Asian Development Bank

The aid industry in Nepal — large budgets, large problems

Nick Meynen
Nepali Perspectives Group
November 26, 2008

KATHMANDU, 10 June 2008 (MO) – Despite being the biggest receiver of foreign aid in South Asia, Nepal is still captured in a downward spiral of poverty. With a case pending at the Supreme Court, the Australian Snowy Mountain Engineering Company finds itself in the middle of this mess.

‘Foreign aid hasn’t managed to deliver any significant contribution towards eradicating poverty’, according to the former Nepalese parliamentary chairman. The Maoists, immediately after their election victory, announced that from now on ‘aid projects will need to be approved by the people’. What is happening?

With an average income of less then one dollar a day, Nepal is the poorest country in South Asia. According to the UN Development Program, poverty in Nepal increased over the last three decades, especially in rural areas.

In the national budget for development, aid has increased from fifty percent in the nineties to seventy percent today, mainly in loans. The majority of that money comes from multilateral institutions like the World Bank (WB) or the Asian Development Bank (ADB), who in return demand free markets and privatization.

Research shows that this excessive liberalization is co-responsible for the growing gap between poor and rich while it weakens the economy. On top of this, the anti-corruption agency calculated that almost a billion dollars of aid money – mainly used to pay ‘experts’ in 4827 projects – escapes from their control.

Nobody Gives a Dam

A striking example of bad aid is that of the West-Seti dam, co-financed by the ADB. The Bank states that Nepal ‘should develop in a social, environmentally friendly and sustainable way its huge potential for hydroelectric’, which is the second largest of the world. Nevertheless, power is interrupted 8 hours a day in the dry season. Consumers pay for their electricity nine times as much as in Bhutan and five times more than in India or the US. This is not a concern for everybody: three quarters of the population still lives in the dark.

In order to ‘help’ Nepal, the ADB works together with the Australian Snowy Mountain Engineering Company (SMEC), Chinese banks and Indian firms to build the 1.2 billion dollar dam. This equals half the annual budget of Nepal.

With a height of 195 meters, it will be the highest Concrete Faced Rock Filled dam of the world. An expert in hydroelectric energy, Dr. A.B. Thapa, warns that this choice implies certain risks. Surya Shrestha from the National Society of Earthquake Technology, confirms his fear. ‘In West-Nepal, so much pressure has build up that a huge earthquake can’t be far away.’ SMEC responded to our inquiry that other types of dams were considered but rejected based on several criteria, amongst which the higher costs. SMEC guaranteed that it is impossible for the dam to collapse, but Shresta remarks that the only earthquake resistance studies are paid by SMEC.

According to a Japanese research institute, this large-scale energy project is not at all socially responsible neither sustainable. Their report shows that the population is hardly heard, informed or engaged during the planning. The only document the population got to see was written in English, a language not spoken in West-Nepal.

A poisonous Chalice

It’s not so hard to understand why the Maoist who threatened to kill anyone coming on the proposed construction site won the elections. Ninety percent of the electricity and all the water produced by the dam will go to India. Nepalese companies are not involved in the construction. Ratna Shrestha, ex board member of the national electricity company, calculated that 0.1 percent of the income of the West-Seti dam will be used to pay Nepalese wages. While the profit goes to India, China and Australia, the costs stay in Nepal.

The 13 000 inhabitants to be displaced are the first victims. The ones that will have to move to the south of the country will face big difficulties in their new, flat and culturally different environment.

After thirty years, Nepal gets the dam as a gift, although it will be a poisoned chalice. Because of the tremendous amount of sand borne by the rivers from the Himalayas, extra costs for maintenance will not be far away. After our inquiry, SMEC admitted there will be huge costs in about fifty years time.

For lawyer Rabin Subedi of the Nepalese Federation of Water and Energy-users, the West-Seti dam project is a project in which aid ‘violates the human rights and the stakes of all the Nepalese’. He clarifies how the project bypassed parliament and violates the constitution. The reaction of SMEC on our inquiry gave him further proof for the pending case against them at the Supreme Court.

