Government investment accounts show about Rs 47bn discrepancy: PDMO
KATHMANDU: Discrepancies have been observed in the accounts of approximately Rs 47 billion in government investment made in public enterprises, the Ministry of Finance (MoF) and the Public Debt Management Office (PDMO) said. The details of loan and share investments have not been confirmed by the ledgers of the enterprises for a long time, and documents on where the State’s investment went do not match; no explanation has been found for how the amounts fluctuated.
The PDMO reports that accounts totalling Rs 46.87 billion—comprising Rs 26.34 billion in shares and Rs 20.53 billion in loans—in various enterprises could not be reconciled. The government claims to have invested more, but the enterprises claim less, and the question of who is responsible for accounting irregularities persisting for decades remains unanswered.
The PDMO attributes the discrepancy to ad hoc decisions made by the government without clear legal and policy guidance and without concrete bases for determining loan repayment periods, interest rates and service fees. The office says accounting irregularities are particularly high in the Civil Aviation Authority of Nepal (CAAN), Nepal Electricity Authority (NEA), Nepal Airlines Corporation (NAC) and Water Supply Corporation (WSC).
The government has been making loans and share investments in public enterprises to operate infrastructure projects such as hydropower, airport construction, telecommunications and drinking water. However, the PDMO says the actual assessment of the share and loan investment made by the Government of Nepal could not be completed because of weak internal control systems in public enterprises and the absence of unified accounting standards. Although the Share and Loan Investment Policy, 2081 was issued to address the problem, reconciling accounts prior to the policy’s implementation remains problematic.
The PDMO reports that clear data on how much has been invested so far in the rural electrification programme under the NEA has not been found. It appears a cabinet decision on December 27, 2011, treated aid received under foreign grants to the NEA as share investment, and a cabinet decision on May 23, 2018, considered amounts given for rural electrification as share investment instead of loans. Precise records are not available showing how much was invested in which former programme under rural electrification, and which programme’s source was foreign grant. Likewise, there is no uniformity in the details of authority and office regarding the asset valuation of the former Department of Aviation when CAAN was established.
The Debt Management Office says problems have also arisen where interest rates on loan investments differ, and payment schedules are modified. The office notes a trend in which the government takes loans from development partners and enters into subsidiary loan agreements when passing those loans back to enterprises. While the government pays principal and interest to development partners on time, enterprises that have entered subsidiary loan agreements with the government often do not, and instead request modifications to loan schedules, citing delays in project construction.
The PDMO’s report states that various bodies send letters asking for loan repayment schedules to be modified after work is not completed according to the timetable set in the loan agreement between the government and the enterprise. “On one hand, the Government of Nepal must pay and does pay the amount to be paid to international development partners according to the payment schedule per the main agreement regarding loan investment of amounts with foreign loan aid sources. On the other hand, in a situation where there is procedural ambiguity regarding payment schedule modification, it has become complex to modify the payment schedule,” the Annual Report on Share and Loan Investment of the Government of Nepal – Fiscal Year 2024/25 (2081/82) states.
The report also highlights ambiguity where development partners have made direct payments to enterprises and notes that there is no legal clarity on what to do when government loan investment in public enterprises is not recovered. Although deeds signed before investing loans often state recovery may be made by selling assets, the PDMO argues it is not in a position to recover loans by selling property and assets on that basis alone.
There is no clarity in the accounts of liabilities where the government acts as guarantor. The PDMO does not have details of guarantees given by the Government of Nepal to public enterprises or of approvals taken for loans from banks and financial institutions (BFIs). Recently, the office says it was not informed about government approval for the NEA to take short‑term loans. The PDMO has been demanding the formation of a task force comprising representatives from the concerned enterprise, the thematic ministry, the Financial Comptroller General Office (FCGO) and the PDMO to study the mismatch in records of share and loan investments transferred to the PDMO from the FCGO in 2018 (2076 BS).
The Debt Management Office says accounts often do not match when the borrowing body and the spending body are different. For example, there is no clarity on who keeps the accounts of loan and investment among the Kathmandu Valley Water Supply Management Board (KVWSMB), Kathmandu Valley Water Supply Limited and the Project Implementation Directorate. It appears the government releases amounts by entering into a subsidiary loan agreement with the KVWSMB, which then passes funds to Kathmandu Valley Water Supply Limited and the Project Implementation Directorate. “The one who takes the loan does not do the pipe extension work, the one who extends the pipe does not distribute water, and the one who generates income by distributing water does not hold the liability or responsibility to pay the loan,” the PDMO states.
Santosh Baral, Information Officer of KVWSMB, said accounts looked different when grant amounts were calculated as loans. “Although 50 to 80% came as grants and the remaining amount as loans for various projects, the problem appeared because the PDMO did not separate how much was grant and loan amount while keeping its accounts,” Baral said. “The Office of the Auditor General had raised this issue in the past. Now we have clarified this and informed the office.”
Mohan Singh Basnet, Information Officer of the Debt Management Office, said the office frequently tells enterprises to reconcile investment accounts. “The primary responsibility to check how much government investment exists in which enterprise lies with the concerned thematic ministry and the enterprise itself. We have been continuously following up for account reconciliation,” Basnet told RSS. “Until the accounts are reconciled, the details with the PDMO are the official ones.” The office discussed the matter with the Water Supply Corporation on November 24 and with CAAN on November 25, instructing them to reconcile accounts by mid‑December (the end of Mangsir).
The PDMO’s Annual Report on Share and Loan Investment of the Government of Nepal – Fiscal Year 2024/25 states that by this period the Government of Nepal had invested Rs 930.88 billion in shares and loans across 159 public enterprises and bodies. Of this, share investment stands at Rs 404.81 billion in 116 enterprises, while total loan investment up to the last fiscal year is Rs 526.06 billion. The office said Rs 158.18 billion of this is from internal sources and Rs 367.88 billion is from foreign sources.
Despite substantial government investment, returns appear weak and liabilities are rising as bodies with loan and share investments fail to pay principal and interest on time. “By the fiscal year 2024/25, the overdue principal is Rs 259,199,703,126 and overdue interest is Rs 140,882,396,169, making the total overdue amount Rs 408,209,929,295,” the report mentions.
The PDMO emphasises auditing as the principal tool to ensure financial responsibility, discipline, corporate governance and overall performance of public enterprises and to maintain transparency. Although completing audits within the process and time prescribed by law is a mandatory obligation, many enterprises do not appear to have conducted regular audits. Only 21 enterprises had conducted final audits regularly up to the previous fiscal year 2080/81. Udayapur Cement, Public Service Broadcasting Nepal and Gorkhapatra Sansthan had conducted audits only up to fiscal year 2021/22. Janakpur Cigarette Factory and Rastriya Beema Company Limited have not conducted audits since fiscal year 2019/20; Bishal Bazar Company Limited since FY 2018/19; Rastriya Jeevan Beema Company Limited since FY 2016/17; and Nepal Orient Magnesite Private Limited since FY 2007/08.
“It has not been possible to calculate the outstanding amounts of many loans and interests for which deeds, decisions and agreements could not be obtained. Due to this, only the principal of such investments has been included, while outstanding revenue has not been mentioned in the financial statement,” the PDMO’s annual report on share and loan investment concludes.
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