(On-site evaluation: July 2007)
Ex-Post Monitoring of Completed ODA Loan Projects
Evaluator: Hajime Sonoda (Global Group 21 Japan Ltd.)
Project Name: Nepal - Udaipur Cement Project (L/A No. NE-P4)
Loan Outline
Loan Amount/Disbursement Amount
Loan Agreement
Loan Completion
Ex-Post Evaluation
Executing Agency: 18,770 million yen/ 18,749 million yen: October 1987
: October 1995
: FY1997: Udaipur Cement Industries Ltd. (UCIL)

Project Objective
This project constructed a cement plant that produces 800 tons/day and other related facilities in Udaipur, located in eastern Nepal, to meetthe rapidly increasing demand for cement while also improving the country’s self-sufficiency ratio, and thereby contribute to promoting
economic growth through promoting import substitution, and contribute to promoting economic growth through saving foreign exchange andcreating jobs.
Consultants: Onoda Engineering Co., Ltd.
Contractors: Tomen Corporation.

1

Overview of Results
Item
At Time of Ex-Post Evaluation
Effectivene
ss andImpactEffectiveness

At Time of Monitoring
Cement production amounts had decreased even further than amounts
measured at the ex-post evaluation despite the technical cooperation conductedby SAPS and JICA after the ex-post evaluation, and has been at less than 40%
in recent years. The cement is of an extremely high quality made using highgrade limestone, making it an attractive product; however, supply is unstable as
the plant frequently stops operations for long periods of time.

(1) Cement production and sales amounts
Average cement production amounts at this plant are stuckat approximately 50% of the plant’s production capacity
due to unstable power supply and difficulty in procuring
spare parts. The main reasons for this are 1) inadequate andunstable power supply, 2) difficulty in procuring spareparts, and 3) the stalling of mining operations and wettingof materials due to heavy rains. (*The unstable power
supply is due to a chronic supply deficiency produced by
the delay in development of domestic power sources, andblackouts occur frequently. Furthermore, factors for thedearth of spare parts include UCIL’s lack of ability forbearing debt, and the great amount of time that is needed inacquiring the required approval from Nepalese parliament
regarding the budget, as UCIL is a government-run
company. Due to these factors, parts are not supplied
steadily, and the situation is in a negative spiral, inviting
further problems.)<Table 1 Monthly cement production>(Unit: tons)
Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

2

(1) Cement Production and Sales Amounts
After commencing plant operations, an ODA loan consultant resided
at the plant until November 1994 providing technical assistance.
Nevertheless, the operation ratio (actual amount produced/planned
production amount) stayed at 60%i. One of the reasons for this isthought to be the fact that the plant is located far away from thecapital city of Katmandu, meaning that highly capable personnel were
not assembled for management positions; however, details areunclear.
<Table 3 Changes in production, sales, operation ratio, etc.>
Clinker production

Cement production(tons)(tons)

Kiln operating time

Planned value

7920

100.0%

Cement sales (tons)

264000100.0%

277200100%

277200

100%

93/94

123,36346.7%

129,112

16.4%

128,782

46.5%

94/95

157,59359.7%

165,73459.8%

169,594

61.2%

95/96

123,37946.7%

130,87147.2%

130,981

47.3%

96/97

95,272

36.1%

92,77033.5%

89,885

32.4%

97/98

122,675

46.5%

131,68948.5%

132,564

47.8%

98/99

94,19535.7%

99,56535.9%

101,876

36.8%

99/00

107,47440.7%

110,49739.9%

109,46139.5%

1992/93-

1993/94

-

-

-

-

3480

11002

11592

12170

00/01

97,71237.0%

105,91938.2%

105,920

38.2%

2642

8300

7010

582

8607

14583

12870

01/02

4,568

57.7%

135,72351.4%

143,73051.9%

143,73051.8%

1994/95

8993

6559

13375

11239

13999

14763

13728

15958

02/03

3,429

43.3%

96,79736.7%

102,48737.0%

102,48737.0%

1995/96

15016

7687

15162

17800

10633

16545

4366

13350

03/04

3,208

40.5%

88,57633.6%

89,05732.1%

87,865

31.7%

04/05

3,362

42.4%

91,625

34.7%

91,05232.8%

86,405

31.2%

05/06

2,926

36.9%

75,62528.7%

88,69032.0%

88,691

32.0%

06/07

3,686

46.5%

108,45141.1%

106,73738.5%

106,550

39.4%

Supply
Mar

Apr

May

Jun

Year Totala/hCapacity

1992/93

5371

16152

10435

12265

82413

18480044.60%

1993/94

13873

18531

22775

16363

12613627720045.50%

1994/95

15958

17916

15432

17688

16570827720059.80%

1995/96

16237

7089

4329

643

12885727720046.50%(Source: UCIL materials)<Chart 2 Changes in UCIL cement production amounts>(Thousands of tons)(Source: UCIL response to a questionnaire.)

Responding to the further decline in the operation ratio following theconclusion of technical assistance, SAPS was conducted in FY1997
and continued technical cooperation was provided by JICA in orderto ensure that those recommendations were implemented. A
long-term specialist stayed at the plant for a period of three years
beginning in March 1999 to oversee plant operations, and a total ofthree short-term specialists (totaling 10 man-months) provided
technical assistance for maintenance by FY2004. Under the directionof the newly appointed general manager in FY2000, upon advice
from the long-term specialist a portion of the malfunctioning facilities
was restored, increasing the operation ratio to 52% in FY2001.
However, the operation ratio again declined after the long-term
specialist left their position, bottoming out at the lowest-ever level of
32%~33% during the three-year period between FY2003 andFY2005. Later after the appointment of the current general manager,
the operation ratio recovered to 39% in FY2006 due to reasons suchas a portion of the production facilities being restored.

