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CONFIGURING A BLUEPRINT FOR FDI – Sushil Bhatta

“In 2019, Nepal received foreign investment of just 0.79% of the country’s GDP. Covid 19 pandemic has adversely affected FDI and trade. In the changed context, we should learn from countries which have attracted more FDI in comparison with the GDP. We should improve the investment climate replicating the good practices and major policy departures applied in the countries attracting large chunks of FDI. We should analyse the new value proposition, concretising new ideas and open the door for lucrative sectors to attract FDI. For example, if Information Technology is lucrative for foreign investment. We should think of how we can evolve IT as a prominent industry contributing to the GDP. We can invite big giants to invest in different business verticals within the IT sector as a promising investment destination. We should analyse the sectors, our comparative strength, and how we can achieve the competitive edge”

Sushil Bhatta is the newly appointed CEO of the Investment Board Nepal, prior to which he had served as Member of the National Planning Commission. An engineer by profession and a management professional, Bhatta started his career with bringing electricity to 60,000 households in Kailali and Kanchanpur districts of the far-western development region funded by Danish International Development Agency (DANIDA) during 2003-2005. He later worked in the banking sector for over a year. He has also provided leadership to the Management Association Nepal which is an umbrella network organisation of management professionals of the country for two consecutive tenures from 2015 to 2020. Bhatta specialises in project management and contract management.

In this edition of Business 360, Bhatta shares his priorities as CEO of the country’s investment facilitation agency, status of projects at IBN, and the policies and framework required to encourage FDI in the current times. Excerpts:

What are your priorities for IBN since you have joined two months ago?

Prior to entering into my priorities, I would like to talk about a few things regarding the nature and objectives of this institution. We should continuously improve this institution for decent and fast track service delivery related to investment facilitation, investment promotion vis-à-vis executing the decisions and coordinating with relevant stakeholders. IBN has a comprehensive objective to translate sustainable development goals (SDGs) and the national development vision. We have stipulated the need assessment costing and financing gap. The 15th five-year plan has envisaged to garner 55.6% of the total resource required to achieve the targets of the periodic plan. We have to move ahead now in the changed context of the Covid 19 pandemic. We yet don’t know how this pandemic will evolve over time.

The Public-Private Partnership and Investment Act 2019 has demarcated high yield investors: 200 megawatt and above in hydropower projects and Rs six billion and above will be provided facilitation as one stop service from the Office of the Investment Board Nepal.

Talking about the legacy of this institution and what it has achieved over a period of eight plus years, it has done some remarkable works taking forward some flagship projects. The 900 MW export oriented project is near completion wherein we will get 21.9% of the total energy which is 197 MW. Arun-3, which I am talking about, is a flagship project for us to demonstrate in the future to prospective investors as our capacity. Similarly, some of the lime-integrated cement plants that have been established like Hongshi which has a capacity of producing 12,000 tonnes per day has in the first phase been utilising half of its capacity. Likewise, Huaxin located in Dhading district has a capacity of producing 3,000 tonnes per day and will start commissioning from February 2021. There are few other projects under execution. We have to facilitate them and expedite these works in a big way which I have been doing since I assumed office. I am trying my best to identifying the bottlenecks and am engaged in troubleshooting problems.

You have cited the references of a few projects performing well but there are many projects in the pipeline. Often the IBN faces allegations for lack of proper follow up with investors that have expressed commitment during the Investment Summit or high-level political visits. What would you say to this?

The projects initiated by the Investment Board are in different phases. I have cited the examples of a few projects that are under execution and some others waiting to come into immediate operation. We have to realise the low hanging fruits i.e. projects that are already in execution. Over Rs 200 billion worth of projects are in execution and it will be realised sooner or later. Apart from these, there are committed projects and we have already signed a Project Development Agreement (PDA) and Project Implementation Agreement (PIA) with them. There are some unsolicited proposals and we have to conclude the procurement of some of the solicited proposals. We are closely watching them and would like to facilitate them.

