recently green-coloured sajha buses made their comeback after 12 years of stoppage. they charge...
TRANSCRIPT
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