An exploration of Administrative Barriers and Reform Pathways for Enhanced Performance of Udayapur Cement Factory

Abstract

This paper reviews the institutional governance issues that hinder performance at Udayapur Cement Industry Limited (UCIL), a state-owned cement manufacturing firm in Nepal and outlines reform options that will turn around its operations. The capacity utilization of UCIL has plummeted, as of fiscal year 2023/24, to about 4.3% (i.e. only a few thousand bags per day of capacity usage compared to the installed capacity) once it was able to generate 800 metric tons a day. The company now has liabilities of approximately NPR 5 billion and is owed by the government a sum of NPR 3.37 without repayment of salaries due to employees since November and mining licenses canceled because of inability to pay renewal fees. This is hampered by frequent power cutoffs, outdated and poorly maintained equipment and legal and administrative hunches including court orders that freeze bank accounts due to unpaid supplier debts. It utilizes the qualitative case study methodology that incorporates interviews with managers, current records of operations, and government reports, as well as secondary data, to define the deficits in governance: weak continuity of leadership, inadequate oversight, slow decision-making, politicized labor relations, and financial and administrative autonomy.

Results indicate that bad governance has directly translated into almost shut-down situations: little production could be made to pay minimal wages, they were not able to obtain raw materials because of financial crunch, and they lost their market share. To address a short-term fix, the study suggested a board restructuring to facilitate continuity and accountability, simplifying the administrative processes to hasten the financial support and licensing, using a clear procurement and supplier-payment system, and introducing performance-based management and labor accountability. To be viable (medium-long term), it suggests considering the public-private options, investing in modernization to resume capacity (with the aim of returning daily production to approximately full capacity), ensuring supplies of raw materials by reintroducing valid mining licenses and re-engineering institutional governance to offer greater autonomy of operation without losing the control of the state. This set of reforms can bring UCIL back to its stable financial state, enhance the use of capacity, and improve its competitiveness in the Nepalese cement sector.