Province 2

The Constitution of Nepal 2015 article 168 provides formation of the provincial council of ministers by the Chief of the Province in recommendation of the Chief Minister. The total number of members of the council cannot exceed 20 percent of the total members in the provincial assembly. The Province 2 government is formed by province council of ministers as the executive head, province assembly as the legislative head of the province government. The members of the Province 2 assembly select amongst themselves, the executive head of the government known as the chief minister. The chief minister forms the council of ministers among the members of the provincial assembly.  There are 7 ministries in the province with various department and agencies.

Current Council of Ministers

Currently, there are 6 ministers who lead 7 ministries in Province 2. Mr. Shankar Pokhrel is the Chief Minister and he also manages Ministry of Economic affairs and Planning. Portfolio of other ministers are given below:

Table 3: Porfolio held by Ministers in Province 2

                                (Source: Province 2 Profile, 2020)

According to the article 163 clause 910 of the constitution of Nepal 2015, there is a provision for the appointment of province chief in each province as a representative of the federal government. Following this provision Ratneshwor Lal Kayastha was appointed as province chief of province 2 on January 27 2018. Likewise election to the speaker and deputy speaker of the province assembly was conducted on February 26 2018. The province chief appointed Chief Minister on February 26 2018. The chief minister also appointed his 7 ministers on the same day only to expand the council of ministers to 13 on July 25 2018. The province government has also formed office of attorney general to legally represent province 2 governments in legal matters. The province government enacted Province policy commission formation Act 2075 to form a Province Policy and Planning Commission under the leadership of Chief Minister, Lalbabu Rawat as the chairperson and bhogendra Jha as the vice-chair of the Province Policy and Planning Commission. 

Province Coordination Council

The division of state power among federal, province and local level government implies strong coordination among three tiers of governments. Without effective coordination mechanism, there will be conflict among governments. The constitution of Nepal 2015 also emphasizes importance of coordination and communication among three tiers such that citizens are provided with services which improve their quality of life. In this respect, the constitution foresees importance coordination and collaboration among province and local level especially in areas of concurrent jurisdiction. Province 2 has also constituted province coordination council based on the provisions laid out in the Local Government Operation Act 2074 article 105[1]. According to the provision, the chief minister of Province 2 is the coordinator of the council which meets atleast in a year to resolve conflicts and problems between province and local level and between local level governments also. The officials of the province coordination councils are as follows.

Table 4: Members of the Province coordination Council Province 2

(Source: Local Government Operation Act 2074)

The council meet can also be used for developing shared understanding among political representatives about legal issues which may arise during the course of implementing legislations. The meeting of the council promotes policy coordination, partnership among tiers of governments and efficient sharing of natural and other resources while minimizing conflicts. The first meeting of the council for Province 2 was held on September 18, 2018 in Bardibas and second meeting was convened on January 11-12, 2020 in Bardibas[2]. The first meeting of the council passed the Act related to operation of the province 2 coordination council meeting procedure, 2075. This coordination council is instrumental not only to discuss problems in the governance of the province but also create a shared vision for the province. The province coordination council meeting provides opportunities to learn and discuss about various legislations of the province and federal governments. The province coordination council meetings are attended by all province ministers, province chief secretaries, members of district coordination committees, mayor and deputy mayors of municipalities and chairperson and vice chairperson of village municipalities.

Employee Management

The province profile of province 2 informs that the ministries are operating with nearly half of the total allocated employees as shown in the table below. Likewise, there are additional (1808-158) employees currently working in various agencies/directorates/departments and divisions of province 2.

Table 5: Number of staff in ministries in Province 2

 (Source: Province 2 profile, 2020)

Province Assembly

The assembly of Province 2 has been constituted according to provisions set out in the Part 14 of the Constitution of Nepal, following principle of unicameral legislature. The first meeting of the province assembly of Province 2 was conducted on February 03 2018. There are 107 members of the province assembly who comes from 8 districts including members elected from First-Past-the-Post and proportional representation election systems. The number of province constituencies is 64 according to the Constitution of Nepal. These 64 seats have been considered as 60% and rest 40% seats are allocated for members to be elected through proportional representation system. 64 members of the provinces assembly are elected from these 64 constituencies in First-Past-the-Post system and another 43 members are elected on the basis of proportional system of election. Proportional representation system has ensured that representatives from the Dalit, Madheshi, Tharu, Muslim, Indigenous Nationalities, backward regions, and minority communities are represented in the assembly in proportion to their population. Members of the province assembly form the province government, passed bills on state laws, government policies and programs and budgets, and conducted parliamentary oversight and control of government and government bodies. The province assembly is presided by the Speaker and Deputy Speaker in his/her absence. Similarly, the Provincial Assembly made the Rules of Procedure of the Provincial Assembly, 2074 BS to conduct its work, maintain the order of the meeting and regularize the formation, work, action and other matters related to the committees. The Rules of Procedure of the Provincial Assembly, 2074 BS provides for various thematic and special committees, parliamentary party structures as well as committee chairpersons and office bearers such as Leader of Opposition and ruling party, Deputy Leader, Chief Whip, Whip. In addition to this, the rules of procedure of the meetings of the assembly has elaborate procedures for the question and answer, the procedure of floating bills/proposals, and arrangements for the dissolution of the government etc. Major works of province assembly are forming the government, pronounce legislations, monitoring province agencies, and discuss and approve budget.

