This article was originally published in www.nepallivetoday.com on June 14, 2023 by Anmol Purbey. Mr. Purbey is a researcher at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. Author can be reached at [email protected]
Nepal faces a multitude of challenges in infrastructure governance, ranging from legal barriers and diplomatic complexities to subcontracting to under-qualified contractors, prevalence of least-cost bidding, time overrun, cost escalation, bureaucratic hurdles, poor project management, and political intervention.
Infrastructure governance in Nepal has remained a significant cause for concern over the years, with the Melamchi Drinking Water Project serving as one of the most infamous examples due to its prolonged delays, which have kept it in the news for an extended period. Unfortunately, this project is not an isolated case as there are numerous other projects that have also experienced multiple delays due to various challenges. It is essential to explore the challenges that infrastructure governance in Nepal faces in order to gain a deeper understanding of the underlying problems.
Administrative problems
Least-cost bidding is a system under which the contract is awarded to the bidder who submits the lowest cost proposal. This system has been discouraged all around the world due to its inherent flaws. However, the practice of least-cost bidding continues to prevail in Nepal. This situation makes contractors less motivated to focus on improving the quality of their work. Contractors often bid low to win contracts, but then cut corners during construction to save costs. This approach compromises the selection of capable contractors and fails to account for the true costs associated with project delays, rework, and maintenance.
Resistance from communities is another challenge in infrastructure development in Nepal. Several infrastructure projects in Nepal have encountered resistance from communities facing economic, social, and environmental impacts. These disputes often disrupt the timely start and completion of projects, as well as the lives of affected citizens. To address this challenge, the government of Nepal needs to ensure that infrastructure projects are implemented in consultation with affected communities and that their concerns are addressed.
Capabilities of contractors
Subcontracting is also one of the major problems in project progress in Nepal. Government officials have pointed out that construction firms take as many contracts as possible and subcontract them, leading to poor quality infrastructure and delays in project completion. Many contractors who get these projected handed over to, lack the technical expertise and financial resources to complete infrastructure projects on time and within budget. The initial contractors often secure the contract at a price significantly lower than the estimated cost as least-cost bidding is still prevalent. However, when the project is further subcontracted, the price tends to decrease even more. This raises concerns about the ability of such subcontractors to deliver quality work while operating under such reduced financial constraints. This results in poor quality infrastructure and delays in project completion. Subcontracting a single task multiple times is also observed as a prevalent issue in project advancement, as highlighted by officials.
Cost escalation refers to the unforeseen increase in project expenses beyond the estimated budget. In Nepal, various factors contribute to cost escalation, including inflation, delays leading to additional material and labor costs, contractual disputes, change in scope and political interventions. Insufficient financial planning, inaccurate cost estimation, and lack of effective cost control mechanisms further exacerbate the issue. As a result, the cost of infrastructure projects often surpasses the allocated budget, straining public finances and impeding the completion of essential projects.
Inconsistent decisions
Political obtrusion poses a significant challenge to infrastructure governance in Nepal. Projects often become subject to changes in scope, priorities, or funding due to political considerations. Such interventions disrupt the smooth execution of projects, divert resources, and create an environment of uncertainty and inefficiency. Decisions driven by political motives can compromise the long-term benefits and sustainability of infrastructure development. There is tendency of awarding projects to individuals who have personal connections with those in power, without adequately considering their standards or capabilities.
Recently the former Prime Minister KP Sharma Oli, who previously approved a project involving an Indian firm to develop the Lower Arun hydropower project, attributed the decision to Pushpa Kamal Dahal. Similarly, the Budhigandaki Hydropower Project experienced a series of inconsistent decisions by the government. Initially, in 2017, the Pushpa Kamal Dahal-led government awarded the contract to China Gezhouba Group Corporation without competitive bidding, but later revoked this decision. Then, in September 2018, the KP Sharma Oli administration decided to involve the Chinese company again, contradicting the earlier decision to develop the project internally. In April 2022, the Sher Bahadur Deuba administration further revoked the license issued to CGGC, opting instead to pursue plans for domestic financing through the state-owned Nepal Electricity Authority (NEA).
Geopolitical rivalry
Rivalry between India and China has also affected infrastructure governance in Nepal. Both countries have been trying to strengthen their ties with Nepal, aiming to enhance their relationship, and this has affected several infrastructure projects in Nepal. For example, the construction of a hydroelectric power plant in Nepal was delayed due to a dispute between India and China over the project’s funding. India has indicated that it will refrain from purchasing energy from Nepal if it is associated with Chinese investment or involvement, regardless of the inclusion of equipment, workers, or subcontractors. Nepal’s aspirations for economic development and improved connectivity are influenced by the diplomatic dynamics between these two regional powers. Political disagreements, border issues, and competing interests delay and disrupt infrastructure projects, leaving Nepal in a vulnerable position.
Navigating ahead
Addressing these challenges requires a comprehensive approach that involves streamlining legal frameworks, enhancing transparency and accountability, improving project management practices, and promoting merit-based contractor selection processes. Fostering an environment conducive to political stability and constructive diplomatic relations can create a favorable landscape for infrastructure development in Nepal.
Fostering an environment conducive to political stability and constructive diplomatic relations can create a favorable landscape for infrastructure development in Nepal
The government needs to ensure that infrastructure projects are implemented based on technical expertise and financial resources, rather than political considerations. To address the challenge of least bidding process, the government of Nepal needs to improve its procurement processes by forging new techniques for bidding and ensure that contractors are not selected solely on the basis of the lowest bid. By overcoming these obstacles, Nepal can pave the way for sustainable and robust infrastructure that caters to the needs of its citizens and drives economic growth.