Nepal Army: All eyes on profit

The estimated cost for Devsthal Kainadanda section of Jajarkot-Dunai road was rupees 195.4 million rupees. The actual project costs exceeded by 88.42 millionrupees, without sufficient technical clarification.
Procurements exceeding 100 million rupees were made in the year 2015 without following proper procedure as stipulated by Article 7 of Public Procurement Act, 2007.
The welfare medical college hospital has 491 beds which, according to Nepal Medical Council(NMC) criteria, allows only 82 students to be enrolled. But the college has been enrolling 130 students against NMC guidelines of 6 patient beds for each MBBS student, compromising quality of medical education as students without needful practice.
A purchase agreement of rupees 225.1 million was made as per Article 27 (1) of Procurement Act 2007. However, the estimated costs exceeded by 15.6 million rupees.

The remarks above,quoted from Auditor General’s Annual reports from 2013 to 2015, may seem to have been made on statements of a public departments and enterprise. But these are questions raised by the Auditor General’s office on institutions run by Nepal Army. The reports from government’s regulatory body before 2013 also contain similar remarks on the financial dealings of Nepal Army, indicating that an institution charged with responsibility of protecting the nation seems more inclined towards profit making.

Of late, the Army’s interest in making financial gains seems to have grown in an unusual manner. It is clearly taking a full advantage of the country’s prolonged transition and constitutional loopholes.Such strong remarks from AG’s office, with regards to public spending, usually comes under the scanner of anti-graft body.But with the Army, there is no provision foroversight, which raises even bigger question on government’s decision to hand big projects to the security body with little rational explaination, bypassing public departments technically and logistically equipped to carry out development work.

The Army is now involved in several development projects including Kathmandu-Tarai Fast-track Road project and construction of an International Airport in Sindhuli. It is also spreading its enterprise in medical education, albeit by overstepping criterias. And, of late, it has alsoentered the real estate market, in addition to running its own gas stations and financing projects with its welfare trust fund.

They don’t give a damn

The Army is involved in several road construction projects including Jajarkot-Dolpa, Kali Gandaki Corridor, Karnali Corridor, Rasuwa’s Mailung-Syafrubesi.According to the Auditor General’s Annual report, in the fiscal year 2015/2016, the Army spent 1.55 billion rupees for constructing 151 kilometre stretch.They are now opening 1200 kilometeres of tracks in 22 different projects.
The spokesperson Brigadier General Tara BahadurKarki defends NA’s work saying, ‘The NA is simply working on government assigned duties. These are challenging and risky projects that only the Army can undertake.’
This narrative of Army contributing to the country’s development by undertaking challenging and risky jobs sounds convincing. But our investigation reveals, the Army’s role in these projects is nothing more than a rent-seeking contractor, which rarely uses its own manpower or equippments, mostly sub-contracting works to professional contractors of its choice, while scheming for profit.

Contractor Mahesh Kumar Bhujel, who provided manpower to the Army for construction of Syafrubesi-Mailung road says, ‘I know Major Sanjay KC and Brigadier General Udhab Bista at the development directorate, and was requested by them to work on the project.’Bhujel has been supplying manpower for the Army’s projects for the last 13 years, working in several districts including Kalikot, Mustang and Sindhupalchok.

Usually, the labourers working to open tracks for road construction get paid daily wages based on their full day’s work, which is usually 1.25 cubic metres. Normally, the minimum wage isRs 395 per day, but it could go as high as Rs 800 according to remoteness of theproject site.Similarly, the Divisional Road Office in Kathmandu has set a rate of roughly Rs 100 per cubic metre of soft soil, dug through an exacavator.

‘Using the machines certainly cuts the labor costs significantly,but there is no way to verify whether the project has been using excavators or expensive labourers, as shown on paper, which is usually around Rs. 400 per day for one labourer’, says an official at the AG’s office.The official admits there is millions to bemade in difference, while opening tracks in a single road project.

The Office of the Auditor General has repeatedly pointed that the Army has been violating the Procucrement Act in its development projects, as well asin its internalconstruction works.

In the fiscal year 2012/2013, the Army was given the job of opening the Ridi-Rudrabeni Argali track for which 20 million rupees was disbursed in January 2013. In the same fiscal year, the government doled out another 138 million rupees to the Army in six installments for the same project.The sixth installment of 32.5 million rupees was disbursed on 9 July, 2013, only four days before the end of the fiscal year. But even this amount was completely spent, which is unusual.

