Nepal is celebrating the achievements of the 15th Periodic Plan and is at the onset of preparing for the 16th five-year Periodic Plan. As highlighted by the 15th Plan, each of the subsequent periodic plans has been prioritizing the transportation sector. For Nepal, the development, operation, and management of roads, railways, and waterways are still equally important for the next periodic plan.
The Vision 2100 and other short- and long-term plans have also set ambitious targets that could set Nepal on the path towards achieving the envisioned sustainable development goals and a prosperous future. Although the pace of development of road infrastructure and transport services is commendable, Nepal still lags behind in these aspects compared to other Asian countries. The infrastructure and services in terms of mobility are largely limited to road and air transport in Nepal.
The transportation sector, especially road construction, accounts for a major share of projects and budgets in any plan and program across all concerned agencies and tiers of the government. From projects prepared and selected by the smallest of the local units to the National Pride/Priority Projects chosen by the National Planning Commission, road construction has consistently been the top priority. The annual budget allocated to the Department of Roads by the government alone ranges from 7-9 percent of the total budget of the country. The share of capital expenditure in the road sector is around one-third of the total expenditure.
The technology, cost, and quality of infrastructure and services sought by the public are evolving rapidly. While many large investment construction projects face challenges such as delays and cost overruns, new innovations and research are still in their early stages. These challenges have significantly impacted not only the transport sector but also other sectors. Meeting the demands for low-carbon and sustainable mobility can only be achieved through the development of railway-based transport systems and the use of electric buses and vehicles.
The need for such infrastructure and services demands significant investments that cannot be solely met through traditional public funding. The ambitious goals to limit carbon emissions in the transport sector require substantial investments in knowledge, infrastructure, and services. These targets might seem ambitious, but with the right leadership and direction, they can be achieved through the innovative involvement of the private sector and alternative financing mechanisms, such as public-private partnerships (PPPs), the hybrid annuity payment model, climate financing, and others. Each of these mechanisms has its benefits and pitfalls. So it is necessary for comprehensive discussions about their applicability to maximize public benefit, while also minimizing risks and costs to the public sector.
Having a predefined path to guide each step and carrying out the necessary preparatory work are crucial for implementing a credible and viable project. While Nepal has gained substantial experience in developing and implementing hydropower projects within a PPP framework, discussions and structuring of transport projects under PPP or other alternative financing mechanisms are still in their early stages. Although discussions and preparations are ongoing, the progress and output need to be fast-tracked and prioritized further. One of the significant transformative transport projects, the Kathmandu Terai Fast Track (KTFT), could not materialize a PPP contract. Earlier, the construction of this mega project was decided to be implemented through public spending. But now, the project is encountering time and cost overruns. We are also lagging behind the targets for railways development and operation. In addition to these projects, other major road development projects are facing delays.
As there has been a shift in investment models the world over, Nepal also needs to adapt to the changes. In India, hybrid annuity model of development and maintenance of highways has already been a success. Learning from their experiences, Nepal also needs to build capacity and knowledge in understanding and implementing these alternative methods of financing and developing projects.
If public spending proves more effective than providing viability gap funding, it should be chosen, but the risks associated with design and construction need to be carefully evaluated as any failures can significantly impact the overall project cost and operational efficiencies. The entire project lifecycle should be evaluated and screened through a rigorous process of project ideation, pre-feasibility studies, feasibility studies, and detailed studies. In this process, an integrated collaborative approach, backward integrations, revitalization of the local market, and the potential to leverage the strengths of the private sector should be considered.
Nepal is landlocked, but not potentially locked. The diverse geology and development patterns do present their challenges, but they have also endowed the country with immense potential. With improved infrastructure and connectivity, sectors such as agriculture, tourism, manufacturing, and services can drive the envisioned development and prosperity for the nation.
We are currently at the conventional stage of the PPP model. So, we require newer frameworks to attract private investments in projects and infrastructure. Only through structured studies and project development, Nepal can identify risks and implement de-risking measures as early as possible, facilitating informed decision-making and resource mobilization. In this regard, an integrated transport master plan considering road, rail, and air transport is long overdue. While the National Planning Commission provides a framework, a sectoral master plan with a sustainable and implementable roadmap must be prepared.
Project ideation should never stop, and the government should be prepared to facilitate these ideas to enhance the transport sector through policy and knowledge. There is a need for capacity and policy building to assess broader economic impacts for deciding on fiscal incentives and facilities. Production and modernization of industries that offer a competitive advantage must be prioritized. There should be efforts to minimize inconsistencies in policies.
The transport sector can have a transformative impact on the local, regional, and national economy. To materialize this, the sector necessitates an integrated transport vision and plan with a roadmap for formulating and implementing the necessary policies. Through an integrated collaborative approach, Nepal can generate the required knowledge and policies to realize the envisioned transformation in both urban and rural economies.
[Sushil Bhatta is the Chief Executive Officer of the Investment Board Nepal. This article was initially published in a souvenir of the Federation of Contractors’ Association of Nepal.]