Table 6: Members according to electoral system and Gender

                (Source: Province Assembly, Province 2, 2020)

In the current province assembly, there are 30 members of Sanghiya Samajwadi Forum, 32 members from Communist Party of Nepal, 25 members from Rastriya Janata Party, followed by 19 of Nepali Congress, and 1 member from Nepal Sanghiya Samajwadi Party. Following table shows the seats gained by political parties in the province assembly polls. The tenure of these members is 5 years from the election year of 2017/18.

Table 7: Members of Province Assembly based on Political Party

                  (Source: Province Assembly, Province 2, 2020)

Geography and population were the two criteria for delimitation of the constituency with slightly higher weightage assigned to geography such that low population geography also has atleast sizeable representation in the province assembly. Province 2 assembly has also created eight committees from amongst its members which work as mini parliament. Following table shows the number of committees and their scope of work.

Table 8: Thematic committees of Province Assembly with Scope

(Source: Province Assembly, Province 2, 2020)

Until current fiscal year, the Province 2 assembly has conducted 5 sessions of the parliament. The parliament has promulgated laws to deliver services for the citizens. Following table details the information of various sessions:

Table 9: Information on various business of the Province assembly

(Source:)

[1] Program Report Second Province Coordination Council Meeting, Province 2, 2019/20

[2] Ibid

The Province has already formulated many laws to dispense important functions. Some of the important Laws are:

Table 10: Laws prepared by the province assembly by date of authentication

(Source: Ministry of Internal Affairs and Laws, Province 2, 2020)

3.1 Mid Term Expenditure Framework

….. Updating soon

3.2 Budgetary provisions for Province 2

The constitution of Nepal 2015 has recognized National Natural Resources and Fiscal Commission (NNRFC) as the custodian of the fiscal federalism. Most important task of the commission is to recommend criteria and funds for inter governmental fiscal transfers to province and local level based on the principle of financial justice, objective assessment of needs and efforts of governments to raise revenues. The commission recommends basis/criteria for distribution of equalization grants, conditional grants, revenue sharing and internal loans. Two important legislations promulgated by federal government regarding implementation of the fiscal federalism are National Natural Resources and Fiscal Commission Act, 2017, and Inter- governmental fiscal management act 2017. The commission recommends basis for distribution of intergovernmental transfers for two consecutive years. The commission recommends basis of distribution of revenues, equalization grants, conditional grants and internal loans limits. Accordingly, the commission has recommended basis of distribution for two years 2075/76 and 2076/77 on the basis of different weightage assigned to factors such as Population distribution, Geography, Human Development Index, and Development indicators.

The distribution of benefits from the use of natural resources are also divided among different tiers of governments based on shares in investments in protecting natural resources and shares in benefits sharing by the respective level of governments.

The commission used indicators from variety of sources to determine the proportion of fiscal transfers. The commission conducted discussion programs with some province and local level governments to understand their projections on revenues, expenditures and resulting fiscal gaps. If indicators were not available, indicators of previous years was used as proxy. Following table shows the indicators and their sources.

Table 11: Sources of Indicators used by National Natural Resources and Fiscal Commission

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

The distribution of benefits from the use of natural resources are also divided among different tiers of governments based on shares in investments in protecting natural resources and shares in benefits sharing by the respective level of governments. At the province level, following are the major sources of revenues for Province 2 as provisioned in the Inter-government Fiscal transfer Act 2074.

Table 12: Sources of revenues for Province Governments

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

The commission has also recommended that province and local level can raise internal loans which do not exceed 10% of the funds resulting from addition of revenue from revenues sharing (with other level of government) and revenue from internal sources. The fund raised from internal loans can only be used for projects which can be capitalized in the future and provide long term benefits.  Following table give detail information about fiscal transfers from one government to other.