The Procurement Act requires a project completion report after the completion of the construction work but the Army has not presented reports of any of its constructopn projects. ‘In the last three years, we have repeatedly asked the Army to prepare a project completion report. But they simply ignore our comments.’says Baburam Gautam, spokesperson of the Office of the Auditor General.

According to Auditor General’s report 2015, the Army has spent 135 million rupees for the construction of an epicenter building and another 680 million rupees for building a Veterans’ Hospital without prior approval of either projects or its budget.

A closer look at Army’s spending on its provisions also reveal plenty of inconsistancies. The Auditor General’s report of 2014 takes a serious note of the fact that the Army approved a higher bid of Rs 13.76 per packet against Rs 11 per packet for the same biscuits, with total surplus spending ofRs 95.81 million. Even in milk supplies, the Army was found to have given the higher bidder a contract of Rs 64.71 million.‘According to Procurement Law, it is illegal to spend public money without following proper procedure’, concludes Naresh Chapagain, the spokesperson at Public Procurement Monitoring Office.

International experience shows, while it is not unusual to mobilize Army for projects deemed of national importance, the projects themselves are supervised by civilian bodies, except in the case of defense projects. That is not the case in Nepal, where the Army takes overdevelopment projects and spends with zero transparency.

Former Defense Secretary Ishwari Prasad Paudyal says the main reason for this lack of unaccountability in the Army is due to small size and weak structure of the Defense Ministry, which has rarely been a priority for political parties. Nepal Government, which has about 80,000 employees is managed by the Ministry of General Administration which has around 150 staffs. But, the Defense Ministry which has to manage 96,000 strong force has around 50 staffs only. ‘Even the ones who are assigned at the Defense Ministry routinely ask for transfer due to difficult working condition.’ says Paudyal.

Eyes on profit

In the last few years, the Army has steadily increased its investments in the medical education sector, which has attracted many private investors. The Army already runs a College of Medical Polytechnic and College of Dental Surgery. It has also been running College of Medicine and College of Nursing under Nepal Army’s Institute of Health Sciences. The Army’s Civil Hospital is under construction.
Although, for the MBBS program, the Army has set aside 10 per cent scholarship quota for Ministry of Education, and 15 per cent quota for the families of those in its service, the costs of MBBS programs at the Army’s medical college is expensive for commoners.
The cost for MBBS program isRs 3.6 million for regular students and for the army families it is Rs 3.3 million, which isn’t very different from private medical colleges. Even within the 45 seats set aside for the children of retired and in service army officials, the MBBS cost varies for different ranks, with provision of free education for children of those who died or became disabled during service.

However, the Auditor General’s report states that the Army has openly violated NMC’s criteria while enrolling students.The Army hospital has 491 beds, which allows only 82 students as per NMC criteria of 6 students per patient beds at the teaching hospital. But the Army has admitted 130 students aginst the guidelines.

Also, by charging students more than Rs 3.65 million for MBBS course, a figure which the government agreed to after Dr. Govinda KC’s repeated hunger strikes, and by enrolling additional 48 students against the guidelines, the Army has raked in Rs 170 million in profit. This contradicts to the supposed vision of Nepal Army Institute of Health Sciences as a ‘not for profit’organisation. Security expert and author of Military and Democracy in Nepal , Indra Adhikari says, ‘There isn’t much difference between the privately run colleges and Army’s medical college. It is clear, they have their eyes on profit.’

Recently, the Army has submitted details of the land transactions to the Office of the Auditor General, stating that it has bought several plots of land in Chitwan and Kathmandu worth 525.5 million rupees from Army Welfare Trust. ‘There is no further details of the land or the estimated costs of the construction on it’, informed a source at the Office of the Auditor General. When we inquired how much land and fixed asset from the Welfare Trust has been accumulated, spokesperson Karki told us,‘no such records exist’.

The Army has been significantly increasing its investments in the real estate, citing it’s objective of providing land and homes to the in-service and retired soldiers at affordable rates.

But, the heyday for the Army seems to have only begun.Karki told us the Army has recently invested in a mineral water plant in Sundarijal. Although, the stated purpose for investing in a bottling plant is for self consumption, Karki admitted that the company would supply water commercially in future.One of the first things Energy Minister Janardan Sharma did after assuming office was, making a call to CoAS Rajendra Chhetri proposing the Army to invest in large hydropower projects. The excited Army is now making internal prepartions to remove legal obstacles for investing in the hydropower sector.

