The country’s Parliament recently endorsed the SEZ Act, which stakeholders believe is a milestone to attract export-oriented industries in the Special Economic Zone.

The government has plans to establish 15 such zones across the country in the future besides the Bhairahawa SEZ, which has already been inaugurated. Sujan Dhungana of The Himalayan Times caught up with Chandika Prasad Bhatta, Executive Director of the SEZ Development Committee to talk about the progress made at Bhairahawa SEZ and the existing challenges and impact of SEZ Act on investors. Excerpts:

It has been two years since the first SEZ was inaugurated in Bhairahawa. What has been the progress of Bhairahawa SEZ so far?

We have completed the first phase of seeking proposals from interested investors who are willing to set up industries inside Bhairahawa SEZ. In the first call, we received proposals from 23 companies. These companies had sought permission to build their industries in 45 of the 68 plots available within Bhairahawa SEZ. However, a sub-committee under the Special Economic Zone (SEZ) Development Committee, which was formed to analyse the proposals of these interested companies, found only 14 companies among the 23 applicants eligible and meeting the standards and parameters set by the government. We recently have already approved the proposal of these 14 companies and an agreement to this effect has been signed between SEZ Development Committee and these companies. These 14 companies will use 35 plots inside Bhairahawa SEZ to build their industries.

What types of industries are these companies constructing inside Bhairahawa SEZ?

These approved companies have proposed to build industries related to agriculture, footwear, herbal products, soap manufacturing, readymade garments and synthetic products, among others. Sugam Nano Herbal Industries Ltd, Jagadamba Synthetic Industries, Mahendra Kumar Goel Readymade Garments, Lohiya Soap Industries and Kiran Shoes Manufacturers are some of the few companies who have obtained approval from SEZ Development Committee to build industries inside Bhairahawa SEZ.

When does SEZ Development Committee expect these companies to construct their respective industries?

These companies will now have to complete all procedures of registering their industries with the related government bodies. While a few companies have already registered their industries, a majority of them are yet to register themselves. Once their industries are registered, we will allow them to visit their respective sites inside Bhairahawa SEZ.  Subsequently, these companies will begin construction process of their industries.

Though the government has pledged a number of subsidies and incentive facilities for industries operating inside SEZ, investors’ response to the government’s first call to invest inside Bhairahawa SEZ was not satisfactory. What could be the cause behind this? 

We had sought request for proposal from investors to set up industries inside Bhairahawa SEZ in the first week of May and had given a month’s time for companies to file in their applications. However, we received proposals from only 23 domestic firms. I believe that investors were then in a dilemma to invest as facilities announced for industries inside SEZ were yet to be legalised. As a result, almost half of the area inside Bhairahawa SEZ remains unoccupied. However, I expect an overwhelming response for Bhairahawa SEZ and also the other SEZs that the government has planned to establish in 14 different paces of the country now following the endorsement of SEZ Act by the Parliament. With a target to have all 68 plots inside Bhairahawa SEZ booked, we have already announced a notice for the second time in the first week of October seeking proposals from interested investors. Moreover, we recently have received a proposal from a private company seeking to build a noodle manufacturing factory covering five plots. As the SEZ Act has a provision that has banned strikes inside SEZ and ensures 24-hour electricity supply among other industry-friendly facilities, we are optimistic that investors’ response to invest inside Bhairahawa SEZ will be much better.

Is the infrastructure inside Bhairahawa SEZ fully complete so that companies who have got government’s approval can begin constructing their respective industries?

We have almost completed building all the required infrastructure inside Bhairahawa SEZ, except for power supply. Works are underway to supply required electricity to Bhairahawa SEZ from Dhakai sub-station of Bhairahawa. We have asked the government for 20MW of electricity for smooth operation of industries inside Bhairahawa SEZ. However, we are unaware on how much electricity the government can supply. For regular infrastructural works and construction works of industries inside SEZ, we have been supplying electricity at Bhairahawa SEZ through a three-phase line. Meanwhile, we have already completed other infrastructure works like road construction, drainage, weighing bridges and parking stations. Installation of fuel station will be completed within this year.

Since you are not sure about how much electricity the government can supply, how will you assure industries operating inside SEZ that they will get electricity supply for 24 hours a day, which has been guaranteed by the SEZ Act as well?

Nepal Electricity Authority (NEA) is rapidly carrying out works to supply us electricity from Dhakai sub-station. However, we don’t know whether NEA can give Bhairahawa SEZ 20MW of electricity from this sub-station. We have learned that consumption of electricity is already high in Bhairahawa while availability is very low. In case of power supply constraint at Bhairahawa SEZ, we are planning to utilise other alternative sources of energy. One among them is generating electricity from furnish oil, which is comparatively cheaper than to generate electricity through diesel. Electricity generated through diesel will cost around Rs 20 per unit while our calculation shows that electricity generated through furnish oil will cost around Rs 10 per unit.

Besides alternative energy sources like solar power, I believe that generating electricity through furnish oil is the best option for a country like Nepal until we can be self-reliant in hydropower.

Only domestic firms have applied to construct industries inside Bhairahawa SEZ though interest of proposal was sought from both domestic and foreign investors. Why do you think have foreign companies shown less interest?

Foreign investors don’t invest anywhere without doing enough homework, research and analysis.  They seek ample time to study the facilities given by the government, investment climate and infrastructure status before they invest in any country. However, we published a notice calling for applications within a month’s time and this one-month period was inadequate for them to decide on whether or not to submit proposals. Our inability to give enough time to foreign investors to do proper homework before investing in Nepal is the major cause behind foreign companies not showing interest to set up industries inside Bhairahawa SEZ. Similarly, we have failed to market Nepal’s SEZ in foreign countries which is another major setback. We should promote Nepal’s SEZ among foreign investors abroad by highlighting the benefits of setting up industries inside SEZ.

Recently endorsed SEZ Act has also welcomed private sector to establish, operate and manage SEZ. Has any company shown interest in this?

I doubt if any Nepali company will apply to establish, operate and manage an entire SEZ because even big domestic business houses have approached to construct industries within SEZ. However, there are possibilities that domestic business houses can run SEZ in a joint venture model with a foreign company. In fact, a privately owned Chinese insurance company and Lhasa SEZ have jointly proposed to the SEZ Development Committee to run a SEZ as a joint venture in Nepal. The SEZ Development Committee has already approved their proposal. The proposal is waiting for a green signal from the government. Once their proposal is approved, Chinese investors would invest around Rs five billion to establish, operate and run a SEZ in Nepal. However, we still don’t have a SEZ guideline. Timely endorsement of SEZ guideline will contribute to bringing in more investment in SEZ.

 Where has the construction process of planned SEZs in other parts of the country reached?

We have planned to construct SEZ in 15 different places across the country. Among others, construction of Simara SEZ is doing good. We have targeted to inaugurate Simara SEZ within the next two years.