Since I came here, I took in-house briefing. I have also had discussions with investors on virtual platforms. Normally, we have to deal with investors on two major aspects: first, we should not be reactive to them. We have to hear from them what their grievances are. Second, we have to follow up with them and resolve the bottlenecks to ensure expedition.

We will also reach out to the investors who had expressed interest during the Investment Summit and ask them what is the best possible way we can support them. We must give them the message that we are actively working even during the Covid 19 crisis. We have to shorten the time required to reach decisions from the CEO level or the Board level led by the Prime Minister.

To tap investments, we must be well prepared. We must have shovel ready projects to develop them with private investment and public-private partnership. We have to plan, prepare and procure to realise such projects.

Nepal has a yawning gap in infrastructure. Will your experience in executing project banks during your tenure at the National Planning Commission help you address the infrastructure gap in the country?

Our thrust is to expedite the business as usual here. Eyeing the businesses for tomorrow, we will ideate new projects for garnering investment that will create multiplier benefit for the economy. We have a list of projects which we had showcased during the infrastructure summit. Investors have expressed interest in many projects. In case of other remaining projects, we will enrich the project concepts and prepare the terms of reference. Only after carrying out the quality study and detailed feasibility, will we be able to prepare for quality solicitation.

You have mentioned that the 15th five-year plan has envisaged to garner 55.6% of the total resource required to achieve the targets of the periodic plan. The Investment Board has a critical role to play. What will help achieve this target?

Foreign Direct Investment (FDI) below Rs 6 billion will be approved from the Department of Industry and the Industrial Promotion Board. However, large-scale investment comes through the Investment Board. All the three tiers of the governments have a role to play in a bid to enhance a favourable environment for investment. Every government agency concerned with investment facilitation should understand that every single investment has shared values and shared goals. Each investment is eventually linked with the economic growth and socio-economic wellbeing of the nation. Any agency reserves the right to initiate the project and bring it to a logical conclusion for shared prosperity. Coordination is a critical component but that is always related to an individual’s attitude and behaviour. Sometimes we think that coordination can be governed through mandatory legal provision. However, legal provision only may not happen with proper coordination. Sometimes without any legal provision, there could be a better coordination just through behaviour and attitude. The Investment Board always applies the strategy that we must be confident in our issues first, then only we can communicate well. If we communicate well, coordination and collaboration will happen. Coordination and collaboration are important strategic pillars.

We are framing a strategic blueprint for the Investment Board. Our primary objective is to garner investment and build institutional capacity as fundamental components. The blueprint will have detailed action plan framework for a five year term.

Was there was no strategic blueprint with the Investment Board so far?

The 26th Board Meeting had decided to frame the strategic blueprint in the changed context since the enforcement of Private Partnership and Investment Act in 2019. The law has provided a holistic direction, and it is our duty to make the institution effective, robust and capacitate it. That’s why we require a blueprint that addresses our priorities in the changed context.

Even during the Covid19 period, we have to continue work because the developers are working in the field. We have to resort to strategies to manage surplus energy, cement in the near future. If we can’t fetch better prices from exports, we must have alternatives in place. Are we going to energy intensive integrated projects like green infra? That must come through the strategic blueprint.
Institutional capacity building, coordination and collaboration are important strategic pillars for how we create the frame, how we develop the system. For example, if we are going to automate the one stop service centre, we would not only develop the system, we need guidelines to operate it. Any well governed institution needs guidelines, standard operating procedures (SOPs) and manuals, all of which are important. The prior action plan and framework for each strategic pillar will be unveiled through a strategic blueprint. A system alone cannot function without guiding documents and all these things must be spelt out in the blueprint. Blueprint will not only be a document for the sake of a document; it will have a result based action plan framework.

There is already a one stop service centre at the Office of the Investment Board. Are you thinking about providing an automatic route to foreign investors like Bangladesh is doing?