Actual performance

Direct causes for production declines
UCIL’s cement production facilities have adopted Japanesetechnologies; however, they are not being adequately operated andmaintained, malfunctions and trouble are common, and personnel

Planned performance3

cannot use the facilities well, as they are unable to utilize its
automated operations. The direct cause for production being low isthat the clinker pyroprocess handled by the rotary kiln—the center ofthe production process—stops due to various different reasonsii. The
kiln was planned to run 24 hours a day for 330 days a year, totaling
7,920 hours a year; however, it has only run for an average of 3,540
hours a year (45% compared to the planned rate) over the past six
years. The main reasons that the kiln stops are:
¾ In addition to frequent malfunctions and trouble with the
production facilities, it takes time to restore the facilities due to a
dearth in stock of spare parts iii . (A loss of approximately
20%~25% in production every year.)¾ It becomes necessary to stop the kiln for longer than planned
when changing the heat-resistant bricks within the kiln that are
frequently damaged or lostiv. (A loss of 5%~28% in production
per year.)¾ Facility shutdown due to frequent blackouts and voltage dropsv.
(A loss of around 5% in production every year.) This is also one
cause of the frequent facility malfunctions and trouble.
¾ Supply shortages of limestone induced by traffic interruptions
between the mining site and the plant due to trouble with theropeway between the plant and limestone mining site (12.5 km)
and general strikes vi . (A loss of approximately 23% in
production in FY2003 and FY2004.)¾ Stops in production due to an increase in general strikes andstrikes by plant workers in recent yearsvii. (A loss of about 10%
in production since FY2003.):
In addition to the reduction in kiln operating time, production
amounts are being further decreased to about 80%~85% of rated
production value per hour. The reasons for this are thought to be thedecrease in capacity of various facilities, the inability to conduct theclinker pyroprocess under optimal conditions as automatic operations
are hindered by problems with various measurement devices, and adecrease in productivity because of frequent shutdowns. Furthermore,coal consumption compared to productivity is at a 40%~50% increaseof the rated value, greatly lowering energy efficiency within the
production process.

(Source: UCIL materials)

4

Operations management issues
In addition to the numerous times the general manager has changed
over the past 20 years (14 times), the following management related
issues can also be noted as remote causes for the frequent andlong-term kiln shutdownsviii.
・ Production plan management: There is a lack of capacity to
produce an adequate production plan that takes into consideration
the various factors such as the facility’s condition and external
factors, including a plan for procuring materials, and to manage
the facility’s operations and production.
・ Facility operation and maintenance: There is a lack of spare parts
and no preventive or planned maintenance. Facility are only
checked and fixed when trouble occurs; however, the facilities
shut down for long periods of time as there are often no spareparts, and procurement of those parts requires a great deal of time.
・ Labor management: There is a trend for promotions to be decided
based on seniority or for personal or political benefit with norelation to a worker’s abilities or duties. There is not mucheducational training being conducted other than assistance fromJapan. The common worker is not well-disciplined, there arevigorous labor union activities with a political backdrop, andperformance is extremely low regarding facility operation,
examinations, and maintenance.

(2) Handling increases in domestic demand for cement
When comparing the demand for cement in Nepal with
forecasts at the time of appraisal (yearly growth rate:7.5%), while there was a slight decrease in demand during
5

Quality
The concrete using the plant’s cement is extremely strong due to thehigh quality of the main raw material used, limestone, and is superior
over products from India and other domestic products. However,minor modifications of ingredients and processing conditions are
impossible because the production facility’s various measuring
devices are broken, limiting quality management. A sample is taken
and strength tests are conducted daily at the plant; however, avariation in strength of approximately 10% currently exists.
Moreover, according to the cement dealers, it is believed that thestrength of the cement has decreased a little compared with when
operations began.

FY1995 and FY1996, the average yearly growth rate is at
8.1%, changing with a general upward trend.
The quality of the cement produced at UCIL exceeds that
cement produced in India, and is on par with the standardsof cement produced in Japan. Moreover, compared to its
quality, cost is maintained to be relatively affordable.
Therefore, contractors use this cement by preference inmajor infrastructure projects, and it is receiving very highevaluations.

(2) Handling domestic cement demand
The cement consumption in Nepal has increased by 67% (annual rateof approximately 6.6%) in over the nine years since 1997 when it was
at 900,000 tons. It reached approximately 1.5 million tons in
FY2006 ix , and the demand for cement is thought to continue toincrease at a more rapid pace due to the recovery of development
investments accompanying political stability. The amount ofdomestic cement production in FY2006 was approximately 640,000
tons, supplying for 43% of the demandx. The leftover demand was
met through imports, mainly from India.
This plant’s share in the domestic cement market during FY2006 wasapproximately 7%. While the product is high quality, the plant is not
used by contractors that receive contracts for large-scale construction
projects as production is low and unstable. The plant is mostly used
for houses constructed by individuals and small-scale businessfacilitiesxi. Seventy-five percent of the ultimate consuming region is
the surrounding areas of Katmandu.