The government’s decision to handover development projects to the Army has been criticized from various quarters including security experts.But Army spokesperson Karki blames the private banks for fueling rumours. ‘Some banks are worried, the Army’s investment plans in hydropower will hurt their business and are spreading rumours. Our welfare trust has so far been running only through bank interests and the earning from being part of the UN Peacekeeping Force. But, we now need to think of other alternatives like investing in hydropower sector to make the works of welfare trust more sustainable. This has nothing to do with profit making.’

However, security expert Indra Adhikari reckons, ‘Army’s increased inclination towards commercial venture using the welfare trust’s money is against the vision with which the trust was established.’

Trust and distrust

During its press conference in September, the Army had informed that the Army Welfare Trust had Rs 33.67 billion in savings, and that the main source of income came from the interest it generates from various banks. In the fiscal year 2015/2016, the Army earned 1.49 billion rupees in interest and paid 223.8 million rupees in taxes. This means that the average interest rate the Army receives on its bank savings is only 4 per cent, which is almost half of what the current market rate. This raises serious question on the decision making of the high ranking officials, and leaves plenty of room for speculation as to why the Army accepted such a low interest rates on its welfare fund.

This is against lofty claims by former CoAS Chhatraman Singh Gurung, about increasing the Trust’s money significantly with ‘high’ interest rates between July 2009 and 25 June, 2012, where the welfare trust grew from Rs 13.52 billion rupees to Rs 22.74 billion rupees. This was the period when Trust’s savings in ‘A’ category banks had increased from 81.9 per cent in 2009 to 96.6 per cent in 2012. The details of this can be found in Nepalese Army’s publication titled History of Nepal Army , published towards the end of Gurung’s tenure in 2012.

Between 2009 and 2012, the Trust’ money increased by 68 per cent from Rs 13 billion to 22.74 billion. But surprisingly, four years since then, the amount only increased by 48 per cent to 33.67 billion rupees. The main reason for this change is the bank interest rates. When we inquired about the details, spokesperson Karki told us, the banks where the Trust has its money can be shared, but the interest rate it receives cannot be disclosed. ‘It should be beyond doubt that an institution like ours does not negotiate on interest rates.’

Building the nation while its own languish in bunkers

At the peak of the conflict in 2001, the Army’s strength was 45,000. Gradually the number increased and now it stands at an astounding 96,600. One of the world leading superpowers, Britain has reduced its infantry size to 95,000 to invest in its citizens welfare programs. There are several other countries which are also cutting down their military size and defense spendings. In this context, it is an important question to raise in the public interest- does an under-developed country of Nepal’s size requires such a large Army? Why can’t the Army be modernized and equipped, to keep it at a manageable size?

What is also interesting is, despite its significant increase in numbers, the ranking structure hasn’t been changed to reflect this increase. There aren’t enough higher level ranks to accommodate increasing number of soldiers. As a result, many of them, on whom the state spends hundreds of thousands of rupees, end up retiring in their mid career ranks like Major, Lieutenant Colonel and Colonel.

The Army’s weapons, vehicles and other resources are alsooutdated and insufficient. But the issue of restructuring and modernizing the institution hardly gets a priority in the security debates and planning.

Until 2007/2008, housing infrastructure were available only for 49 per cent of the soldiers, which increased to 80 per cent in 2011/2012.The Army added these infrastructures under its campaign ‘ From Bunkers to Barracks’. But after the devastating earthquake of 2015, many of these structures were damaged and the campaign couldn’t achieve its target. According to spokesperson Karki, 35 per cent of the soldiers are still living in bunkers.

Despite these urgent needs for investing in reforms within the institution, the Army leadership seem more inclined towards profitable business outside. ‘These trends are alarming and point towards the danger of NA moving towards the Pakistani model,’ says Professor Dhruva Kumar, a noted security expert. ‘The Army is not government’s enterprising entity like the National Trading Corporation. Its primary duty is guarding the nation and not running after profit.If the Army is allowed to expand its wings in commercial enterprises, it will soon create a pressure in the private sector as well.’, concludes Professor Kumar.

Security expert Adhikari expresses similar concerns about Army’s corporate inclination. ‘Defense is a service in the interest of the nation, and must not be turned into a profit enterprise. The Armies in democratic countries are not allowed to be directly involved in buying and selling.’