Since 1956, Nepal has witnessed growth and development of public enterprises. His Majesty's Government of Nepal (HMG/N) has to play a vital role in the development process of the country. For this purpose HMG/N makes massive investments to create necessary infrastructure and run some of the large manufacturing industries and to provide essential services to the people. This has necessitated creation of a number of public enterprises as instruments of national development.
Public enterprises play a major role in achieving the twin objectives of social and economic development envisaged in the national policy. The objectives for which the public enterprises are set up are specified in their respective legal charters. The objectives are aimed at creating the necessary infrastructure for developing the economy, stabilising prices, maintaining a regular supply of essential commodities, import substitution and export promotion, and employment generation. To achieve the objectives for which they have been set up, public enterprises are endowed with more autonomy than government departments.
Nepal Bank Ltd., a commercial bank, was the first public enterprise to have a separate legal entity in Nepal. During World War II, some other public enterprises were established; however, they could not make any substantial progress. Nepal started its planned economic development in 1956 with the launching of first five year plan. Since then, the number of public enterprises has increased substantially in the various fields of national economy.
In Nepal, there are 57 public enterprises. They can be categorised as follows:
(a) Statutory Corporations/bodies (25) - These are public enterprises established under special statutes. Royal Nepal Airlines Corporation, Nepal Industrial Development Corporation, and the Electricity Authority are some of the examples of the statutory corporations/bodies of Nepal.
In addition to the foregoing, the Development Board Act, 1956 was promulgated in Nepal with a view to creating autonomous bodies to implement development projects smoothly and quickly. Radio Nepal Development Board,
Hospital Development Boards, Urban Development Boards, Narayani Irrigation Development Board are some of the examples of autonomous bodies in Nepal.
(b) Companies (32) - Some public enterprises are established under the Company Act, 1964. They are mostly manufacturing and trading concerns. These companies are either fully owned or majority equity is held by HMG/N.
The executive power of a public enterprise is exercised by a Board of Directors which is expected to carry out the business of the enterprise economically, efficiently and effectively.
Boards of Directors in all statutory corporations and autonomous bodies consist of a chairman and four to six members. Members of the Boards and the general manager are appointed by His Majesty's government for a fixed period of usually four years.
In regard to government companies, established under the Company Act, the number and composition of the Board of Directors and the process of their appointment are spelt out in the memorandum and articles of association. The Board members and the general manager are appointed by the government in fully owned government companies. In the case of a company of which majority equity is owned by the government, HMG appoints the Board members, in proportion to its share holding and the rest of the members are elected by the general meeting of the shareholders.
In the case of some autonomous bodies constituted under the Development Board Act, the day to day functions are almost the same as those of government departments.
Public enterprises are free to prepare their own plans and budget and to implement them. However, the Board of Directors have to receive approval from the administrative ministry in some cases. Some of the features of the system are:
For the purpose of administration, public enterprises require the services of a large number of staff. Administration has become so complex today that only specialists and experts can successfully run it.
In Nepal, public enterprises are authorised to create staff positions and to recruit competent personnel. They are required to follow the general principles prescribed by the Public Service Commission, a constitutional body authorised to recruit civil servants in the government offices. The commission prescribes necessary qualifications for various categories of staff of the public enterprises. Officer level cadre and junior staff are recruited as university graduates and high school graduates respectively on the open market. Recruitment is conducted through advertisement of vacancies, invitation of applications and testing applicants as part of the selection process. Senior posts are filled by promotion from within the enterprises.
Generally, there is no free movement of staff from one public enterprise to another. Terms and conditions of service as well as the facilities vary from enterprise to enterprise.
At present, there is no central agency to train the staff of all public enterprises; it is the obligation of each enterprise to train its own staff. Some enterprises have developed their regular training programmes and some organise their training programmes as and when it is felt necessary. Nepal Administration Staff College and Banker's Training Centre also frequently organise training programmes for the personnel of public enterprise on different aspects of management. Such training is of the following types:
Keeping in view the lack of qualified accountants, financial managers and other staff, training facilities have yet to be fully developed.
The financing of public enterprises is through equity capital, internal resources generated, borrowings and grants and subsidies from the government. In most public enterprises, the operating income is not sufficient to meet the operating costs. Grants and subsidies by the government are confined to public corporations and autonomous bodies and are made to meet deficits in operating costs and for subsidising prices. They are given once in four months or as and when necessary. While most of the autonomous bodies are exempted from payment of income tax, the enterprises governed by Industrial Enterprises Act are exempted from payment of excise duty, sales tax and profit tax for a specific period which is normally 5 to 10 years from the date of commencement of their operation. The autonomous bodies also get assistance from government by way of transfer of assets. Some of the autonomous bodies also receive assets from other bodies free of cost.
Public enterprises may borrow from domestic sources with the approval of the Board of Directors against the mortgage of assets. They can also raise loans from foreign sources with the approval of tr.government or receive them through the government on a re-lending basis. For public corporations and autonomous bodies, the government loan carries a concessional rate of interest which is lower than the bank rate. When public enterprises are unable to meet their loan obligations in spite of rescheduling efforts, the government shoulders the responsibility in respect of all domestic loans for which it has given guarantees and also in respect of foreign loans received through it. In respect of autonomous bodies, the government is ultimately responsible for all borrowings.
