Transportation System of Nepal: What’s the

Major Problem??

Presented ByGroup CMBM

Nepal Commerce CampusNitesh Khatiwada

Roshan pant Soni Sahani

Sangita Lama Aditya Kumar Jha

Presented to:Dr. Surendra Kumar Upreti

Masters of Business Management

Nepal Commerce CampusMinbhawan; Kathmandu

Transportation in Nepal: Is it a Syndicate?

Recently green-coloured Sajha buses made their comeback after 12 years of stoppage. They charge reasonable fares and provide good services to the passengers. But, the private transport entrepreneurs put an arm to stop Sajha buses citing that they snatched their profits........

Source: Transportation Syndicate: Burden on Consumers www.Econ-ity.com

Few Question to the Audience:

Every body of us puts a constant struggle to grab yourself a seat in Nepal Yatayat. isn’t it???

Has anyone wondered why the number of buses on this specific route is limited despite of high demand????

Why aren’t people investing in this industry despite such profitable prospect it offers????

We thus thought of inquiring of this question that seeks an answer..........

A trip On Nepal Yatayat (From Baneshwor to Koteshwor)

One of our group member got a chance to seat beside the driver and through casual conversation got opportunity to ask why is it so???

Driver replied, “Our bus association determines the number of vehicles that are allowed to ply this route”.

He further added that operating a bus on this specific route would cost four times the actual amount of buying a bus. The association charges this three-fold fee to permit a new bus to entering the business.

Based on Dialogue and Our personal experience, it was crystal-clear that transport entrepreneurs were operating:

Syndicate

One more Burning example of syndicateRecently in 2013 in Pokhara, some

youths challenged the monopolyThe monopoly was of the Pokhara Bus

Entrepreneurs CommitteeYouths opened another competitive

transportation committee (Bindabasini Bus Sewa)

Even though it had acquired necessary permissions to do so

The new committee was not allowed to bring its buses into operation by the existing committee as a Result Bindabasini Bus collapsed

Factor Behind this:

Syndicate

Source: reportersnepal.com

History of the syndicate practice in Nepal First association of transport

entrepreneurs was the Purbanchal Motor Association established in 1974, Min

bahadur Suwar Afer this, there were a series of

associations that opened up across the country

Prithvi Highway Syndicate opened in Pokhara Arniko Yatayat in Kathamndu Seti Mahakali in the Western region Paschim Nepal in Butwal Narayani Yatayat in Hetauda

Later in 1982, all these associations joined hands and lobbied with the government to form first ever national federation under the name Federation of Nepalese National Transport Entrepreneurs (FNNTE) Association registered on August 23, 1982 under the National Direction Act, 2018 (2061)

TRANSPORTATION IN NEPAL

Prime example of the most-hit sector by cartels and syndicates

Make a hefty profit through the application of syndicates

Bond together within the umbrella of their associations

Culminates into the federation redoubling the institutional strength

Thus protect and persuade the vested interest of transport operators around the country

transport entrepreneurs have expressed that their return of investment have climbed from 20% to 50% after joining the transportcartel.

Source: A research paper on”Competition Watch in Key Growth Sectors of Nepalese Economy”by Arpita Nepal, Pramod Rijal & Sarita Sapkota

Process of Syndicate In Nepal Barrier to entry

Route permit Quota

Barrier to expansion Barrier to full scale operation Price fixation

“In Dailekh, a remote districtin the Mid-West of Nepal, the truck and tractor entrepreneurs’ associationfixed the cost of transportation at NRs 3,000 per ton from Surkhet (nearest regional market at a distance of 70 km).

Traders in Dailekh reported that if they were allowed to transport their goods outside the syndicate it wouldonly cost about NRs.1,250 per ton”

Source:(Karobar, 2013)(Road permits from the government are only provided on recommendation of thetransportation syndicate and the dealing with association if route is not permitted cost NRs. 400,000-500,000)

Source:(United Nations World Food Programme [WFP]& Nepal Development Research Institute [NDRI], 2008)

Transportation in Nepal

Resulting to dominant positions in the market collectively and abuse of such position

Carteling and Syndicate practice in transportation: Price fixation on minor and some

major roads Application of higher charges on

services Queue and rotational system in

operation Use of old and worn out vehicles Overload in cargo transportation Restrict new entry by putting heavy

syndicate charges or physical threat

. “Since local truckers do not allow trucks coming from Kathmandu to return with goods from Kailali, we have to pay a two-way fare to trucks when we import goods from Kathmandu.”

Statement of president of Kailali chamber of commerce few yrs back - KTM Post, Jan 11, 2013

What Fosters these practices? Traditional microeconomics: describes

cartels as inherently unstable organization pointing out game theory strategies that demonstrate better pay-offs for cheating (Rubinfeld & Pyndick, 1998)

Cartel enforcement is stronger when government policy is to implicitly support cartels, usingJapan as a historical example.