Impact(1) Foreign exchange saving through cement import
Substitution
There is worry that there will be long-term increases in theamount of cement imported, as new investments for
expanding supply capacity were not seen at the time of
ex-post evaluation. However, it can be said that there was acontribution as this project contributes to reducing imports
while simultaneously restraining the outflow of foreign
currency.

6

According to cement dealers, UCIL’s cement is appealing as it ispopular and carries a high sales margin; however, it is difficult tohandle the product because of the extremely unstable supply due tothe plant often shutting down operations for long periods of time.
Dealers wish for a steady supply, even if only in small amounts.
(1) Foreign exchange saving through cement import substitution
The amount of sales of cement for this project during FY2006 was
107,000 tons, totaling revenue of approximately 800 million rupees.
When considering the import cost (approximately 1/3 of sales
revenue) necessary to produce UCIL’s cement and the price of
cement produced in India (one ton is 9,300-9,800 rupees without tax),
foreign exchange savings for the same fiscal year made through thisproject’s cement import substitution can be calculated at
approximately 750 million rupees (about 1.3 billion yen). This
amounts to approximately 0.5% of Nepal’s foreign exchange reservesof 166 billion rupees at the end of FY2006.

(2) Expanding employment opportunities
The establishment of UCIL through this project employedapproximately 500 workers, and newly created relatedindustries such as subcontracting.

(3) Impact on the national government (subsidies, tax
proceeds)
None(2) Expanding employment opportunities
Through this project, 602 UCIL workers directly gained employment
opportunities. All workers are permanent company employees xii .
Approximately 200 of the employees were hired from the plant’s
local area. The following was included in indirectly creating
employment opportunities.
・ An average of 27 to 28 trucks operate every day in order totransport the cement shipped from UCIL, occupying about 50
people. Furthermore, a portion of the employment of theapproximately 450 registered cement dealers is sustained throughthe buying and selling of UCIL cement.
・ UCIL procures approximately 50 million rupees’ worth of spareparts each year. Approximately 3 to 3.5 million rupees’ worth ofthat amount (about 5~5.3 million yen) are procured domestically,
providing employment opportunities to domestic relatedindustries.
・ About 50 new small shops have been established around theentrance to the plant, serving the plant workers and truck drivers
as customers.
(3) Impact on national government (subsidies, tax proceeds)
UCIL received a sublease for the amount of the ODA loan from the
Nepalese government, which received the ODA loan, for building theplant. The Japanese government waived the debt owned by the
Nepalese government for the ODA loan; however, UCIL is currently
continuing to repay the Nepalese government.
When including the payment for repaying the principal amount forthe sublease and interest incurred, taxes such as value-added tax,
royalties on the limestone, etc., UCIL is paying the Nepalese
Government up to 24%~35% of their total sales every year, thereby
restoring the funds to the government’s finances. Subsidies are notbeing received.
<Table 4 Amount paid to Nepalese government by UCIL
(millions of rupees)>
00/0 01/0 02/0 03/0 04/0 05/0 06/0

7

Total amount
paid togovernment
Ratio on totalsales(4) Impact on the plant’s surrounding environment
Approximately 10% of all project expenses are used forenvironmental measure-related costs at this cement plant.
The plant is equipped with dust collection equipment suchas electrical dust collectors and bag filters, and thepossibility of dust pollution problems occurring is
extremely low. Furthermore, liquid waste is hardly
produced at all during the manufacturing process at theplant, and as the plant is quite far from any urban area orsettlement, there are no particular concerns regarding noise
issues either.
Sustainabili
ty

1

2

3

4

5

6

7

126

244

160

122

140

120

305

24.3
%

33.9
%

32.8
%

25.8
%

25.8
%

25.6
%

35.1
%

(Source: UCIL response to a questionnaire.)(4) Impact on the Plant’s surrounding environment
Just as with the ex-post evaluation, there are no major issues overall.
One of the three EPSs (equipment for collecting dust) is currently not
functioning; however, smoke and soot emissions are low, and theplant cannot be compared to that of Himal Cement Company Ltd.
which was located close to an urban area and became a problem (later
to be closed). The area is sparsely populated and there are nopollution issues.

It is believed that sustainability has actually weakened compared with whenthe ex-post evaluation was conducted. Just as with many other Nepalese
government-run companies, UCIL’s management makeup is unsound, and it
lacks managing and technical skills throughout. Operation and maintenancecondition of production facilities is very bad as numbers are constantly in thered, there is a lack of spare parts, there is no planned and preventative
maintenance, and operation and maintenance technology are of low quality.

(1) Technology
The division in charge of operating and maintaining
Udaipur Cement Plant is the Plant Division. This division is
operated mainly by staff that acquired adequate knowledge
and skills from the technical and administrative training(Training targeted for this project and held in Japan. 58
staff attended the training) provided by the consultant at the
beginning of the plant’s operations.
8(1) Technology
When looking at the plant’s operation rate and conditions
surrounding operations and maintenance of the facilities, it must be
assumed that the technical level at UCIL is low overall, despite
technical training (274 man-months) by ODA loan consultants andtechnical cooperation from JICA (one long-term specialist, three
short-term specialists; totaling 46 man-months). The following can begiven as causes for this.
・ UCIL is located at a mine for limestone—the basic material used