The public enterprises are free to determine the rates, fees and product prices except in the case of prices of essential commodities and services which are subject to prior approval of government.
Surplus funds accumulated by autonomous bodies are used as working capital or for development works. In the case of corporations and companies, these surpluses may, in part, be returned to government in the form of dividends, or be retained and transferred to Reserve Fund as decided by the Board for the purposes of the enterprise. Public enterprises which continue to make losses run the risk of being wound up by the government. While government companies wound up have to go through the normal processes of liquidation pursuant to company law, autonomous bodies and corporations when wound up simply transfer their entire assets and liabilities to the government.
Each statutory corporation or autonomous body is, in general, linked with the government through one of the ministries for administrative purposes and all information to and from it flows through that particular ministry. In the case of companies, such linkage is made either through the Department of Industry or through the Department of Commerce, depending on the nature of their activities. In addition, the government is empowered, irrespective of whetherthe relevant statute provides for such acts expressly or not, to give directions to the enterprise in respect of matters of national importance.
Ministerial control is exercised by the appointment of chief executives and members of the Board of Directors, issuing of policy directives, and when instituting enquiries or investigations. A Minister does not have the power to direct the payment of funds to a destination nominated by him.
The Ministry of Finance acts as central agency for ail the public enterprises and is empowered to issue directives and guidelines and to seek information from public enterprises. This is done through the Corporation Co-ordination Division of the Ministry. This Division co-ordinates and provides assistance on the implementation of policies and matters of accounting, personnel administration, and finance.
The National Planning Commission oversees the operational and investment plans of the enterprises. Prior approval of the Commission is necessary for implementing the capital and physical plans of the enterprises.
Chief executives and managing directors are appointed and dismissed by the government. Their conditions of service are also determined by the government. As regards other staff, the Public Service Commission plays a regulatory role in providing the basic frame work for their recruitment and promotion. Service rules of the enterprises also require the prior approval of the government.
One of the inherent objectives of the establishment of statutory corporations and autonomous bodies is to give them more freedom in the operation of their activities than is available in the government departments. Accordingly, these public enterprises enjoy considerable freedom in determining rates, fees, and prices for their products and services. However, general directives of government have to be observed in cases such as fixing prices of essential commodities and services, borrowing from foreign sources, and using such borrowed funds for purposes other than those for which they are raised. Because most of the foreign borrowings are guaranteed by the government, enterprises must abide by government guidelines in order that the borrowings are regulated properly.
Subject only to such directives as the government may give, provisions of the company law equally apply to government companies.
Overall, management responsibilities of the enterprises rest with a management Board usually called the Board of Directors.
Boards of Directors of statutory corporations and the autonomous bodies exercise full powers regarding day to day functions. Subject to government
directives and guidance, the Board enjoys freedom in the implementation of policies. The remuneration and other conditions of service in relation to the chairman and members are controlled by the government. The remuneration of other staff is fixed by the Board within prescribed limits.
Boards of Directors of fully owned government companies are responsible to the government. The Boards enjoy full powers regarding day to day operations. However, the Boards have to abide by certain restrictions imposed on them from time to time as the government thinks fit.
- Financial management of most of the public enterprises is not satisfactory and these public enterprises have not been able to develop proper management information and reporting systems.
Autonomous bodies report to their administrative ministry on an annual basis, whereas statutory corporations and companies report quarterly to their administrative ministry and annually to the Finance Ministry. Some companies submit monthly reports to the responsible ministry.
In Nepal, no central accounting body exists. Therefore, the accounting standards followed by each of the public enterprises are determined individually. However, the Ministry of Finance lays down directives based on the general principles of commercial accounting, which latter are generally accepted by most of the statutory corporations and autonomous bodies as accounting guidelines. Generally, companies determine their own accounting standards.
Among the various measures by which the legislature exercises indirect control over public enterprises are budget debates, questions, debates raised through motions and other legislative devices, annual reports of the ministries, public enterprises, or the reports of the Supreme Audit Institution.
The budget evaluates economic performance for the previous year and presents estimated revenue and expenditure of public enterprises for the next fiscal year.
The government incorporates the estimated income from public enterprises and investment in the public enterprises through the budget document. Generally, the types of financial assistance provided by the government are as follows:
During the discussion of budget proposals and policies, the parliamentarians raise questions regarding different activities of public enterprises. Measures are suggested to improve their position and performance. These suggestions assist executives to take appropriate action. Questions raised regarding contributions made by public enterprises in different sectors of the national economy, make the executive government and public enterprises more responsive to the national interest. The legislature does not control borrowings by public enterprises.
Such committees play a significant role in assisting the legislature to exercise control over the government and public enterprises by providing valuable information and critical analytical data on government activities.
