STRONG QUAKE HITS BHAJANG Kathmandu, 12 Nov.: A strong earthquake measuring 5.6 magnitude hit south Bhajang at 12.24 AM Monday, the Seismological Department No reports of damage of casualties have been received so far. Nnnn FIRE IN POKHARA DANCE CLUB. Kathmandu, 12 Nov.: An electric short circuit caused damage worth Rs.50 million at Dance Club 99 along the Pokhara lake side at seven in the morning Monday. The first was doused in one hour. Nnnn PM CHARGES OPPOSITION FOR HINDERING BUDGET UPDATE Kathmandu 12 Nov.: Prime Minister Baburam Bhattarai Monday morning charged opposition for making the budget a political tool. The told his Rupendhaehi audience maximm flexibility was shown on the budget issue. Finance Minister Barsha Man Pun is briefing President Dr. Ran Baran Yadav on the budget ahead of a cabinet meeting to recommend the proclamation of government income, expenditure through ordinance. nnnn DEPENDENCE ON FOREIGN CONSULTANTS TO BE REDUCED Kathmandu, 12 Nov.: The government will regulate fees for both foreign and local consultants in a bid to cut down on spiralling costs of foreign-funded projects, according to a recent Cabinet decision, Anil Giri writes in The Kathmandu Post.. Signing a loan agreement with the Asian Development Bank for a water resource preparatory facility, a Cabinet meeting on October 4 urged the Ministry of Finance (MoF) to bring out a policy to minimise the government’s dependency on consultancy and asked it to instead channel it through the national system. Nepal’s foreign aid regime has often been criticised for paying steep consultancy fees, particularly to international consultants. However, there is already a policy in place ensured by the Foreign Aid Division at the MoF, which attempts to minimise expenditure for consultants and foreign experts. Up to 70 percent of project costs in some cases have been spent as consultancy fees. A revised foreign aid policy will be of concern to the donor community but still needs to be pursued, officials said. “We expect the policy to create a level of discomfort for the donor community but we have to set a national criteria sooner or later and we expect donors to follow them,” said a senior MoF official. “There is apprehension that a huge amount of money is being paid to consultants in foreign-funded projects. These consultants are both Nepalis and foreigners. The Cabinet instruction was to reduce the consultancy costs and make it more rational by decreasing dependency on donor-funded projects,” said a senior official at the MoF. An added drain on funds are the administrative costs of donor-funded projects. “We have to hire expensive consultants as this is sometimes an aid conditionality. In the aid paradigm, in our case, we need to rein in administrative and consultancy fees,” said the official. The Cabinet has instructed the MoF to fix a ceiling on consultancy fees and to revise its foreign aid policy. However, the MoF is not sure whether the new consultancy policy will be incorporated in the revised foreign policy or come as an independent policy. There is a large number of foreign and domestic consultants in Nepal, providing various kinds of consultancy services at many donor agencies. “If the donor agencies hire consultants from foreign countries, the expenses increase many-fold. They are paid hefty sums as consultancy fees, logistics, air fares and the like,” said the official. Basically, ‘complex projects’ have a component for foreign consultants. “These consultants charge higher fees when the project includes engineering and other technical sophistications,” claimed the official. Any standard practice on consultancy is yet to be institutionalised and inputs are being sought from various line ministries. “Line ministries after all have some experience on consultancy . We can only reach a conclusion upon their recommendations,” said the official. Nnnn BASE RATE INTEREST CONTOVERSY BETWEEN BANKS Kathmandu, 12 Nov.: The introduction of base interest rate by the Nepal Rastra Bank ( NRB ) has been delayed as the central bank and bankers could not agree on the issue, with some of the new commercial banks making serious reservations against such measure, Bibek SUbedi writes in The Kathmandu Post. Banks’ concerns mean the central bank has left undecided on the provision although it was planning to introduce it before Tihar festival. Base rate is the minimum interest rate that banks should charge on lending. Once introduced, the banks are not allowed to extend loan to borrowers below the base rate. As such rate is determined on the basis of entire costs of the fund, lending at an interest rate below the base rate will also be infeasible for the banks. According to Ashoke Rana, president of Nepal Bankers’ Association (NBA), if the banks are to implement NRB ’s formula base rate of old and reputed commercial banks will be well above 9 percent, whereas that of some of the new commercial banks will be as high as 14 percent. “In such situation, most of the new banks and banks having higher cost of fund will go out of the business,” said Rana. “That’s why it will be very difficult for the central bank to introduce the base rate.” According to NRB Deputy Governor Maha Prasad Adhikari, differences among the banks as well as with the regulator have been hindering the NRB ’s move to introduce base rate. “But we are working on ways to resolve the differences and introduce the base rate as soon as possible,” said Adhikari, who remained tight-lipped when asked about the differences and date the NRB will introduce base rate. Newer banks are demanding that they should be allowed to lend at interest rate little less than the base rate for certain time. “We should be allowed to lend at interest 1 to 2 percent below the base rate in case of good project. The central bank can give us such relaxation for some time which will enable us to bring down our cost of fund within such time,” said Anil Shah, CEO of Mega Bank Nepal. Arguing that the new bank would struggle to find good borrowers and projects to lend, Shah added, “If we are forced to lend above the base rate then we will only get customers rejected by other banks that have lower base rate. We will be out of business if we don’t lend out to such relatively bad customers and if we do, there remains higher risk.” The NRB , however, is not in a mood to provide such relaxation “It is morally impossible for the bank to lend below the base rate,” said a senior NRB official, adding that the base rate is calculated on the basis of bank’s entire cost of fund and lending below that rate would be suicidal. “If lending above the base rate is not possible, then banks should understand that their business is not viable and they should go for merger,” the central bank official said. nnnn