by the plant—which is located in a remote area separated from the
However, some of these staff received invitations to switch
capital Katmandu by an eight-hour car drive, and is easily
to different jobs in the capital city of Katmandu or
avoidable as a place to work. Furthermore, as capable humanoverseas, and a significant number of staff quit. A problem
resources which were vital to shoulder responsibility were not
has arisen in that the average period of employment forrecruited, highly capable human resources were not securedxiii.
plant workers has become relatively short at 2-3 years. ・ Staff were unable to absorb adequately the teachings from the
There is a need to make improvements to treatment andtechnical training provided by consultants, SAPS, and JICA
specialists or fully implement their advice because of the low skill
living environments to ensure an absolute number oflevel of the management team and staff, an indulgent
workers, and to strengthen the education system in order tomanagement attitude, frequent changing of key members
maintain quality.
including especially the general manager, complicated andtime-consuming procedures for procuring spare parts, and thesevere financial conditionsxiv.
・ Very little effective education training was conducted other thanassistance from Japan.
The current general manager has lengthy experience at cement plants
and understands the technology; however, he mainly resides in
Katmandu, and he is not seen to be making serious efforts foreducating replacements for current technicians.

(2) Organizational structure
Representatives from the Ministry of Industry, Commerceand Supplies, Ministry of Finance, and the Department ofMines and Geology are involved with UCIL’s board of
directors, as the plant is a government run company. Staff
numbers totaled 373 as of 1995, of which 29 were
technicians, 103 administrative staff, and 241 plant
workers.

9(2) Organizational structure
Of the 600 employees at UCIL, 400 were assigned to the plant fromother areas such as Katmandu. Of those 400, 250 are posted at theplant to live without their families. There is a liaison office located in
Katmandu where a few staff reside.
The privatization of government-run companies has been underway
in Nepal since 1990. However, UCIL currently remains agovernment-run company, with no plan for privatization in the future.
According to the Ministry of Mining and Manufacturing Services, theleft-wing influence within the current administration is completely
against privatization, and the privatization of UCIL is not likely to beconsidered at present.

（3） Financial status
As can be seen in the following table, the depreciation
burden associated with facilities was extremely heavy at thetime of ex-post evaluation, forcing profits into the red.
There is little profit produced even from operating profits
excluding depreciation cost, and the burden of variable cost
10

Government-run companies in Nepal are generally not soundly
managed, and there is a lack of management and technical skills
accompanied by extremely low operating efficiency. UCIL is no
exception to this trend. The following are issues which have been
indicated as common amongst government-run companies, and mosthave existed to varying degrees in UCIL’s casexv.
・Management and top level staff are more enthusiastic about
pursuing personal and political gain rather than improving
company performance.
・The management team lacks knowledge and experience regarding
commercial management, and is merely a group of managers withthe temperament of civil servants.
・The board of directors, which is composed of top officials fromministries, agencies, and political parties, lacks management
knowledge and skills.
・Aside from legal regulations, the ministers and vice-ministers thatsupervise these companies have actual control over them.
・Hiring for political reasons has become an everyday activity, andthe companies are overmanned.
・Rigid and inefficient regulations from the public sector
inappropriate for commercial management are applied.
・Technical ability is low within basic areas including accounting,labor services, and production management.
・There is a lack of responsible finance management.
The technical assistance provided by SAPS and JICA specialists after
the ex-post evaluation were efforts intended to improve UCIL’s
production technology and operation management technology.
However, it was not possible to make great changes to a corporate
structure such as this, making technical transfer limited; these efforts
thus failed to lead to continually increasing cement production
amountsxvi.
(3) Financial status
While there is a gross margin corresponding to UCLI sales, theburden of fixed expenses, such as interest payments and depreciation
costs is great while numbers continue to be in the red and there is nosign of improvements despite capital restructuring conducted byalone is a gloomy situation. Increasing production and sales
through improving the operation ratio of plant facilities is a
future measure for ameliorating the plant’s financial status,
while stabilizing power supply and securing the adequate
spare parts are also necessary. Another measure could be to
reduce the interest burden by cutting back the original debt.

recommendation of SAPSxvii. In the past three years interest payments
and depreciation cost has reached 18% and 24% of sales respectively.
Moreover, the gross margin rate (gross margin/sales) sank from 38%
in FY1997 to 20% in FY2005xviii.

<Table 2 Profit and loss statement＞

Large-scale improvements to the operation ratio and production
efficiency are vital in terms of ameliorating UCIL’s financial status.
There is room to raise the plant’s shipping price for UCIL cement as
it carries great market competitiveness, and sales could possibly
increase somewhat based on such a price raisexix.

Income Statement(Thousands of rupees)
92/93

93/94

94/95

95/96

Sales

278,556

492,987716310601047

Cost of goods sold

140,448355,706

353733417080Gross profit on sales

138,108

137,28136257748396742,953204,16876736277552030,112

143,584147444147444

12,57656,584

59589

67747

265

1,000

56032956032995,155(66887)(404785)(591553)(116396)(115559)(259584)

6173

5731

12969

<Table 5 Profit and loss statement (millions of rupees)>
Sales
Cost of goods sold
Gross margin
Sales, general, andadministrative
expenses
Generaladministrative
expenses
Sales expenses
Depreciation
cost
Operating profit

Sales, general, andadministrative
expenses
Sales expenses
General administrative
expenses
Depreciation cost
Operating profit
Non-operating profit(122629)

Non-operating
profit and loss
Interest paid andprincipal repaid

and loss
Acquired interest

The breakeven point is around an operation ratio of 75%~80% whencalculating based on performance over the past three years. Whenconsidering that the current actual operation ratio lies around 40%
and is still decreasing, there is no chance for ordinary profits to turn
positive for quite some time.