When the expected cost of punishment is greater than the expected benefit from cheating, cartels sustain

What Fosters these practices? Nepalese fosters these practices just for

few reasons: to have cost benefits like “trip fee”,to have insurance claim in a easiest way, ticketing, staff monitoring and even maintenance of the vehicle in some cases

To gain monopoly and to have good return on investment

Where syndicate exists:

Almost in all part of Nepal With different faces and organization Different faces of the  syndicate system

are: Rotational system Queue system Dial system(wait time to operate as

decided by the Association) Odd-even number plate system

Where syndicate exists:

System has now been imposed on major transport routes, including routes of: Itahari-Kathmandu Biratnagar-Kathmandu Dhangadi-Kathmandu Bhairahawa-Kathmandu Nepalgunj-Kathmandu, and others

Some Association responsible for SyndicateThe Federation of Truck Tanker and

Transport Entrepreneurs Nepal: Had formally decided to impose the odd and even number plate system on cargo vehicles, announcing the resumption of syndicate system

Seti-Mahakali Truck Entrepreneurs Association: has been imposing syndicate system in the Far West, saying that they are finding it hard survive amid stiff competition

And many more associations

Current scenario in Nepal

Deputy Traffic Inspector Ganesh Rai says: Bus drivers receive lower fines than

ordinary users of the common road. If their license are confiscated they are

allowed to send their union representative to retrieve it rather than attending the station in person

License are never suspended Main reason for reckless driving Driver joke that the “driving license is

license to kill”

Current scenario in Nepal

Encouragement allowance paid to the officer is 15% of fine collected

Politician have strong control over carteling

24 truck syndicate controlling road trade, carried out through Birgunj (country’s principal custom point)

Source: The Rising Nepal – 2012, 14 December

Is Syndicate legal???

Competition Promotion and Market Protection(CPMP) Act 2009

Consumer Protection Act, 1998

Traffic and Transportation Management Act, 1992

Anti-Syndicate Legal Provisions

EFFECT OF SYNDICATE

Consumers condition is worse Need to pay higher

transportation charges Meet with frequent road

accidents Travel in crowded sitting

positions in the buses Rise in product prices Rewards inefficiency and

discourages firms to provide services in an environment of open and healthy competition

“We used to pay a maximum of Rs 35,000 for Dhangadhi-Kathmandu. Now, we are compelled to pay Rs 48,000,” Statement of president of Kailali chamber of commerce few years back - KTM Post, Jan 11, 2013

EFFECT OF SYNDICATE

According to FNCCI transport fares being charged by truck tanker transport entrepreneurs have gone up by 50 percent over the normal fare

What has Government done? The government has prohibited the syndicate system in the

transportation sector few years ago

When Madhav Kumar Nepal was PM, had directed the Home Ministry to put an end to the syndicate system at the earliest

The government in its budget for 2009-10 and 2010-11 also termed the system ‘unlawful’, saying that the registration of associations found to be imposing this system will be scrapped

Source: nepalnews.com/The kathmandu post

Contd..

The government so far has fixed the maximum fare on four routes – Bhairahawa-Kathmandu (Rs 16,280), Bhairahawa-Pokhara (Rs 14,500), Birgunj-Kathmandu (Rs 15,850), and Birgunj-Pokhara (Rs 14,000)

However, the fare that the transporters are charging is much higher than what the government has fixed.

Nepal’s supreme court had directed the government to break all the existing syndicate systems in public utilities

Supreme Court’s order against transport syndicates has not yet been translated into any form of action

Source: nepalnews.com/The Kathmandu post

Why doesn’t the Law work?

Associations often exert pressure through ◦ Means of strikes◦ Lock-outs ◦ Interruptions in services ◦ Force government accept their demands

Demands based on such unlawful means of threat and violence by the associations and its members◦ Reduce the efficiency of the economy ◦ Harm the interests of the common consumers

The government has failed to end syndicate as political parties are protecting those who are imposing the system

Why doesn’t the Law work?

CPMP has provision of 11 board members from different groups of stakeholders

Entrusted withInvestigationMonitoringObserving and taking other necessary

measures

It includes ex-officio membersThey are busy with their own offices

Why doesn’t the Law work?

CPMP has provision of hiring employees of Nepal government as market protection officer

Purpose: case against anti-competitive activities

It lacks institutional back-up for implementation

Government sustained anti-Competitive practice (only 8000 taxis are registered in Kathmandu)

Institutional reform: Since syndicate in transport are rooted to deepest corner of Nepal, District Development Officers should be allowed to apply CPMP Act.

In order to end syndicate of all sorts: Democratic space should be created for

all to exercise their legitimate rights Unethical politics is the root cause of

many ills, root it out Political solidarity to fight against the

pernicious syndicalism imposed Civil society members, consumers’ rights

groups and conscious people must rise up to bring an end to this

How can we Contribute

Conclusion

What syndicates do is limit the resources Kills quality and stifles innovation Syndicates allow for market monopolies

to firmly set themselves into the system and

We, the consumers, are made to pay exorbitant prices for low quality goods and services in the wake of lesser options being available to us.

www.newbusinessage.com/Economy%20And%20Policy/730 www.economist.com/blogs/banyan/2012/08/public-transport Competition Promotion and Market Protection(CPMP) Act, 2009 Consumer Protection Act, 1998 Traffic and Transportation Management Act, 1992 Ahmed, F., & Regmi, P. P. (2009). Study on Transport

Constraints in Western Nepal. Kathmandu: Department for International Development; World Food Program.

Nepal, A., Rijal, P., & Sapkota, S. (2013). Compitition Watch in Key Growth Sectors of Nepalese Economy. Kathmandu: Samriddhi, The Prosperity Foundation.

Salvatore, Dominic, ‘Managerial Economics in a Global Economy’ Irwing/McGraw Hill, USA

www.investopedia.com/articles/financial-theory Nepalnews.comews report

References