Table 13: Basis for Distribution of fiscal transfers among different tiers of government

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

3.2.1 Equalization grants

The commission recommends amounts for fiscal equalization grants from federal to province and local level based on National Natural resources and fiscal Commission Act 2017 and Inter- Governmental Fiscal management Act 2017. According to these acts, each province and local government receive a minimum grants amounts and fiscal equalization grants based on certain criteria. For distribution at the province level, 25% of the total equalization grant of the federal government is considered as 100%. This 100% is distributed among seven provinces based on their population (50%) weightage and geography (50%) weightage. The resulting amount for a province is considered as a minimum grant. After calculating minimum grant amount to a province, a formula based weightage system is used to fix the fiscal equalization grants. According to the formula, 60% weightage is assigned to costs of services to be delivered, 15% is assigned to Multi Dimensional Poverty Index, another 15% weightage is assigned to economic and social disparity indicators of the province and another 10% weightage is assigned to Infrastructures related indicators. The infrastructure related indicators include road density, Information and Technology Accessibility, and Electricity accessibility. These indicators are derived from various government sources by the commission. In the fiscal year 2075/76, 37.12% of all equalization grants from federal government was allocated to seven provinces and the remaining 62.88 was allocated to all local levels. Based on above formula, Province 2 received NPR 7.01 billion as equalization grants while the corresponding figure for Province 2 in the fiscal year 2076/77 is NPR 7.08 billion.

At the local level fiscal equalization transfers from province to local level is determined by  minimum grants (equal to all local level), formula based weightage system and performance evaluation grants. All local level governments received 60 million as minimum amount of equalization grants for the year 2075/76 and 65 million for the fiscal year 2076/77. According to the formula, 70% weightage is assigned to the gap between expenditure needs and revenue capacity of the local level, 15% weightage is assigned for Human poverty Index of the local level, another 5% weightage is assigned to economic and social disparity indicators of the local level and another 10% weightage is assigned to Infrastructure related indicators of the respective local level. Additionally, the work performance evaluation measures are also accounted for in case of equalization grants to local level. The work performance measures is composed of 40% weightage assigned to financial progress of the previous year, another 40% assigned to whether budget was brought on Ashar 10 of the current fiscal year and another 20% weightage is assigned to whether incomes expenses projections of the local level was shared with Ministry of Finance within Poush of the current fiscal year. In the fiscal year 2075/76, 62.88% of all equalization grants from federal government was allocated to local level. Province 2 has allocated NPR 400 millions as equalization for 139 local level units in 2075/76 while the corresponding figure for 2076/77 was NPR 1 billion.

3.2.2 Conditional Grants

Conditional grants are given from federal to province level and from province to local level to accomplish projects and programs which are of national importance and which produces returns in the long run. The conditional grants supports programs which come under the shared responsibility areas of province and local levels of governments or programs which fall under federal responsibility areas but lower tiers of government are executing those programs. Emphasis is also laid on national level sectoral policy of the state while developing basis for conditional grants. Programs which correspond to schedule 6 and 8 of the constitution of Nepal 2015 concerning rights of province and local level are also included as basis for distributing conditional grants. Conditional grants are also given to programs which correspond to schedule 5 of the constitution of Nepal where the rights falls under jurisdiction of federal level but the programs should be implemented with the help of province and local level. This pertains to those projects executed with the support of foreign funds also. Province 2 received NPR 9.18 billion as conditional grants in the fiscal year 2075/76 while it received NPR 9.15 billion in fiscal year 2076/77. The NNRFC has developed basis for the distribution of conditional grants among different tiers of governments from the fiscal year 2076/77. The broad basis for the distribution of conditional grants is as follows:

• • Support to implement national policies across country
  • Programs which address infrastructural needs of the province and local level
  • Programs which help realize commitments made at the national and international level

Much like the federal government, the province government can also develop basis of distributing conditional grants among local level governments ensuring that the conditional grants are directed towards implementation of province level sectoral policy, programs and meet development objectives and infrastructure needs of the province. The province government should analyze federal grants to local level before it provides conditional grants to local level. This way it can be ensured that none of the programs supported by conditional grants of the province overlap with programs supported by federal governments at the local level. The basis for the division of conditional grants was suggested based on discussions with province governments and local level governments for the fiscal year 2075/76 and 2076/77[1]. The amount of conditional grants allocated by province 2 government to its local levels for the is NPR 1.11 billion for two fiscal years of 2075/76 and 2076/77[2].

