Natural Resources and Fiscal Commission has nothing substantial to show as it turns six

The Constitution of Nepal, 2015 has given the National Natural Resources and Fiscal Commission (NNRFC) the authority to recommend the basis for determining the share of investment and returns for the federal, provincial and local governments while mobilizing natural resources.

Similarly, the NNRFC is also tasked with the responsibility for studying potential disputes regarding distribution of natural resources between three tiers of government, and providing suggestions for their resolution. The essence of federalism is the practice of autonomous governments. The constitution envisaged the NNRFC to play a coordinating role in potential disputes, tensions or claims over natural resources and finances between the three governments.

Likewise, Part 4 of the Constitution outlines policies regarding the conservation, promotion and utilization of natural resources under the Directive Principles, Policies and Obligations of the State. It states that the state will adopt policies to conserve, promote and sustainably use available natural resources in the national interest and in line with intergenerational equity, while prioritizing local communities and ensuring equitable distribution of benefits. Here, we will discuss how effective the NNRFC has been in fulfilling these obligations.

Now work for 72 employees

When this scribe reached the office of the NNRFC near the close of the previous fiscal year, employees appeared to have little to do. While other government offices were extremely busy, employees of the commission just signed the attendance register and remained idle throughout the day. Government employees are required to give eight hours to the office. “We don’t have even one hour of work here,” one staff member of the NNRFC told this scribe. “In reality, the NNRFC has no work.”

On condition of anonymity, the staff said the NNRFC has failed to work according to its establishment and objectives. According to Article 250 (1) of the Constitution, the NNRFC should consist of a chairperson and four other members appointed by the President on the recommendation of the Constitutional Council. The tenure of the Chairperson and members is six years from the date of appointment. Nearly six years have passed since the first appointment, but the committee members have not been able to accomplish much.

The NNRFC currently has only four office-bearers. Even they lack unity among themselves. “The NNRFC has not been able to provide any output. The taxpayers’ money is not being utilized properly,” the staff added.

In India and other countries, such commissions are formed for a limited time and are closed after completing specific tasks. “The objective of the NNRFC is not clear; there is no end to the work. Employees don’t even have an hour’s worth of work. We are just passing time,” employees told this scribe. “This is supposed to be a research-based office. The constitution envisioned it with great ambition and goals. But in reality, it has become a stagnant office.”

The federal, provincial, and local governments need to effectively mobilize financial and natural resources to provide services to the people while promoting cooperation, coexistence and coordination among themselves. The NNRFC is required to play a crucial role in ensuring balanced and equitable distribution of financial transfers and natural resources among the three levels of government. Primarily, it has the authority to make recommendations regarding revenue sharing, financial equalization grants, conditional grants, internal loans and distribution of natural resources among federal, provincial, and local governments. "But in reality, it hasn't accomplished anything," the employee says.

Problems galore

NNRFC Chairperson Dr Balananda Poudel acknowledges that the distribution of natural resources as per the constitutional mandate has not been smooth. He claims that over five years, they have conducted studies, made recommendations, conducted research, provided suggestions and facilitated various tasks. “We were supposed to recommend a framework for investment and returns from natural resources. The study for this hasn’t been completed. The NNRFC has realized the need to pay more attention to this work,” he added. He also pointed to political instability and interference in the bureaucracy as root causes of the problems. “Secretaries are transferred every month. There is no coordination when sending staff to the NNRFC. Interest, patience and expertise are not considered while sending staff. The state doesn’t consider what kind of knowledge, skills, and qualifications are needed for the NNRFC,” he said. Although Paudel claimed that the NNRFC has been working to its capacity, he has no  visible achievements to show. “I feel we could have done more than what we have accomplished,” he said, adding that the NNRFC has provided suggestions to the government about its problems in their annual report.

Slow collection of royalties

The modality for sharing royalties from natural resources has been determined. However, other laws play a more important role than the NNRFC in this. According to Section 7 of the Intergovernmental Fiscal Management Act, 2017, 50 percent of the royalties from mountaineering, electricity, forests, mines and minerals, water, and other natural resources should go to the federal government, and 25 percent each to the related provincial and local governments. The annual report of the Financial Comptroller General Office, 2021/22, states that a total of Rs 5.72bn was collected as royalties from  mountaineering, electricity, forests and mines and minerals and distributed among three tiers of governments. Of this, electricity contributed the highest at 53.4 percent, followed by forests at 22.9 percent, mines and minerals at 14.4 percent, and mountaineering at 9.3 percent.