One stop service centre is not a new concept. Investment Board Nepal may not have a large number of transactions. There are more than 17 agencies involved in investment facilitation. It would not be feasible to deploy authorised persons from different government agencies, it is not a viable idea. In terms of numbers, the Department of Industry deals with a large number of foreign investments and there is a physical set up too. However we have to develop an investment portal and the portal has an inner and outer face as well. We need to also develop a knowledge management portal to provide information, FAQs that the investors can easily understand regarding proposal submission in a proper manner. We can provide these facilities through improving our website. On top of that, investment approval, company registration and other facilitation for foreign investors online means we have to create a conceptual framework of the integrated platform.

I would like to give an example, a foreign investor in Nepal sent a proposal to the Investment Board for profit repatriation or clearance for importing plant and equipment on re-export basis or exemption facilities given for the public private partnership (PPP) investment in certain sectors; we must sort out the issues promptly rather than going through a lengthy bureaucratic process. At the same time when the operational support system starts to fully function, we will be able to provide fast track, prompt and decent service delivery.

Are you saying that the system going to be developed by the Office of the Investment Board will have interfaces with different concerned agencies?

Definitely, we have to conduct a readiness mapping of the different agencies. When they are to be on an integrated web platform, those agencies must be automated. Automation of concerned agencies will help us to achieve the goal of e-governance that pertains to the investment business. We will execute all these things gradually. First, we’ll shorten the time of clearing files/providing services and move ahead with the continuous improvement through prior action plan. We believe in ‘less promise and more delivery’ and we have to start from our own institution for this change.
For foreign investors, the government is a single entity. Your thoughts.

The Investment Board is a Prime Minister-led body. Ministers concerned with the infrastructure are on the board including the Vice Chairperson of the National Planning Commission, Chief Secretary, Governor of the Nepal Rastra Bank, experts from the private sector. Decisions of the board should promptly enter into execution. But we are still seeking approval, consent from various government agencies. We must nullify these sorts of practice. We are careful about what sort of tools that are required, what sort of guidance or decisions are required to nullify those. We are always careful that the ‘One Stop’ should not be an additional stop for investors.

We are framing a strategic blueprint for the Investment Board. Our primary objective is to garner investment and build institutional capacity as fundamental components. The blueprint will have detailed action plan framework for a five year term.

In the Covid 19 context, how are you facilitating investors?

During the solicitation process of the proposals, some of the investors express difficulties due to travel restrictions and some sectors are severely affected. We are mulling over providing them with a grace period. At the same time, some of the projects are continuously working in the field abiding with health and safety protocols. We are allowing the movement of the workers while adhering to these proposals. In this regard, some of the investors are saying that we should prepare an escalation schedule for early completion rather than the stipulated time frame. Some of the projects are giving us high hopes as they are working on standalone areas which are as good as quarantine. Once the global travel restrictions are withdrawn, all investors have promised that they will come back to us at the earliest possible for continuation of previous meetings and negotiations.

Has any investor sought time extension of a project?

We have received few proposals so far. If we receive the proposals for time extension on a serious note caused by the pandemic, we will consider them based on the seriousness and willingness of the investor, also taking into account how deeply he has been engaging himself in terms of sending progress reports. In the Covid 19 context, we have not stopped working, we are working in different shifts with minimum staffs; we have also worked from home during this tough time. Investors are well facilitated during this time. For example, we have approved and coordinated to allow skilled human resource for the erection and installation works of Huaxin, Hongshi Cement and Arun 3 Hydroelectric projects. Investors are happy with our service.

What do you visualise as possible impacts on FDI due to Covid 19?

