KATHMANDU, June 9: Nepal is recording an outflow of as much as Rs 3 billion every year in the name of commission charges as Nepali contractors, who are barred by the law to solely carry out large scale constructions and development projects, eagerly pay the hefty commissions to overseas contractors to use their licenses in order to win such projects.
“Roughly around three billion rupees is siphoned off annually from our country to foreign countries --mainly China and India- through their global companies as a commission for acquiring licenses to qualify for bigger contract by Nepali contractors who couldn´t prove their qualification while bidding contract,” said Jaya Ram Lamichhane, president of Federation of Contractors´ Associations of Nepal (FCAN).[break}
Such an outflow of money is happening mainly as Public Procurement Act (PPA) that governs the process of awarding contracts of development projects makes it mandatory for any contractor to have an annual turnover worth one-and-a-half time higher than the proposed contract amount to qualify for bidding for any project.
It also cites that the contractors bidding for the project of more than Rs 250 million must have past experience of executing a project of similar nature and should have handled project sized at least 80 percent of the given project they are vying for.
“These are stringent provisions, as they block chances for Nepali contractors to independently participate in larger bidding. Though we are the primary executioners of projects, we always need to operate under licenses of overseas firms, and don´t own certificate of experience to qualify for bidding,” said Lamichhane.
As a result, most of the Nepali contractors are working under either petty contracts or by acquiring licenses from global companies. For such license and qualify for the bid, they are presently paying in a range of 2 to 5 percent of the total size of the project to the overseas firms.
“Owing to such constraint, Nepali contractors mostly operate by acquiring licenses from Indian and Chinese firms,” Lamichhane informed Republica. There are around two dozen Indian companies and five dozen Chinese firms providing such operating licenses to Nepali builders for larger civil works.
A total 193 of class ´A´ contractors, 390 class ´B´, 1300 class ´C´ and 14,000 class ´D´ contractors are involved in civil works across the country. However, owing to the PPA hardly one dozen Nepali firms are in a position to take up the mega projects.
“Unfortunate side of the story is such stringent provision of the PPA is preventing Nepali contractors to upgrade their skills and capacity forever to lead implementation of big projects,” said Lamichhane, whose Swochhanda Nirman Sewa completed contract for Kathmandu-Bhaktapur six-lane road in joint venture with Hazama Construction Company of Japan.
Given such situation, FCAN has urged the government to relax the provision. “If it can not completely remove the provision, it should at least soften it,” said Lamichhane.
Hari Om Shrivastav, joint secretary at the Ministry of Physical Planning, Works and Transport Management (MoPPWTM) admitted the existing law was fast proving as a major bottleneck for the Nepali contractors.
“It is true the existing provisions might cause Nepali firm to remain deprived from building capacity to independently handle larger projects forever,” he stated. But given the weak financial outlook of the Nepali firms, he ruled out chances of immediate relaxations, particularly as it could hurt timely execution of much-needed development works.