3.2.3 Raising Internal Loans

 The NNRFC has recommended amount of internal loans which can be taken by federal, province and local level based on the assessment of existing financial settlements of the federal government, economic status of the country, and capacity to pay back loan by lower tiers of governments. The commission has also recommended that province and local level can raise internal loans which do not exceed 10% of the funds by adding amount received from revenues sharing and revenue from internal sources. The fund raised from internal loans can only be used for projects which can be capitalized in the future and provide long term benefits. Province 2 government has proposed to raise NPR 1 billion and NPR 1.31 billion as internal borrowings for the fiscal year 2075/76 and 2076/77 respectively.

3.2.4 Vehicle tax sharing among province and local level

The vehicle tax falls under shared jurisdiction of province and local level. The rates of taxes and collection procedures fall under province government. Province uses 60% of the total vehicle taxes and distributes rest 40% among local governments. Local governments receive part of the vehicle tax based on its population (45%) weightage, length of roads (50%) weightage and forest and greenery cover (5%) weightage respectively. The weightage are assigned by the NNRFC. Province 2 collected NPR 1.25 billion as vehicle tax in the fiscal year 2075/76 out of which it received 60% of the sum while it distributed rest 40% among local governments in the province. The estimated vehicle tax for fiscal year 2076/77 is NPR 2 billion for Province 2.

3.2.5 Revenue from royalties from Natural resources

The inter-governmental fiscal management act 2017 governs the distribution of royalties from natural resources among federal, province and local governments. The royalties from the mountaineering activities area shared among federal province and local level in the proportion of 50%, 25% and 25% respectively. This division ensures proportionate sharing of royalties. The division of royalties is concentrated among those province and local level governments whose population are affected by the presence or use of natural resources or the population contribute to the preservation of natural resources. For instance, incase of royalties from mountaineering, local government where the mountains exist are considered as core areas while local level which share boundary with core areas are considered as adjoining areas. The division of royalties from mountaineering activities is distributed among local governments based on weightage according to following table.

Table 14: weightage assigned to different factors to derive distribution of royalties from Mountaineering

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

3.2.6 Royalties from Hydro power plants

The royalties from the hydro power plants are shared among federal, province and local level in the proportion of 50%, 25% and 25% respectively. This division ensures proportionate sharing of royalties. The division of royalties from hydro power plants is distributed among local governments based on weightage according to following table.

Table 15: weightage assigned to different factors to derive distribution of royalties from Hydro power 

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

3.2.7 Royalties from forests and forests resources

The royalties from the forests and forests resources are shared among federal, province and local level in the proportion of 50%, 25% and 25% respectively. The basis of division of royalties from forests is contingent upon the affected local population and their role in preserving forests resources. Hence, the commission takes into account population in the catchment areas of the forests in addition to political boundaries of the local levels. This division ensures proportionate sharing of royalties. The division of royalties from national forests and conservation forest areas is distributed among affected local governments based on weightage according to following table.

Table 16: weightage assigned to different factors to derive distribution of royalties from Forests 

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

3.2.8 Royalties from mineral resources

The Inter-governmental fiscal management act 2017 governs the distribution of royalties from mineral resources among federal, province and local governments. The division of royalties is concentrated among those province and local level governments whose population is affected by the presence or use of such mineral resources or population affected by extraction activities. The royalties from the mineral resources are shared among federal province and local level in the proportion of 50%, 25% and 25% respectively. This division ensures proportionate sharing of royalties. The division of royalties from mineral resources is distributed among local governments based on weightage according to following table.

Table 17: weightage assigned to different factors to derive distribution of royalties from minerals

(Source: Progress Report, Province 2, National Natural Resources and Fiscal Commission, 2020)

3.3 Comparison of Annual Budget

The contribution of economic activities of Province 2 bears a sizeable impact in the overall economic life of Nepal. Its contribution to the national GDP ranges around 12%. The annual budget of the province for fiscal year 2018/19 was around NPR 29 billion which increased to more than NPR 38.72 billion in the fiscal year 2019/20 and it is estimated to be around NPR 33.56 billion in fiscal year 2020/21 largely due to contraction of economic activities because of covid 19 pandemic. As shown in the following table, there is decrease in the projected revenue from internal sources, fiscal transfers from federal government, and also grants. Province 2 Government has been borrowing internally to the tune of NPR 1 billion for all three consecutive years. The grants from central government are also decreasing yearly.

Table 18: Comparison of annual budgets of Province 2

Province 2 government has allocated funds according to its areas of priority. Province 2 has allocated alarge part of its annual budget for general administration, Governance and Health and education sectors. These three sectors collectively expense more than 80% of the annual budget in 2020/21 as shown by following table. Information for the fiscal year 2018/19 and 2019/20 were not available.

Table 19: Yearwise comparison of budgetary allocation in Priority areas by Province 2

[1] Progress Report of National Natural Resources and Fiscal Commission 2019

[2] Ibid