Five different committees of the legislature oversee the activities of public enterprises. The Supreme Audit Institution's report on the audit of public enterprises is considered in the Accounts Committee. These committees play an important role in controlling the activities of public enterprises in various ways. First of all, the annual budget estimates, which also include the budget provision for financial assistance to public enterprises, is discussed in the Finance Committee. Other activities of the public enterprises are evaluated by appropriate committees. Bills relating to public enterprises are deliberated in detail in the committees before being presented to the full house for approval. Members of appropriate committees also visit offices, hold discussions about operations, problems and prospects. Reports on annual targets and achievements are also submitted to the committees.
The Panchayat Committee holds discussions on the report of the Public Service Commission, which evaluates the personnel administration aspect of public enterprises.
The Constitution of Nepal and the Audit Act each empower the Auditor-General - the Supreme Audit Institution (SAI) - to conduct the audit of fully owned government enterprises. If the SAI feels the need for the assistance of external auditors, it may appoint auditors from the list of auditors registered under the Auditor Act, 1974. Such auditors are bound to work under the direction, supervision and control of the SAI. In cases of government controlled enterprises, the Audit Act provides that if any corporate body in which majority of the shares is owned by the government of Nepal and does not submit an auditors' report within six months after the end of the fiscal year, the Auditor-General shall appoint auditors to audit the accounts of such entities.
The Constitution of Nepal has vested the SAI with full powers to carry out the audits of public enterprises fully owned by government according to the procedures prescribed by law covering all the aspects of regularity, propriety, economy, efficiency and effectiveness. Accordingly, financial regularity and compliance audits, performance audits and propriety audits are undertaken.
Public enterprises are formed with specific objectives for the economic and social development of the country. Most of the public enterprises are of the nature of either manufacturing, trading, or providing services. The objectives of audit of such public enterprises are to ensure that:
The internal audits of most of the public enterprises are undertaken by internal audit staff who are appointed and trained by the management. They also participate in training and seminars on accounts and audit inside and outside the country. Internal audit reports are submitted to the management for corrective actions.
The SAI analyses and reviews the internal audit reports of the entity in order to make effective audit plans and programmes and also to decide the methods and techniques of audit to be carried out.
Pursuant to the Audit Act, the SAI may contract auditors as agents from the list of approved professional auditors. Such auditors work under his supervision and guidance.
Of the 52 fully owned government enterprises some of them are audited directly by the SAI and the remainder by commercial auditors appointed generally on a yearly basis.
Audit practices, methods and techniques applied to public enterprises are similar to those followed in government audit. The Audit Act includes provisions on matters to be audited relating to the documents and records, stores, internal audit system, systems used in the prevention of unnecessary losses, target and achievement, and the comparison of cost estimates with the actual program cost.
The auditors examine the procedures relating to financial decisions, the effectiveness of internal control systems, and other pertinent activities related to finance.
A separate directorate for the audit of public enterprises and development boards has been set up in the Office of the AG under an Assistant Auditor General (AAG). He has under him two Directors, one each for the audit of public enterprises (corporation and companies) and development boards. Similarly, there is provision of support staff to carry out the work.
The AAG, who is responsible for formulating plans and programmes, coordinates the work of the auditors and manages the audit activity. Directors of public enterprise audits supervise, direct and control the auditors. Periodical reports and information submitted by auditors are analysed and reviewed by Directors and senior auditors and a draft of the annual report relating to the audit of public enterprises is prepared by them. Senior auditors and other auditors are directly involved in checking and verifying the accounts and books of the entity.
The 52 public enterprises fully owned by the government as well as the five development boards are audited by the SAI each year. Some are audited directly by the SAI and the remainder by commercial auditors. The auditors are directed to submit preliminary reports within three months and final reports within the next two months. Some of the public enterprises which have their accounts and records up to date, get their accounts audited each year. Problems like non-submission of financial statements, delays in the preparation of accounts and records, incomplete financial information, delays in the Board of Directors' replies to the preliminary reports in many corporations, are factors which have resulted in audits not being completed within the specified period.
The auditors appointed by the SAI submit their preliminary reports to the Boards of Directors for comment. After the Boards' replies are received, final reports are submitted to the SAI for review. General comment/observations which seem not to be material and therefore not worth highlighting in the report are omitted by the SAI as authorised by the Audit Act.
The annual report of the SAI is prepared and submitted to His Majesty the King generally before 15 June each year. By command of His Majesty, the reports are tabled in the National Panchayat (legislature) by the Finance Minister. The Accounts Committee of the National Panchayat discusses these reports in the presence of the Secretary of the Ministry concerned, the chairman and senior executives of the entity. The Auditor-General and/or his officials also attend the deliberations to testify to the contents of the reports. The Accounts Committee, after discussion, presents its reports to the National Panchayat and, after the report receives the approval of the National Panchayat, it is circulated to all ministries concerned for implementation.
The introduction of planned development processes in the country in 1956 brought about a significant increase in the government's responsibilities. The government established public enterprises in different fields of national endeavour to gain momentum in development processes to promote public welfare. Though the objectives underlying the establishment of public enterprises were ambitious, performance has not matched expectations.
At present, the major problems in the management of public enterprises can be described as follows:
In order to tackle these issues, the government is considering what significant measures would ensure the autonomy of public enterprises commensurate with their accountability and public responsibility.