not only will we have the power for export, we will have it and need it for our development and we will also be able to provide power free of cost to the surrounding rural areas – ask the people who are in Hydro, you will be surprised!

  3. Also Fanta,

    Populations are set to increase world wide and especially in places like India, more the population then more the power requirements. Another crying need for the development of hydro power. Believe me if we don’t act now, we will first be pleaded by India to do it, if we still don’t we will be coerced to do it on their terms.

  4. fanta,costs depend on project to project.Experience has taught us,if we make it ourselves we do lot better.Thats why people are rightly saying we should build tamakoshi ourselves.Ya,we should.

  5. So st,
    Let me get this stright. You want don’t want agricultural/rural development? You want to wait around until this railroad plan – which may or maynot materilize comes around and hope this will be Nepal’s light at the end of the tunnel. You never addressed the issues I raised about enviromental degredation, the problems migrant workers and transit drivers/workers bring along etc. More improtantly I just don’t see this plan materilizing in the next 20-25 years.

    More later, I haven’t finished but I am too tired right now…

  6. Pundit,

    If you bothered to read my comments, I had said agriculture should be approached with a cooperative structure in mind AND rural development in the real sense will only come about when projects of the scale proposed is introduced. Otherwise digging a dirt road here and there is fine, but tell us Pundit how are you going to provide basic necessities to the rural areas like elctricity and water?

    Pundit, it is fine to go on and on about rural development, but I think now it is time to put you on the spotlight and ask you, what do you exactly propose for rural development – give us details not generalisations, and at the same time what is your plan for the national economy, we cannot just keep on digging dirt roads and saying rural development – How will you give them meaningful employment in the rural areas? What of the future generations? Just educating everyone and having no jobs to follow up for it will definitely end up in more and more angry and educated youths. And of course where do you propose to get the funds for all this? Do we go on and on begging for it as tied aid? Do we tax the richer people and businesses to death?

    Please give us your “more later” (freshen up and think before you do it, ask your friends), and please provide details like I said not generalisations which should include the following:

    1.What your suggestions are (be specific)?
    2.How it will benefit the nation ?
    3.Where do we get the resources and funds from ?
    4. How will you generate employment for the majority of our population who are unemployed and underemployed ?

    I have seen all your generalised comments and statistics which are at par with populist political parties making speeches (let me quote you an excerpt from a speech by my favourite Madhav Kumar Nepal translated into English – “We will send hydro (power) to China by e-mail”.

    The floor is yours.

  7. Mr. Pundit,

    Some more queries, regarding the environmental and migrant worker issues – why don’t you elaborate on it, then the rest of us can comment on it. You have just generally mentioned “the problems that comes with migrant workers and environmental degradation” – What are they? Be specific. Do these costs outweigh the benefits? Can this be simultaneously addressed so that it can be minimised? Do we abandon economic prosperity for these problems? Are there any economic activities that does not come with problems? What are the standards and norms that Nepal should follow with regard to environmental issues considering that we really do not have much economic activity to speak?
    Like I mentioned the floor is yours.

  8. st,

    I am not against the hydropower project and I stress it to develop. This sector can be our one of the source of income if we develop with proper visions and good ethics. It is known that India has one of the highest hydropower potentials in the world. Still India is expecting 20% of their energy should be fulfilled by the hydropower to cope their 600,000 villages and the cities.Over 40 percent of the Indian people — most living in the rural areas — do not have access to electricity.

    Yes we can produce 83,000 MW hydropower in Nepal and vialbe is 43,000 MW. The real cost of production of hydro poject is inflated in Nepal in figures just to make more profit by the units. The bribery in this game is there with political bodies of Nepal. But it doenot mean we do not have to develop the hydro-projects. The example of Indian Bhakra Nangal plant, now more than 40 years old, has operating costs of only Rs 0.10 or US$ 0.002 per unit in India. Why not here that is the only my question. Hydropower plants are generally cheaper in the long run but thas is not existing here and we are paying one of the expensive electiricity consumption.the electricity tariff (on per kWh basis) in Nepal is around 90-250 per cent higher than that of Delhi, India, although the Indian electricity tariff is subsidised (i.e., cost of supply in Delhi is 20 per cent higher than the consumer end tariff). However, even when the subsidy is accounted for, the Indian domestic tariff is still significantly lower than that of Nepal.
    The main reason for such high tariff in Nepal is because of high per unit (kW) cost of hydro-power plants that are developed in the country (i.e., high cost of supply), especially the larger ones with public funding. This high cost of supply of electricity is mainly due to the need for importing construction materials (e.g., steel) and equipment, the inability of the local contractors to take up significant construction work volume and the inability to mobilise local finances and thus the reliance on hard currency loans. Furthermore, large hydro-power plants in Nepal are implemented under bilateral or multilateral donor aid with the preconditions (tied aid) that the generating equipment, accessories and the main contractor be from the donor countries. On the other hand, India is able to produce most of the required construction materials and equipment for hydro-power development within the country along with the capability to mobilise significant local finances. Another reason for high tariff is due to ‘cost-plus pricing’ approach used to fix the tariff in the Nepalese hydro-power sector. In this approach the generator fixes the price of electricity based on its average cost of generation plus a certain net profit margin. Although from the developer’s point of view, cost-plus pricing is good as it guarantees a minimum profit, it does not encourage reduction in generation cost and thus the tariff. Some would even argue that under the cost-plus pricing mechanism, power generation with high costs generates higher profit and vice versa, as profit margin is estimated as a certain percentage of the total costs.

