Creation of separate structure for bond market advised

KATHMANDU, AUG 16 -

International consulting firm Deloitte India has suggested creating a separate structure to deal with the bond market in Nepal. The company was hired by the government to study the capital market and devise a framework for public private partnership. In its preliminary report, the company has suggested trading bonds on the secondary market through brokers. Currently, the country’s bond market is at a primitive stage, and there is hardly any trading of bonds in the secondary market. Deloitte India is expected to provide its final report by 2014.

Nabaraj Bhandari, joint secretary at the Finance Ministry, said that Deloitte had also called for establishment of a separate debt management office and online auction of debt instruments.

Currently, the government is the only one issuing bonds while commercial banks have issued debentures to increase their capital base. Under a policy announced with the budget for the current fiscal year, the government has opened the door for credible international financial institutions to issue local currency bonds following the recommendation of International Finance Corporation, the private sector arm of the World Bank Group and the Asian Development Bank.

Meanwhile, Deloitte has also suggested keeping the office dealing with the issue of public private partnership (PPP) at the National Planning Commission (NPC) as it would be a neutral venue to coordinate all the ministries, according to Bhandari. It has been assigned to recommend an appropriate framework for PPP in Nepal after studying the existing practices as big projects have rarely been implemented under PPP.

The study is being undertaken under the Capital Market and Infrastructure Cooperation Support Project funded by the Asian Development Bank and executed by the Ministry of Finance. According to the ministry, Deloitte India has been assigned to conduct three tasks—recommending how to develop an effective bond market, creating an enabling environment for PPP and suggesting five potential projects that can be executed under the PPP model, out of which one will be executed.

According to government officials, the bond market component was included in the study as the necessary resources for infrastructure financing could be generated from this market.

Realizing that the government’s own investment and involvement in the infrastructure sector would not be sufficient, the government has accepted PPP as an alternative source of procuring assets and services, including the private sector’s financial participation for meeting increasing demand for infrastructure and services in the country. However, the NPC, in its white paper on PPP, has said that the decade-long experience in PPP shows limited success.

Kathmandu Metropolitan City (KMC) pioneered private sector involvement in the municipal sector with the Private Sector Participation (PSP) programme in 1999-2000 for institutional strengthening of KMC.

Several projects were identified for implementation such as the Gongabu bus park, construction of foot bridges, and operation and management of Dharahara and its surroundings. The Ministry of Physical Infrastructure and Transport is undertaking four big projects—Kathmandu-Nijgadh Fast Track, Kathmandu-Hetauda Tunnel Road, Pokhara Cable Car and Phulchoki Cable Car.

Source: The Kathmandu Post