Office-bearers not in friendly terms

Dissatisfaction and discord can be felt among office-bearers which has affected the NNRFC’s work. Amar Raj Mishra, a member of the NNRFC, expressed dissatisfaction with the chairperson’s work. “The NNRFC is being run by one person’s decisions,” he said. Mishra has even filed a writ petition in court against the chairperson’s conduct. “I have been saying that the NNRFC should not work in a haphazard manner. Now, I have become like an opposition. There is no consensus even on issues that need to be improved through discussion,” he added. Mishra said he moved the court to improve affairs at the NNRFC, but things have not improved. “The NNFRC’s work has been limited to formality. There is no proper procedure. Wrong data is being used. There is no profile for any project,” he added.

The NNRFC is supposed to recommend the equitable distribution of government-collected revenue among federal, provincial and local levels, and determine the amount of fiscal transfers to provinces and local levels. However, Mishra accuses the NNFRC of using inaccurate data for grant allocation and distribution of tax and royalty revenue. He claimed that local governments are being unfairly treated due to the use of old data by the NNRFC. Mishra has filed petitions against the NNRFC’s decision to recommend grant distributions without conducting any discussions within the commission. The NNRFC Regulations, 2019, stipulates that the distribution and division of work among the chairperson and members should be determined in commission meetings. Mishra, however, claimed that many decisions have been made arbitrarily.

Incomplete commission

The NNRFC is supposed to have five members including the Chairperson. For about two years, only the chairperson ran the NNRFC single-handedly. Later, three members were added. Currently, there are only four members. The position of a female member is still vacant. The other two members are Juddha Bahadur Gurung and Bipin Raj Niraula.

Gurung claimed that work is progressing in a satisfactory manner. “We have been handling responsibilities related to natural resources including royalty distribution,” he said. “Studies and research are being conducted. Sufficient work has been done since the NNRFC’s formation,” he said. “The seed has been planted and is sprouting. Studies are being conducted to define natural resources. Results will be seen gradually.” However, a staff member told this scribe that the software created to make the NNRFC’s work transparent and smooth has been sitting idle for two years.

Weak federalism

Federalism expert Khimlal Devkota believes that federalism itself has become weak due to the ineffectiveness of the NNRFC which is considered the main link in implementing federalism. “The federal government has become dominant. It either hasn’t given grants to provinces and local levels or has reduced them,” he said. “The NNRFC should put a strong pressure on the government in this matter, but it hasn’t been able to do so.” Devkota said there is no need for such an extensive structure if it is to only make general recommendations occasionally. “The NNRFC has failed to work according to the expectations of the parliamentary committee. The parliamentary committee is not satisfied with the NNRFC’s work,” he said, adding: “There is no point in continuing the NNRFC if it cannot come up with a substantial report.” Forest expert Naya Sharma Poudel also said that the NNRFC has not been able to work as expected. “Not much seems to have been done in the field of natural resources. Political parties and officials need to pay attention to this,” he said

Natural resources still overlooked

The NNRFC hasn’t been able to do anything concrete on the management of royalties for many natural resources. The NNRFC has said in its fifth annual report that there are some potential sources from which royalties can be obtained in the future from the mobilization of water and other natural resources. These categories include inter-basin drinking water, inter-basin irrigation, bottled water use, industrial use of water, groundwater resources, water transportation, water recreation, fish farming and hydrogen energy. Similarly, potential sources of royalties from the mobilization of other natural resources in the future include solar energy, wind energy, geothermal energy, thermal energy, fossil energy, nuclear energy, petrol, coal and telecommunications (frequency). But it has failed to suggest necessary legislation for the same. As per Article 251 (2) of the constitution, the NNRFC should conduct necessary studies and research on environmental impact assessment related to the distribution of natural resources and make recommendations to the government. However, the commission is lagging in this aspect as well.

More focused on fiscal part

Although the NNRFC is required to work on natural resources as well, it seems more focused on the finance aspect. Its work and activities are also finance-centered. It has no role in the protection and promotion of natural resources. The NNRFC’s focus is only their consumption. “Nepal is rich in natural resources. We are poor because we haven’t been able to protect and properly utilize them,” a staff of the NNRFC said. “The constitution created this commission to address this issue. But the focus is on how to consume natural resources and share royalties generated for them.”

This story has been produced with the support of the Internews Earth Journalism Network through the Media for Inclusive Green Growth project