11

97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06
574 461 495 518 719 515 473 546 533
354 294 354 394 473 386 356 396 425
220 167 141 124 246 129 117 150 108
133 138 143 147 144 140 120 123 244

21

30

32

35

38

1
1
2
4
2
1
111 111 111 111 111 109

1
87

1
87

3
203

87

26

29

30

32

31

(2) (23) 102 (11) (3)

27 (136)(129 (133 (138 (132 (129 (124 (122 (121 (120
)
)
)
)
)
)
)
)
)
(123 (118 (110 (104 (101 (97) (95) (94) (93)
)
)
)
)
)

Interest paid

(123039)

123000123000(272722)

Other

410

431

1710

169

Ordinary profit(27474)(183283)(520344)(851137)

Corporate taxes, etc.

0

0

0

0

(27474)(183283)(520344)(851137)

Other
Ordinary profit(6) (15) (28) (28) (28) (27) (27) (27) (27)(42) (104 (140 (155 (27) (135 (125 (94) (256
)
)
)
)
)
)
(Source: Created based on UCIL response to a questionnaire.)<Table 6 Balance sheet (millions of rupees, end of FY2005)>

Profit for current

Liquid assets
Cash and savings

fiscal year

Advances paid
Deposited funds
Inventory assets
Investments
Short-term loans
Fixed assets
Fixed assets*
Assets on
Work-in Progress
Total assets

39
257
45
469
8
3
1,230
3,059
5,111

Liquid liabilities
Bills and accounts
payable, etc.
Allowances provided

656
71

Fixed liabilities
Long-term loans

1,840

CapitalShareholder’s equity

3,648

Total capital andliabilities

5,111

Note*: Fixed assets are fixed assets before depreciation(2,543Mil Rs.) minus total deprecation amount (1,313 Mil
Rs.).
(Source: Created based on UCIL response to a questionnaire.)(4) Operation and maintenance
The maintenance of production facilities at UCIL is rather poor.
Malfunctions and trouble occur frequently as many of the plant’s
facilities cannot be repaired and are not used, or are being operated
despite not being maintained sufficiently, and the plant’s operations
ratio and productivity is greatly declining. The following are the main
issues regarding maintenance.
Lack of spare parts
The largest issue directly hindering maintenance is the lack of spareparts. UCIL is unable to equip itself with the necessary inventory
12because of fund restrictions, the long periods required for procuringparts, and inadequate procurement plans and inventory
managementxx. Consequently, partial repairs are conducted, as partsare used from other machines, and it takes time for repairs to be
conducted.
Most equipment at the cement plant was made in Japan, while that at
the ropeway was made in Germany. Nonetheless, as genuine parts are
expensive and they take a long time to procure, non-genuine parts
made in India or Nepal are often chosen. However, non-genuine parts
do not carry a performance guarantee, and the plant’s management
team has always faced the dilemma of choosing quality or price. Up
until now, there have been a good number of cases where thenon-genuine parts have broken soon after purchase or it has taken
several months for a decision to be made for procuring genuine parts.

(4) Operation and Maintenance
Maintenance checks are performed regularly on a daily
basis at the cement plant, and a unique system for all plant
employees has been adopted to make upgrades with theobjective of improving production, lowering cost, andcreating high quality products.

A great deal of approval procedures are required for procurement bygovernment-run companies, and it takes considerable time for adecision to be made. At UCIL it is necessary to have the approval of
the board of directors for procurements of 250 thousand rupees(approx. 440,000 yen) or more. However, in some cases it takes ayear or more to procure for amounts less than that. Furthermore,when importing from countries other than India, with whom there is atrade agreement, it takes far longer than when procuring from India ordomestically.

Meanwhile, the current general manager convinced the board of
directors to allow him to acquire the authority to clear procurements
for up to 15 million rupees personally as the general manager. Thus
the procurement of important spare parts which used to take a longtime is now possible in a comparatively short time-frame. This isconsidered to be connected with restoring production amounts in
Meanwhile, however, issues including the unstable supply FY2006.
of power and difficulty in procuring spare parts are causing
Lack of preventive and planned maintenanceproduction capacity to remain at approximately 50%, as According to the specialist’s report from JCIA, daily maintenancecan be seen in Table 2 below.
checks and regular maintenance were hardly ever conducted at UCIL.
13

