Tuesday, September 20, 2011

RE: Reform of NEA and private sector with financial stake

September 20, 2011
Bihari K Shrestha

Bihari jee

I fully agree with you that present crop of board members in NEA from the private sector have no financial stake and, hence, aren’t accountable.

However, if one is to look at the board members of banks (and other financial intermediaries) with private sector investment, the situation isn’t that encouraging either. A person having invested, for example, Rs 1 crore sits in the board, but in the meantime using the instrument of margin lending, that person borrows more than the originally invested amount (based on listed price of the shares) and ends up in a situation of having the cake and eating it too. The problem that banking sector is facing now is mainly due to this situation. Private sector people in these banks too behave irresponsibly and lead the institution to insolvency. These people misuse the money belonging to the depositors who are at their mercy. By now there is no shortage of examples.

Therefore, as long as moral hazard remains high, even induction of private sector with financial stake will not improve the situation much.

With best regards,


Ratna Sansar Shrestha, FCA
Senior Water Resource Analyst

From: Bihari Krishna Shrestha [mailto:bks@wlink.com.np]
Sent: Friday, September 16, 2011 23:25
To: Ratna Sansar Shrestha
Subject: Re: Reform of NEA

Dear Ratnajee,

I was mainly suggesting the possible issuance of public offering of NEA stocks by enlisting it in NSE so that the people who represent the private sector in the NEA board would be those who have financiaLstakes (in the form of shares) in the organisation and would be structurally accountable to the larger body of shareholders who elect them to the board. Just appointing individual businessmen in the board would be worse than having civil servants, because the latter at least remain bound by the rules of the government to some extent. To me, this seems to be the lesson emanating from the turnaround that Coal India Limited has apparently achieved in recent times.

Warm regards


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