Nepal has been receiving nominal FDI in comparison with the Gross Domestic Product. In 2019, Nepal received foreign investment of just 0.79% of the country’s GDP. COVID 19 pandemic has adversely affected FDI and trade. In the changed context, we should learn from countries which have attracted more FDI in comparison with the GDP. We should improve the investment climate replicating the good practices and major policy departures applied in the countries attracting large chunks of FDI. We should analyse the new value proposition, concretising new ideas and open the door for lucrative sectors to attract FDI. For example, if Information Technology is lucrative for foreign investment. We should think of how we can evolve IT as a prominent industry contributing to the GDP. We can invite big giants to invest in different business verticals within the IT sector as a promising investment destination. We should analyse the sectors, our comparative strength, and how we can achieve the competitive edge. For example, in the IT sector, tele density, content, internet penetration, young talents are our comparative strength. In this context, we should create a platform to engage and retain the workforce in the country. Similarly, we can work on tourism sector development. We must work with an integrated approach to developing the destination to foster our niche market advantage in tourism sector. Let’s take the example of water management for tourism purpose. If we develop water parks between two major destinations, that will be another stop and become a third tourism destination and these are examples of enhanced yield strategies. To tap investments, we must be well prepared. We must have shovel ready projects to develop them with private investment and public-private partnership. We have to plan, prepare and procure to realise such projects.

In terms of project development agreement signing with Arun 3 and Upper Karnali which are like twin projects, you have cited an example of Arun 3 as a flagship project of success, but how many times will the Investment Board extend time for the financial closure of the Upper Karnali?

It is duty of the concerned investor to take forward the project from the investment approval, project development agreement to financial closure. I have instructed concerned officials to monitor such projects. They are trying to map the readiness, interest and willingness of the investor. There could be different parameters to gauge the seriousness of the investors. We are trying our best to reach out to them and to listen to their concerns. The same thing will be applied in the case of other projects that remain in standstill including the Upper Karnali. This is totally under the purview of the study team. For us, these are very prominent projects and will not remain in limbo for a long time.

Following the Investment Summit in March 2019, the Investment Board had investment proposals of some hydel projects approved. The Board had decided to ask for a detailed proposal with Zurich International AG to develop a second international airport in Nijgadh and also to take forward the integrated agriculture zone development projects in each province. What is the status?
We are in close communication with all these investors. We have already had discussions with the investors who are moving ahead to the project investment agreement and project development agreement status. Integrated Agriculture Development project will be handed over to the provinces to undertake after developing the project. The Public-Private Partnership and Investment Act 2019 has envisaged PPP units at the Office of the Investment Board. There are multiple types of PPPs. We should plan for institutional capacity under the aforementioned strategic pillar. How should we plan promotional events or how should we undertake a pragmatic approach to lure investors through the government missions in various countries? The blueprint will comprise of all these things. Consequently the blueprint will give us a roadmap for the coming years, garner quality investment as per our development needs and sectoral prioritisation. Complementing growth will be apprised during the initial project conceptualisation along with the project plan and quality procurement. Meanwhile we must equip our institution.

Further comments on the institutional capacity development of the Office of the Investment Board?

The Public-Private Partnership and Investment Act 2019 has envisioned private investment unit, public-private investment unit and operational Support System (OSS) centre. If institutional capacity development is my strategic pillar, we should analyse the gap, conduct organisation and management (O&M) survey and human resource autonomy as parts of it because we need people who can drive the aforesaid units. Sub-leaders of these three respective divisions are envisioned by the law. We need transaction advisory to take forward the projects, but how do we procure transaction advisory service requires guidelines. We also need guidelines to procure PPP projects. There must be a permanent setup to make the institution robust. Irrespective of the institution being strengthened in all aspects, individual capacity is critical. We will set job requirements and hunt for talent.

What are your recommendations to improve the investment regime?

We must develop instruments to ensure returns and give protection to investors. For example, it could be the hedging guidelines. If it is going to be an expensive affair for investors, they will not feel comfortable. If we think pragmatically, incentivising investors does not mean monetary payout, we can provide them with different facilities. We should identify the aspirant investor before sitting across the table for quality solicitation. The developer/investor comes here with a country risk assessment, assesses the institution that s/he is going to deal with, then only does s/he enter into project premises, analyses the sensitivity, commits to undertake the management risk. If the investor comes to sit across the table, we must be well prepared to deal with them. We must conduct quality study (feasibility, detailed feasibility, detailed engineering reports) for the projects of private investment and public-private investment domains. We must understand the framework of conducting detailed study of the project on paper and also in the field, then only the study will be bankable and an investor will own it.

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