This situation continues to the present. The plant is not being cleaned,
and there is cement dust collecting all over the plant and hardening.
Materials taken from the equipment while making repairs has notbeen removed, and is left to sit on the ground. Because repairs are
first conducted only after malfunctions or trouble occur, equipment atthe various places break down one after another, and production stops
each time. Factors behind not conducting preventive and planned
maintenance are thought to be the lack of understanding regarding its
necessity and the absence of planning ability, and the difficulty ofprocuring spare parts in a planned manner.
The current General manager plans to stop production every monthand half during FY2007 to conduct full checks and repairs offacilities. However, the procurement of spare parts and technical skill
will dictate how effective repairs are actually able to be.
Low level of maintenance technology
According to the specialist’s report from JCIA, there are cases where
the analysis of causes of a malfunction are inadequate and repairs are
not conducted properly, repair procedures are improper, skills for
conducting repairs (expertise) are low, and the specifications forspare parts are improper, playing as factors for the frequentmalfunctions and occurrences of trouble.
JICA dispatched a total of three short-term specialists during 1999
and 2004 where they provided technical assistance for maintenance.
The specialists dispatched in 2004 performed a detailed survey on thecondition of mechanical equipment and the plant’s maintenancestructure. The specialists provided concrete suggestions on thenecessity of facility repairs, and also created a list of the bareessential spare parts required to be procured. However, after a new
survey conducted this time, less than half of the specialist’s
suggestions had actually been implemented and the general manager
and the current plant manager did not have adequate knowledge
regarding the details of the specialist’s report or suggestions.
The same specialist considered the possibility of using a grant from
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Japan to supply the spare parts on the list created. However, theMinistry of Mining and Manufacturing Services did not make such arequest at the timexxi. The same ministry appears to be anticipating
assistance from Japan now as well; however the embassy and JICA
have taken the stance that further assistance will not be possible
unless a certain amount of improvement can be seen regarding thethree issues (recognition of the importance for facility checks;
bettering understanding and awareness of improvement activities;
improving technical standards) which the specialist indicated forcontinuing cooperationxxii.
Lessons
Learned,Recommenda
tions,
Information
ResourcesandMonitoring
Methods(1) Follow up
on lessons
learned andrecommendati
ons made in
ex-postevaluation
report or inlater
evaluations(2) learned at
the time of
ex-postmonitoring
andUCIL should earnestly address the various issues necessary for improving its management in order
not to miss the opportunity to revive business performance provided by the high quality of theplant’s cement, and it is necessary for the Ministry of Mining and Manufacturing Services to takeresponsibility proactively in supporting this. It can be learned that technical cooperation should be
implemented after confirming that the conditions for its success are set in place, and also that
expensive technologies can actually oppress a company’s operations if personnel cannot use themadequately.

(1) Implementation status of past suggestions/recommendations
In March 1998, SAPS suggested an improvement plan for operationand maintenance, management of spare parts, providing motivationand staff training, strengthening organization, and an accounting
system aiming to increase the plant’s operation ratio gradually
starting with 64%, to 72%, and then to 80%, and recommending theimplementation of that plan to UCIL in their final report. Moreover,
the report recommended to the Ministry of Mining andii) Careful technical and management guidance is effective Manufacturing Services that the expenditure is approved for promptly
implementing the capital restructuring suggested by UCIL and forin improving the project’s sustainability.
implementing the improvement plan, and also that they refrain from
Also, just as seen in this project, for projects where frequently changing general managers.
improving the stable operations of facilities, quality of
products, and management efficiency is connected with the SAPS monitoring has suggested that UCIL has enforced the first levelproject’s effectiveness, the software aspects of of the improvement plan to some degree, but the plant’s operation
management, such as technical and management support, ratio has yet to reach the first level objective, despite a follow-up by aare especially important in improving the project’s JICA specialist. This is interpreted to be because UCIL’s enforcement
sustainability in addition to the hardware aspect of the of recommendations from SAPS was either inadequate or lacked(1) Lessonsi) It is necessary to fully consider risks that carry a highpossibility of occurring (import dependence on India,
natural disasters from geographic and climatic causes, etc.)
when implementing projects in countries where it isdifficult to ensure prerequisite conditions for constructing
and operating plants.

15

recommendati
ons forsecuring
sustainability

plant’s construction.

effectiveness and continuance.
The Ministry of Mining and Manufacturing Services has partiallyrealized UCIL’s suggestion to implement capital restructuring.
However, frequent changes of the general manager have yet to cease,and support for the UCIL management team was not always
completely adequate.

(2) Recommendations
None(2) Recommendations considering results from monitoring after
project completion
UCIL faces many issues and production is currently decreasing;
however, it is essential for them to address the following issues inearnest in order not to miss the opportunity to revive businessperformance using their superior quality product and the existence ofa cement market that continues to grow. The Ministry of Mining andManufacturing Services must proactively participate in the process asa central member of the project, and maintain a sense of
responsibility in assisting with implementing these measures.
・ Strengthen the leadership of UCIL’s management team, andallocate capable human resources to each division while assigning
people equipped with professional expertise to the board of
directors.
・ Discern the priority issues concerning the maintenance of
production facilities and procure the necessary spare parts without
delay while improving the procurement and inventory
management system for spare parts, aiming for preventative andplanned maintenance.
・ Utilize external resources while drafting an improvement plan andimplementing educational training for staff, aiming forameliorating the plan management system for production andmaterial procurement.
・ Raise the price of products to a standard in line with the product’s
16

quality and competitive strength in order to reduce financial loss.
・ Sufficiently utilize various reports and materials created from past
Japanese technical cooperation in making technicalconsiderations.
(3) Lessons learned
・ When conducting technical cooperation through consulting
services in order to strengthen the operation management capacityof a government-run company, the local consultant should be
utilized to take the time to conduct a thorough survey on thecompany’s
corporate
culture,management
makeup,organizational structure, abilities of management team and staff,
government support system and its commitment, and on thepresence of political intervention. Thereafter, technicalcooperation should be provided once it has been confirmed towhat degree conditions are fulfilled for ensuring the cooperation
is effective and its effectiveness is maintained. Moreover, whenproviding an ODA loan as a premise for the technicalcooperation, the technical cooperation should be provided first,
and then screening performed after collecting adequate data on towhat degree those conditions are fulfilled.
・ Even when adopting expensive technologies, there are cases
where management is actually restrained as they are unable toraise enough profits to cover the great fixed costs andmaintenance expenses when the capacity to use such technology
or the proper management environment are lacking.

