The development narrative in Nepal often focusses almost exclusively on how to raise funds for Nepal’s considerable infrastructure needs. Ashutosh Mani Dixit and Bishal K Chalise supplement this with robust framework to ensure resources are used efficiently

Chalise, Bishal

Dixit, Ashutosh Mani

LSE Research Online

2017-4-20Strengthening infrastructure governance in Nepalblogs.lse.ac.uk /southasia/2017/04/20/strengthening-infrastructure-governance-in-nepal/The development narrative in Nepal often focusses almost exclusively on how to raise funds for Nepal’sconsiderable infrastructure needs. Ashutosh Mani Dixit and Bishal K Chalise supplement thiswith robust framework to ensure resources are used efficiently.The need for huge investment to reduce the infrastructure deficit in Nepal is well-known.‘Infrastructure financing’ has become a dominant narrative in country’s development agenda as thecountry is takes a gamut of initiatives to mobilise scarce domestic and international resources.However, discussions around the potential savings that could arise from more efficient practices ininfrastructure project building and delivery are almost non-existent. This article aims at kick-starting adebate by arguing that improving operational efficiencies in the project selection and managementalone can save millions of dollars while improving the quality of infrastructure and shortening projecttimelines.The World Bank (2014) estimates that Nepal needs to invest as much as 12 percent of GDP ininfrastructure, just to maintain the current rate of GDP growth. This level of investment, which ishighest in the South Asian region, shows the massive infrastructure gap. To its credit, the Government of Nepal istaking multifaceted approaches to fulfil the demand. The most prominent among these are formulating the PublicPrivate Partnership (PPP) Policy in 2015 as well as drafting of PPP Act, reforming tax laws, and more recently co-organising theNepal Infrastructure summit, and Nepal Investment Summit simultaneously in 2017. These measuresare imperative to bring foreign and domestic infrastructure investment into the country.However, much of the development narrative focuses on the financing aspect of infrastructure building. The amountof investment has become the sole metric to evaluate the infrastructure development while public discussion on thequality of such development is very limited. In fact, the governance of infrastructure development is largelyoverlooked. Questions around infrastructure selection and prioritisation criterion, evidence-based project planning,and streamlining project building and operations etc. are not explored.  As a result, we are missing opportunities tomake most out of our limited resources.We need a holistic infrastructure governance framework. In this regards, the recently published report on‘Infrastructure Finance Strategies for Sustainable Development in Nepal’, an in-depth study of infrastructurefinancing strategies for sustainable development, authored by Ashutosh M Dixith as identified three potentialsources of public expenditure efficiencies. They highlight robust ways to reduce the cost involved in infrastructureprojects and improve overall infrastructure governance. The report draws insights from a study published byMcKinsey and Company, which reveals globally successful practices of increasing infrastructure productivity.The first stepping stone of sound infrastructure governance is to improve project prioritisation in order to optimise theinfrastructure portfolio. Reports have shown that eliminating poor performing contracts and selection of improvedalternatives could save up to 15-35 per cent of new capital spending. In Nepal’s case, even if the country saves 10percent of capital expenditure, which amounts to NRS 8 billion, the amount would provide sufficient cushioning tofinance large scale infrastructure projects.Achieving these efficient outcomes demands three key components: 1) identify projects with clear purpose, 2)evaluate projects using improved cost-benefit analysis, and 3) prioritise projects at portfolio level.The governmentmust select projects with clear purpose based on socio-economic priorities. Also, while evaluating the projects,metrics must consider long-term economic, social and environmental effects. It is better to select and prioritise theprojects by conducting a cost-benefit analysis which includes social factors such as time saved by commuters, orreducing mortalities, injuries, and noise. The results should then be validated by cross referencing with similar past1/3projects. The infrastructure prioritisation framework recently developed by the World Bank can help improve theinfrastructure planning and decision-making process by incorporating financial, economic, social and political factorsinto project prioritisation. Finally, there should be a system to check project performance relative to predictions. Thereport also advises there should be a strong database to aid decision making, for which the study recommendsmaintenance of infrastructure balance sheetImage: New road in progress. Credit: Axel Drainville CC BY-NC 2.0In Nepal, important infrastructure projects have been suffering from implementation delays. For instance, 13 yearsafter the government agreed to the construction, the Melamchi Drinking Project is still work in progress. Uponcompletion it will supposedly distribute 400 million litres of water daily  – a figure which is often questioned. Theproject started with public private and donor partnership has suffered significant delays and escalatingadministrative and operational costs. The McKinsey and Company study highlights that to save government has toadopt sophisticated procurement, and streamline permit approvals and land acquisition to reduce bottlenecks.The third is better utilisation of existing infrastructure assets. This is important given Nepal’s limited ability to mobilisedomestic resources for infrastructure. Adding more roads, constructing hydropower dams and fitting pipelines willnot resolve problems if the existing infrastructure is not properly maintained. Nepal should move away from the build,neglect, and rebuild mentality and implement adequate an infrastructure management system together withappropriate financing framework. We should take smart infrastructure utilisation management approach. Take theelimination of power cuts for example a recent success in this area. Nepal used to experience up to 11 hours of loadshedding, but now the country enjoys almost 24 hours’ electricity supply which in the real sense is the result of betterutilisation and demand management of existing infrastructure. On contrary, the valley road expansion project hasproved poor value for money as traffic congestion has not reduced. Instead, the deployment of informationtechnology in establishing intelligent transport system (ITS) for roads would enable the utilisation of the existing roadcapacity to double or even triple.Moreover, the opportunity by making most of the infrastructure assets like power and water systems lies in reducingnon-technical losses such as electricity leakage and distribution losses. In Nepal, electricity leakage was 25 percentin 2016, the 4thhighest leakage rate in the world. On the other side, in water supply system, non-revenue water,unmetered supplies, stands at 18 percent. This avenue is worth taking seriously as reducing the losses can costsignificantly less than what it cost to build a utility infrastructure project.The above discussion amply suggests an urgent need to have a national level infrastructure governance framework.Such framework would not only help in effective utilisation of the already constraint resources, but also create2/3conducive environment for private investment in infrastructure both domestic and foreign. The efficiency would notonly generate much needed saving, and ensure the timely completion of the project, but also send positive messageto the investors.This article gives the views of the authors, and not the position of the South Asia @ LSE blog, nor of the LondonSchool of Economics. Please read ourcomments policy before posting.About the AuthorsAshutosh M Dixit is an Economic Consultant based in Nepal. Ashutosh has worked as aconsultant for the NPC-Government of Nepal, UN-ESCAP, UNDP, OECD, and the World Bank. Heis a graduate from the Australian National University (ANU), Canberra. Bishal Chalise is an economist based in Nepal, and the President of Artha Foundation foreconomic and financial research in Kathmandu, Nepal. He is also a graduate from ANU.Copyright © 2016 London School of Economics3/3

Strengthening infrastructure governance in Nepal

Abstract

Similar works

Full text

Available Versions

LSE Research Online