    The challenge for Nepal remains to produce and market hydro-power at a reasonably affordable price if hydro-power generation and utilisation is to be linked to distributive justice, industrial development, and as a common means of modernising the lives of the Nepali people. The first two priorities for hydro-power in Nepal are: to ensure that the consumer end tariff is affordable, and to continue to increase supply of electricity to the general population. These require the country to come out of the ‘cost plus pricing”’mindset and to develop a mechanism which rewards efficiency. One option would be to initiate competitive bidding for electric power (kW) and energy (kWh) where the authorised agency would request developers to quote the price they are willing to sell the electricity generated from their proposed hydro-power plants. The authorised agency will then have the option of buying electricity on a least cost basis to meet the growth in demand.

    A second option that can be considered to ensure competition in the electricity sector in the country is to create an environment where multiple generators and distributors of electricity can operate in a free market instead of having a monopolistic and dominant playeWith multiple generators and distributors, the prices could be brought down, as the monopolistic barrier would be broken. With such an arrangement and free market, Nepal could move closer to establishing a spot market in electricity similar to the one set up by India recently. (based on the report and reality)

    There is a news that China to tap Tibet’s hydel potential to sell power to India The Chinese administration is working on harnessing the hydel power capacity in Tibet, with plans to market bulk of the electricity to India. The Tibet Autonomous Region has a hydel potential of 1,00,000 MW, and the Chinese administration is planning to tap the potential with the idea to market power outside the country. At present, India has bilateral exchange of electricity with Nepal and Bhutan, but there are plans to jointly set up a regional grid in the South Asian region for electricity trading between the BIMSTEC member countries (Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal) and a power exchange is also on the anvil. But our expensive project may not fit in. It has been heard that the NEA Could soon become bankrupt, if their goal and strategy is not fulfilled in the right direction.

    While China is currently not engaged in large-scale cross-border electricity trading, it has started importing electricity from Russia recently. In addition, it has plans to connect a part of its electricity grid to the Thailand power system in a bid to export electricity. For its domestic power consumption, China has embarked on a major capacity addition spree and the country has added over 3 lakh MW in less than four years. While India’s overall installed capacity is still only around 1.23 lakh MW, China is working towards achieving an installed capacity of 5.25 lakh MW by the end of this fiscal.

    We would be incurring a loss by exporting seasonal energy if special circumstances did not warrant India to buy such energy at a fairly high price.

  9. sorry for long writings…

    I am just trying to make aware about the hydropwer….

  10. Fanta,

    Thank you for the detailed information. The answer in one sentence could be –

    Private Investment, or better still FDI.

    If you allow somebody like Reliance Energy to come in, this would mean that they will run their operations to get returns on their investment. Therefore the cost of corruption (leave alone before the project takes off) during the operations of the project will be wiped out. Private companies are very efficient in this regard. Basically, given all scenarios they will maximise their efficiency.
    The details of the project have to be thought through carefully (re: taxes, royalties, local employment, infrastructure for the surrounding areas, tariffs for export and local use etc.). However, this would mean no burden of loans, corruption etc. etc for us while still receiving an income through royalties/taxes and the creation of employment and development of infrastructure. The added benefit is the political clout that a group like Reliance will have over their own government.

  11. I agree about private investment in hydro project. If Indian company come here and invest and give fair enough pie to us should be must welcomed but long term vision should be kept in mind. But it is better to produce by ourself and sale it to other countries at comepetitive price would be more encouraging to gain more pie after 20 years. As I have given the example of Indian Bhakra Nangal plant, now more than 40 years old, has operating costs of only Rs 0.10 or US$ 0.002 per unit in India. That should be kept in mind. But we get frustration looking at the ethics of our politicians. Anyway they should be changed….

  12. Just some points to add about hydel-
    -Big Vs Small projects: my opinion is that big project for FDI and smaller ones for domestic investments (micro hydro). lets not forget that making the nepalese construction company know how to build dam is as well important in the process.
    -India’s nuclear energy search is based in thorium not plutonium. This technology will take takes to take off.
    -Nobody seems to be talking about distribution issues. Once you make electricity, u need wires and grids to send it somewhere!
    -Big projects have the advantage of giving jobs to a large number of people at one shot. So if it is tata or reliance or whoever, it’s all good.

  13. Education should be the major agenda, trust me Nepali parents go gaga over their childrens education and messing around with that is not a same thing to do.

  14. You are all in such a state of denial that you are out of touch with reality. None of this will matter with the Maoists in power! Nepal will have an economy like Pol Pot’s Kampuchea: an economic black hole. You are all still talking about venture capitalism, entreprenurism and how to spend the donor nation’s never-ending generous contributions. There will be none! Communism kills all of our dreams!

  15. Bideshi:
    Quiet frankly I am getting sick your pessimestic Moa-phobic paranioa. Get over it buddy! The Maoist have to come to the main stream. I would rather have a communist country than a country in a perpetual state of civil war! Besdies Bedeshi you obviously are living in a cave somewhere because you are completly oblivious to what is happening in reality. At the end of the day these Maoists are nothing but wannabe commies. Once they come to power they will become the victim of greed etc. Plus we all know they are India’s little bitches so they are never going to run a strict communist system.
    I was actually reading an interview with Baburam in Nepalnews. I was actually very impressed by what he had to say.
    I don’t know if you are an agent of the RNA and the Royal establishment infiltrating these blogs and trying to stir up parania in the hopes that people will be sympathetic to the RNA-Royal Regime duo.
    Dude get over yourself and please give us a new prespective and some fresh thinking instead of your old stale speel.

  16. Wagle:

    You [icd] take this moderation feature off your website. It’s so stupid. And it prevents free discussion

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