i
ii

iii

According to the SAPS report, the average operation ratio of cement plants in Southeast Asia around 1998 was approximately 80%.
Cement is produced by adding materials such as plaster to clinker made by heating and hardening limestone, clay, and silica at a high temperature, and then grinding it topower.
The production process for clinker is an uninterrupted process of grinding various basic materials, mixing them, preheating them, and then burning them. When aproblem occurs during any one of these processes, it is necessary to cease provision of materials to the kiln (kiln stoppage), or even shut down the operations of the kiln

17itself (kiln shutdown). This plant experiences frequent malfunctions and trouble of various levels, and accompanied by the lack of stocked spare parts, it takes time torestore the kiln in many instances. Due to equipment malfunctions and trouble, 2,900 hours/year (37% of production amount) were lost during SAPS monitoring andcurrently 1,700-2,000 hours/year (21%~25%) are still being lost even after some equipment was repaired with technical cooperation from JICA.
iv
The inside of the kiln is covered with a few thousand heat-resistant bricks. There was a plan to shut down the kiln for 35 days a year (816 hours) to replace those bricks;
however, in reality the bricks frequently break or are lost and this requires the shutdown of the kiln and replacement of bricks each time. This has led to the time the kiln
is actually shut down greatly exceeding the amount of time planned. It is believed that issues lie in the frequent kiln stoppages, improper operating conditions, quality ofbricks used, and brick replacement skills. The shutdown time to replace heat-resistant bricks in 1998 during SAPS monitoring was 2,250 hours/year (1,400 hours morethan the planned 850 hours). This amount sank to 800-1,200 hours at one point after JICA technical cooperation; however, the time required in 2005 was 3,043 hours(2,193 hours more than planned) as the quality of bricks used was poor. This amount reduced to approximately 1,200 hours (approximately 400 hours more thanplanned) in FY2006 after changing the quality of bricks.
v
At times when the power supply becomes especially tight, blackouts occur almost everyday, and fluctuations in voltage even lead to facility stoppages. Even if power isquickly restored in the event of a blackout, at least 1-2 hours is required before production can be restarted. The shutdown time for kilns caused by this is approximately
120-450 hours/year (2%~8% of production amount) depending on power circumstances. Furthermore, power feed restrictions have become significant in the past two
years, and often kiln operations are given priority while other facilities must be shut down.
vi
There is a limestone quarry approximately 15km north of the plant in the Sindri Mountains, and limestone is transported to the plant via ropeway from the quarry. In
FY2003 and FY2004, kiln shutdown time amounted to approximately 1,800 hours/year (23% of production amount) due to a paucity of limestone as ropeway
malfunctions became numerous and traffic between the plant and quarry was stopped due to general strikes. The ropeway was later temporarily repaired, and kilns were
not shut down due to these reasons in FY2006.
vii
Kiln shutdowns for reasons excluding facility malfunctions have increased since FY2003 due to the political instability resulting from the murder of the royal family inJune 2001, the increase in activities by left-wing activists (Maoists) throughout Nepal since 2003, the increased number of labor unions, and the frequent occurrences ofgeneral strikes. In FY2003, there was a continuance of occurrences including a bombing incident within the plant’s premises by Maoists (injuries were minor) and an
incident where the 140 quarry staff were held captive for four days by Maoists, in addition to the general strikes that reached a total of 38 days. General strikes reached atotal of 85 days in FY2004. Plant workers do not participate in the general strikes; however, the shutdown of traffic between the plant and quarry, closing of workers’commuting roads, and the halt of cement shipments have made a significant impact. Political instability has made a negative impact on the business attitude of plant
administration in addition to its workers. In FY2005, workers held a strike for a little over one month to demand permanent positions with the company, and then again
for two weeks in FY2006 to demand better wages. Moreover, in FY2006 the kiln was forced to shut down for 1,400 hours/year (18% of production amount) due to theclosure of highways by Terai banda (general strikes by flatland residents) that totaled 102 days, and the delay in the supply for materials such as coal and plasterprocured from outside sources. It is estimated that the shutdown time of the kiln over the past four years averages 700-900 hours/year (9%~11% of production amount)due to these causes.
viii
During the past twenty years, fifteen different general managers (or a substitute general manager for the term no general manager is appointed) have acceded office at
UCIL, and the number of general managers that have spent two or more consecutive years in office since the commencement of plant operations is a mere three.
ix
It was not possible to obtain concrete data for yearly cement consumption amounts from the Ministry of Mining and Manufacturing Services. Consumption amounts for
FY1997 are estimated figures by the SAPS team, and amounts for FY2006 are estimated figures by the Cement Dealer Association.
x
There are two government-run plants within Nepal including this one, and these plants produce approximately one-third of domestic consumption. There are also threeprivately run small-scale plants in Nepal, and thirty other small-scale plants that import clinker from India and produce cement.
xi
UCIL cement is sold through the around 450 dealers registered with the plant. Often, dealers also conduct retail sales. The final consumer is usually an individual. In
Nepal, it is common for the construction of houses and small- to medium-scaled commercial facilities to be handled by individuals who will procure the materials and18