Foreign Aid or Aid to Foreigners?

Surprisingly, the huge budgets and high social and environmental costs of the dam are easily avoidable. Even the WB knows that local participation in the choice and design of a project gives a better chance of success.

Take the people from Palpa district. The electricity they produce from the micro-hydroelectric power station is ten times cheaper than what the government offers, without power cuts. Not one dollar of foreign aid was used. This is just one example that leads former minister for Water Resources Dipak Gyawali and others to argue that the main reason to choose mega projects can be found in the much bigger opportunity for corruption. He also writes in his book Aid Under Stress that ‘private foreign actors as well as the nation state distrust the capacities of the local communities’.

Unfortunately, the West-Seti project is not an exception. Mega infrastructure projects are again becoming a mainstream strategy to help the world out of poverty. Donors and governments run this development industry together

Water Crisis or Aid Crisis?

The already infamous Melamchi Water Supply Project (MWSP) should quench the growing thirst of Kathmandu. The project is thirteen years behind schedule and will cost minimum 317 million dollars. Several politicians were convicted for diverting millions of dollars to their pockets. By 2003, a joint evaluation mission between the government and donors concluded that ‘environmental, social issues and safety were not adequately represented in the first contracts, while in later contracts these issues were completely ignored.’ Seventy percent of the five-year budget for water goes to the MWSP, but it benefits less then ten percent of the population. Thousands of people living downstream will see the water level decreasing by eighty percent, as a result of which their irrigation channels and water mills will not operate. The loans needed to build them are not yet paid back to the ADB. That doesn’t prevent it from already making new loans available for the MWSP.

Small-scale Initiatives

In 2002, the WB withdrew citing that ‘important options about the use of existing water resources in the Kathmandu valley were not researched’, followed by the Norwegians and Swedes. In May 2007 the ADB threatened to withdraw if their most crucial condition, privatization of drinking water supply, was not immediately met. Hisila Yami, Maoist minister for infrastructure, objected.

The bank recommended the British Severn Trent as private water supplier, without competition. A campaign against the company succeeded, but privatization continued. Based on the insistence of the bank, the price of drinking water will multiply by three. After completion, half of an average Nepalese income will pay the minimum required drinking water for a household.

Recently, Transparancy International mentioned the project as an example of bad governance
Currently, seventy percent of the tap water in Kathmandu gets lost through leaks. Research confirms that collecting fifteen percent of the rainwater in Kathmandu should be sufficient to supply everybody with enough water. According to Gyawali, only one and a half percent of the surface in the Kathmandu valley is necessary as reservoir for catching water in order to fill the water table in the dry season. That would cost 7 million US $. Alternatives have in common that they are much cheaper, provide more jobs for less educated people, are faster to implement and do less damage to the environment. According to the president for social research, R.K. Baral ‘the problem of water shortage is only caused by bad governance and donors, not by a lack of actual resources.’ Human Right activist G. Siwakoti pushes it further in the Reality of Aid- study on Melamchi: ‘The problem is not a lack of alternatives but the neglect of it by the Water Mafia and their thinking that is only directed towards mega projects.’

Will the Maoists Bring Any Change?

According to S.R. Dhakal, secretary of the Maoist headquarters in Kathmandu, ‘the time of the big international NGO’s and the dictations of bilateral and multilateral aid are over.’ How the Maoists will realize this is less clear. Since Friday they lead the first republican government into a new era. Nepalese voters hope that the former rebels will bring international aid closer to its objectives: the reduction of poverty.

Nepali Perspectives contains the opinions of individuals with shared interests on Nepal. The views are the writers’ alone (unless otherwise stated) and do not reflect those of any organizations to which contributors are professionally affiliated. The objective of the material is to facilitate a range of perspectives to contemplate, deliberate and moderate the progression of democratic discourse in Nepali politics.

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