Thukten Zangpo

The State-owned enterprises (SOEs) say they need government funding for their long-term financial stability since 10 out of 13 SOEs incurred losses in the past two consecutive years.

SOEs are not only a major source of revenue for the government but also play a vital role in delivering social mandates, which come with financial costs. 

The government transferred Nu 700.8 million as a subsidy to seven SOEs in fiscal year 2021-22. However, this declined to Nu 412.3 million in the fiscal year 2022-23. This decrease of 41.2 percent was mainly on the reduction of operational subsidies to Food Corporation of Bhutan and Farm Machinery Corporation.

For the coming fiscal year 2023-24, the government has projected Nu 342.25 million as a subsidy for four companies, a decrease of about 17 percent.

Asking for the government to continue providing subsidies until the companies become financially stable, the SOEs’ officials said that the losses incurred in the past two years are because of Covid-19 pandemic. Some SOEs are facing difficulty to meet even their operational expenses today. 

Given the current financial performance of the SOEs, the officials also said that salary revision for the SOEs employees following the suit of civil servants’ revision would be difficult at this time.

Conversely, the government wants the SOEs to undertake a phased approach to reduce the subsidy support, emphasising the need for their financial sustainability.

In early this year, the Cabinet directed the finance ministry that the government will only provide policy support and access to credit facilities including a sovereign guarantee to all the SOEs and not the subsidies.

The Chief Executive Officer of Green Bhutan, Karma Jigme Temphel said that the government initially started the company with a social mandate to carry out landscaping, plantation, recreation wall and watershed management with the agreement to inject Nu 100 million.

However, he said that the government had injected only Nu 33 million. “With the government’s low investment initially, the company is facing difficulty in generating income. The company has huge potential for revenue generation if it comes with a huge equity injection.”

For Green Bhutan, which focuses on planting trees, the benefits can be reaped in the long term, after 60 to 80 years.

The company is currently struggling to meet up the operational costs, Karma Jigme Temphel said. “We can survive without the subsidy but could not prosper in the longer term. We need investment for a few years.”

Green Bhutan has plans to collaborate with the Department of Forests and Park Services to create more recreational parks, tree houses, log cabins, and tent houses to attract domestic and international tourists.

Preferring the government’s subsidy or equity over the sovereign guarantee, Karma Jigme Temphel said that subsidy incurs no interest, and the SOEs can contribute in terms of tax and dividends after the companies become financially stable.

Similarly, the General Manager of the Farm Machinery Corporation Kelzang Namgay said that the company’s main mandate is hiring agricultural machinery for the farmers.

“Without the government subsidy, the demand for hiring machines had declined by 42 percent last year, and many machines currently are lying idle in stations in the eastern part of Bhutan during this plantation season,” he said.

The government provides a 50-60 percent subsidy for hiring of agricultural machinery to farmers. For hiring power tillers, farmers have to pay Nu 2, 750 a day at the commercial rate, while farmers pay Nu 1,500 a day at the subsidised rate.

“This subsidy has a direct benefit to the farmers and such subsidies are still provided by the developed countries,” Kelzang Namgay said.

With the discontinuation of the subsidy, he said that the company is strategising on hiring machines weekly or monthly at the reduced rate where operators’ and fuel costs have to be borne by the farmers.

The company is also looking into hiring machines for other agricultural purposes, Kelzang Namgay said.

Chief executive officer of the Food Corporation of Bhutan, Dorji Tashi said that the company’s performance for this year is expected to see a positive growth if there are no social relief measures from the government.

He added that the company saw consecutive losses in the last three years from 2020 because of the buy-back schemes of ginger, potatoes and cabbages, farm shops and stocking of essential food items. “The government has not reimbursed the service charge for the buy-back schemes.”

One of the chief executive officers of SOEs said that SOEs as start-ups, there are financial norms that need to be fully supported for a certain period of time like 5-10 years. “With less equity injection in the first place, there is a problem with cash flow, and the company cannot improve, resulting in a vicious cycle.”

“Meeting social mandate and becoming a full-fledged business entity would take a few years. The government must give subsidies to trigger the growth,” an official said.

However, he said that in sovereign guarantee, proposals need to be properly rated which comes with risk and sometimes it is difficult to get.” An official recommended expert interventions to assess the proposals and come up with a way forward.

Meanwhile, the Economic and Finance Committee in the ongoing National Assembly’s session discussed the government to seriously review the non-performing SOEs.

SOEs performance 

Among ten SOEs under loss last year, the Bhutan Development Bank recorded the highest loss of Nu 278 million followed by Farm Machinery Corporation with Nu 75 million.

Additionally, the Food Corporation of Bhutan incurred Nu 70 million and National CSI Development Bank incurred a Nu 54 million loss. Green Bhutan Corporation recorded the lowest loss at Nu 8 million.

However, Bhutan Lottery Limited made the highest profit of Nu 131 million and Bhutan Duty-Free Limited made Nu 66 million.

With SOEs incurring losses, the SOEs contributed Nu 245.5 million in the form of tax and dividends in 2022. It was a decrease of Nu 92.5 million compared to Nu 201 million the previous year, according to the budget report 2023-24.

However, the dividend contribution increased from Nu 110 million in 2021 to Nu 153 million in 2022 because of the improved revenue performance of Bhutan Lottery Limited and Bhutan Duty-Free Limited.

As of December, last year, the net asset of SOEs stood at Nu 8.48 billion, a decrease of 10 percent from the previous year.