Public Enterprises continue to be ‘the losers’

Kathmandu, July 17:

The overall performance of state-owned public enterprises (PEs) has been found dismal for yet another year, although the operating profits have relatively improved compared to the last fiscal year.

The annual review report of the PEs for the fiscal year 2006-07 published by the ministry of finance reveals that out of total 36 PEs, 21 are expected to earn profits while 15 will post losses. The figures show that 17 PEs operated at profits, while 19 incurred losses.

The estimated operating profit for the fiscal year 2006-07 stands at Rs 7.80 billion. Since the figures for targeted operating profit or loss for 2007-08 could not be obtained from some PEs, the estimation of overall targeted operating result for that period is not possible. Due to heavy operating loss incurred by Nepal Oil Corporation (NOC) during 2005-06, overall operating profit of PEs has decreased from Rs 2.13 billion in 2004-05 to Rs 1.69 billion in 2005-06.

However, on the basis of figures received so far, it is estimated that there will be overall operating profit of Rs 5.98 billion.

The total net worth of PEs has gone up to Rs 39.57 billion at the end of 2005-06 from Rs 32.48 a fiscal year before that. The additional capital injection of five billion rupees in Agriculture Development Bank Ltd (ADBL) and Rs 4.96 billion net profit of Nepal Telecom has contributed to the increment of the total net worth.

Otherwise, the loss of Rs 3.67 billion by NOC could have a negative impact on the growth of overall net worth, states the report. In spite of majority of PEs incurring losses during 2005-06, net result of all PEs shows a net profit of Rs 2.54 billion. In comparison to 2004-05, Nepal Telecom, Rastriya Banijya Bank (RBB) and Civil Aviation Authority of Nepal (CAAN) have increased their profits by Rs 1,410 million, Rs 300 million and Rs 200 million respectively. The turnaround of ADBL and Nepal Airlines from loss-making institutions to profit-generating ones this year has also contributed to the total growth of net worth.

However the increment in net losses of NOC (Rs 660 million) and Udayapur Cement Factory Ltd (Rs 120 million) has had a negative impact on growth. Although some of the PEs are making profits, their capacity utilisation, overall financial position and employees’ productivity are not satisfactory.

Due to dismal performance, the government’s liabilities in the PEs have increased alarmingly during the review period touching the total amount to Rs 128.4 billion including Rs 65.68 billion in the share capital and Rs 62.72 billion in loans. The total liability has increased by Rs 4.18 billion.

The return on investment in the form of dividends during 2005-06 was only Rs 2.08 billion, which is a mere 3.16 per cent of the total investment in the share capital. For 2006-07, estimated net profit of all the 36 PEs is around Rs 6.91 billion. The continuous and alarming losses have substantiated the arguments that privatisation is a must to ensure better efficiency, productivity and improve financial health of the enterprises.