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Draft Final Report Farhad Ahmed & Punya Prasad Regmi

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Draft Final Report Farhad Ahmed & Punya Prasad Regmi World Food Programme Study on the Transport Constrains in Western Nepal (Karnali Highway Transport Corridor) Draft Final Report Farhad Ahmed & Punya Prasad Regmi Kathmandu November 17, 2009 Reducing Poverty by Enabling Access STUDY ON THE TRANSPORT CONSTRAINS IN WESTERN NEPAL This document is an output from a World Food Programme (WFP) initiated and Department of International Development (DFID), UK funded study. The project has been jointly implemented by IT Transport Ltd (ITT) and Nepal Development Research Institute (NDRI). Mr Farhad Ahmed of ITT and Dr Punya Prasad Regmi of NDRI have jointly prepared the report. Ms Lalita Thakali of NDRI has been involved as a Research Associate in this study and took part in data collection. The views expressed are those of the author(s) and not necessarily those of DFID or WFP. i Map 1: Showing Development Regions of Nepal ii Map 2: Showing Karnali Highway Source: World Food Programme iii ACRONYMS AND ABBREVIATIONS ADT Average Daily Traffic DFID Department for International Development (UK) DOR Department of Roads GON Government of Nepal km Kilometer NFC Nepal Food Corporation NGO Non-governmental Organisation NRs Nepali Rupees PPP Purchasing Power Parity TOR Terms of Reference U-CPN-Maoist United Communist Party of Nepal (Maoist) UML United Marxist Leninist Party US$ United States Dollar VOC Vehicle Operating Cost WFP World Food Programme ****** Approximate Currency Equivalents (as of early-November, 2009) 1 US$ = 78 NRs 1 € = 110 NRs 1 UK£ = 124 NRs ****** iv EXECUTIVE SUMMARY 1. This report presents the findings of a study entitled “Study on the Transport Constrains in Western Nepal (Karnali Highway Transport Corridor)” undertaken by WFP with DFID financing. The aim of the study is to understand the dynamics of the road transport market in western Nepal in order to inform the research on high food prices. The objectives of the study includes the documentation of the status and functioning of the transport syndicate system in the highway corridor, operation of the freight transport system and recommendation for interventions in order to respond to constraints/issues for facilitation of operation of the freight transport market. The study is a part of a WFP research study in food insecure hill/mountain districts of western Nepal to examine ways to address food insecurity using market means. 2. The main conclusions of the study are the following: a. No credible evidence exists that can confirm that cartel behaviour through transport syndicates still exists in the freight transport markets in the Karnali Highway corridor; b. The volume of freight carried towards hills/mountains areas is double the volume carried from them. Trucks and tractors are the main modes that carried an overwhelming majority of the volume carried both and from hills/mountains. Whereas cereals and food items constituted a great majority of the volume towards hills/mountains, natural resources products are the main freight carried from them; c. Vehicle operating costs vary widely in the corridor and range from NRs 8.8 to 33.8 per tonne-km that are dependent on the vehicle types and road conditions; d. The fuel price elasticity of vehicle operating cost also has a wide range (0.16 to 0.47). Elasticity values are again dependent on the vehicle types and the road conditions; e. Freight tariffs under vary widely (NRs 8.3 to 51.7 per tonne-km) in the corridor depending on the transport modes and routes. The freight tariffs may see a reduction of as much as 84% if the condition of the highway is improved. The corridor freight tariff appears to be higher than freight tariffs in Terai and in Pakistan and Indonesia. f. It seems that the freight operators in the corridor are being profited financially from their operation but it the margins do not seem to be abnormal; g. Practices that adversely affects the market existed before but they are abandoned by the associations now; h. The freight transport market in the corridor appears to be perfectly contestable. Also the available legal instruments are adequate to deter unfair market practices by the operators; i. Some institutional customers often offer food transport contracts to freight transport associations. Questions being raised by the local operators on the transparency of WFP’s food transport procurement processes. 3. The recommendations of the study are: (i) improvement of the highway; (ii) timely and adequate maintenance of the highway; (iii) steps to be taken to legitimise tractors operations; (iv) abolishment of route permit systems in order to reduce the barrier to market by potential operators; (iv) step to be taken barring the association from the collection of trip sulk ; (v) review of WFP’s food transport procurement process and its effects on the freight transport market. v Study on the Transport Constrains in Western Nepal - Table of Contents - Map 1: Showing Development Regions of Nepal .............................................................. ii Map 2: Showing Karnali Highway ......................................................................................iii ACRONYMS AND ABBREVIATIONS ..................................................................................iv EXECUTIVE SUMMARY ...................................................................................................... v 1. INTRODUCTION, CONTEXT & METHODOLOGY .................................................... 1 1.1 Introduction & Context ...................................................................................... 1 1.2 The Karnali Highway......................................................................................... 1 1.3 Study Methodology & Limitations...................................................................... 3 1.4 Report Contents................................................................................................ 4 2. OPERATIONS OF EXISTING FREIGHT TRANSPORT SYSTEMS .......................... 5 2.1 Freight Transport Modes Types........................................................................ 5 2.2 Freight Types and Volumes.............................................................................. 6 2.3 Operating Costs................................................................................................ 8 2.4 Freight Tariffs & Operators Margin ................................................................... 9 3. FREIGHT TRANSPORT SYSTEM ORGANISATION & EXTENT OF COMPETITION 12 3.1 Transport Owners’ Organisation..................................................................... 12 3.2 Market Operation............................................................................................ 16 3.3 Legal Provisions ............................................................................................. 17 4 CONCLUSIONS & RECOMMENDATIONS ................................................................ 19 4.1 Freight transport operations............................................................................ 19 4.2 Organisations and extent of competitions....................................................... 20 4.3 Conclusions on the null-hypothesis ................................................................ 20 4.4 Recommendations.......................................................................................... 20 REFERENCES ................................................................................................................... 22 vi 1. INTRODUCTION, CONTEXT & METHODOLOGY 1.1 Introduction & Context WFP has undertaken a research study in food insecure hill/mountain districts of western Nepal. The objective of the study is to examine ways to address food insecurity using market means. This has a particular aim: to understand the relative significance of different barriers to trade, through detailed research, in 3 mid-Western districts affected by the Karnali Highway development (Kalikot, Jumla and Mugu). Transportation costs have been identified as one of the main barriers. The others include poor road and market infrastructure, political instability etc. One of the main contributors to the food prices in remote hills and mountain districts is the high transportation costs, as suggested by previous study findings and anecdotal evidence. The high transportation costs often double the food prices in remote hill and mountain districts. This is a major problem given the low per capita income in these districts. Apart from poor road infrastructure, on which the food is transported, cartel behaviour through transport syndicates is believed to be contributing to higher food prices. Given that the rising food prices affects the food security situation, and transport costs are one of the major components of the food prices in the remote hills and mountain areas, DFID and WFP decided to commission this study to review the constraints in the freight transport sector in the Mid-western Region in general, and Karnali Highway corridor in particular. The study Terms of Reference (TOR) is provided in Appendix I. The study commenced in end-October 2009. The study aim is to understand the dynamics of the road transport market in western Nepal to inform research on high food prices. The study has four objectives including the documentation of the status and functioning of the transport syndicate system in the Karnali Highway corridor, operation of the freight transport system (in particular food transport operations) and recommendation for interventions in order to respond to constraints/issues
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