allocate human resources themselves, and not by contractors. Common citizens are widely aware that the plant’s cement is of high quality and strength. On the other
hand, contractors used for large-scale construction projects import cement directly from India or use cement made in India by utilizing a cement import trader managed
by an Indian person. The use of cement from India in national projects is common, as custom tariffs are exempted.
xii
Staff conducted a strike in 2006, and the number of permanent employees thereby rose from 411 to a total of 602 as a result of labor negotiations.
xiii
The specialist from JICA reported that 1) there is no evaluation of operations, while promotions are conducted completely according to a seniority system and the
majority of mid-level executives possess a low level of skill as do the vice manager class staff and plant manager, who are supposed to support the General Manager; and2) the technical level is extremely low as large numbers of highly capable employees abandon their positions to leave the company.
xiv
The SAPS report dictates that, “Some part, if not all, of the technologies taught by the consulting team is being forgotten. It takes a long time for UCIL employees tolearn, and it is necessary for them to restudy while referring to the current operations and maintenance manuals.” Also, “Performance would have been a great deal better
if UCIL closely followed the methods taught by the ODA loan consultant team. The consultant’s suggestions regarding organizational structure have not been realized.”xv
The list is based on “The Implementation of Privatization Policy: Case Studies from Nepal” (HARI PAUDEL, 2006).
xvi
After the appointment of the JICA long-term specialist, the necessity of reforming the consciousness of the management team and improving employees’ discipline andmotivation towards work was strongly recognized as a prerequisite condition for effectively transferring technology. The Ministry of Mining and Manufacturing Services
renovated the management team in FY2000 due to pressure imposed from Japan in response to advice from the specialist, and a production-based bonus was instituted in
FY2001. The bonus provision system produced a degree of effects in terms of improving employees’ motivation, and, based on the technical advice from the specialist,
restorations were performed for a portion of the facilities thereby increasing production. However, the specialist returned to Japan, and there was trouble pinning down a
new general manager after the two-year term had concluded for the general manager at the time. Eleven months later, when the same general manager was reappointed,
the discipline of employees had once again greatly diminished. While the General Manager did not receive the kind of technical advice as during his previous term, healso did not receive adequate support from the board of directors, and was thereby unable to conduct the necessary procurements for facility maintenance and repairs in atimely manner. Furthermore, the operations environment worsened due to factors including Maoist activities, and production levels decreased. The current General
Manager, who was appointed in FY2006, is knowledgeable regarding technology and is skilled in public relations. This has allowed him to gain the strong support of theboard of directors in conducting the necessary production facility repairs and restorations, successfully restoring production amounts somewhat. However, he spends
most of his time in Katmandu, and displays his eagerness to become a politician. Moreover, his commitment to educating subordinate personnel and making continual
performance improvements in the future is uncertain.
xvii
Fixed costs greatly increased because the 2.8 billion rupee comprehensive project cost envisioned during the screening expanded to 6.3 billion rupees as the yen continued
to appreciate while the rupee devaluated to a large degree. According to the SAPS report, the investing cost for one ton per year production capacity in normal cement
industries during 1998 was US$150-200; however, UCIL was at US$356. The ex-post evaluation and SAPS both indicated that fixed costs were high, and SAPS
especially recommended the prompt implementation of capital restructuring that UCIL had proposed to The Ministry of Mining and Manufacturing Services at that time.
The proposal detailed that a portion of the sublease be written off so that total investment would become 3 billion rupees and that the 5% interest on the sublease behalved so that UCIL could continue at an operations ratio of 70%. In response to this the government reduced the sublease amount and the interest burden by leaving
approximately 3.1 billion rupees in fixed assets as assets on works-in-progress and deferring the depreciation of said assets, and by shifting 3.2 billion rupees of the 5.5billion rupee government sublease to UCIL to shareholder’s equity (government). These efforts halved the depreciation cost; however, this went no further than togradually diminish interest payments, as there was already an accumulation of unpaid interest. The depreciation cost on the profit and loss statement acquired shows
reductions that predate restructuring. Moreover, the ex-post evaluation profit and loss statement is also from before restructuring, but contains portions estimated by theevaluator and is not precise.
xviii
The gross margin rate was anticipated to be around 75% at the time of screening.
xix
The UCIL plant shipping price is 385 rupees per 50kg while the market price is 530 rupees. Meanwhile, the shipping price at the Hetauda Cement plant, another

19

xx

xxi

xxii

government-run plant, is 405 rupees while the market price is 505 rupees. The market price for cement made in India is between 575 and 600 rupees. When consideringthat UCIL’s cement is high quality and the most popular within the market, it is thought that it is completely possible to raise the shipping price by about 40 rupees evenwith the additional shipping cost of 20-30 rupees for 50 kg compared to Hetauda Cement plant. There are even some cement dealers that believe they would like to deal
with UCIL’s cement even if the plant shipping cost increases by 40-50 rupees.
As there was no record made of the parts procured through the ODA loan at the commencement of operations, parts management is inadequate and there is the possibility
that some of those parts were illegally sold.
There were repeated requests every year until FY2003; however, the Japan side gave top priority to bettering operations management structure and did not accept therequest. In 2004, a short-term specialist was dispatched where a revision was newly conducted from the perspective of maintaining facilities. Upon this, a spare parts list
was created but was not used to make an official request.
According to the JICA Nepal offices, JICA expressed this opinion at the final debriefing session made by the specialist on-site, and top officials from the Ministry of
Mining and Manufacturing Services who were in attendance agreed.

20