The aid industry in Nepal

Nepal is the biggest receiver of foreign aid in South Asia. Nevertheless, the country is captured in a downward spiral of poverty. In 2008, donor money still flows to ‘wrong’ projects, going from deadlyhealth camps to megalomaniac dams and infrastructure projects.
‘Foreign aid hasn’t managed to deliver any significant contribution towards eradicating poverty’, said the former Nepalese parliamentary chairman.  The Maoists, immediately after their election, 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 (UNDP), poverty in Nepal increased over the last three decades, especially in rural areas.  Today, the poorest forty percent of Nepal is worse of than thirty years ago. 
Not coincidentally, since 1991 Nepal is the biggest receiver of foreign aid in South Asia.  Four fifths of the education budget comes from foreign donors and in the national budget for development, the percentage of aid has increased from fifty percent in the nineties to seventy percent today.  The loans have especially increased.  The majority of that money comes from multilateral institutions like the World Bank or the Asian Development Bank, who in return for their dollars demand amongst other things free markets and privatisation.
However, there is a flip side to the coin. Recent research from different Nepalese academics, showed that this liberalisation is co-responsible for the growing gap between poor and rich while it weakens the economy.  On top of this, huge aid budgets bring unintentional side effects like corruption and more inequality.  The president of the commission that was responsible for the research into corruption, calculated that almost a billion dollars of aid money – mainly used to pay experts, consultants and advisers in 4827 technical aid projects – doesn’t appear in the annual budget of the government and therefore is not liable for control.

Medical circus

In 2008, despite the large input of all kinds of donors, most Nepalese still don’t see a doctor.  In the rural Myagdi district, we interviewed almost a hundred people about their needs for health care.  There is only one doctor in the whole area but almost nobody visits him.  ‘When our doctor from the city finally came to visit us, he said that the free medicines provided by the government were finished and that he, specially for us, brought (expensive) medicines out of his private practice.’ 
The same story is heard in other rural areas of Nepal.  Neglect is replaced by the illusion of free health care for everybody, while in fact it is all about shortage and especially about expensive care.  In Humla, a very poor district in West Nepal, the Western NGO Nepal Trust came up with an original but controversial initiative.  In order to tackle the poor health care, the Nepal Trust hired a dozen Western doctors who, over a few days, set up a very mediagenic ‘health camp’.  Over a short period thousands of patients got medicines without much of a framework, let alone follow up.  According to eye witnesses, a lot of patients returned the day after saying that they have already taken all their medicines which were meant to be taken over two weeks, and didn’t feel any improvement. Kids played with used needles that were left behind in an open hole.  Several people, closely related to the work of Nepal Trust, describe the health camps as ‘a medical circus’.

Nobody gives a dam

Big development projects do not have a better reputation in Nepal.  A striking example is that of the West-Seti dam, co-financed by the Asian Development Bank.  The Bank states that Nepal ‘should develop in a social, environmentally friendly and sustainable way its huge potential for hydroelectric’.  Indeed, Nepal has the second largest hydroelectric potential of the world. Nevertheless, during the dry season, the power is interrupted 8 hours a day.  Nepalese consumers pay for their electricity nine times as much as in Bhutan and five times more than in India or the US.  This prices are not a concern for everybody:  three quarters of the population still lives in the dark. 
In order to help Nepal, the Asian Development Bank works together with the Australian Snowy Mountain Engineering Company (SMEC), Chinese banks and Indian firms to build a dam for 1.2 billion dollars. With a height of 195 meters, this dam over the West-Seti river will be the highest Concrete Faced Rock Filled (CFRF) dam of the world. The financiers involved preferred this type of dam partly in order to keep the price tag under control.  The price tag equals half of the annual budget of Nepal.
The CFRF dam implies certain risks. An expert in hydroelectric, Dr. A.B. Thapa warns of the dangers of this type of dam.  Sury Shrestha from the National Society of Earthquake Technology, confirms his fear.  ‘Especially in the ground under Nepal, so much pressure is collected that a huge earthquake can’t be far away.’  SMEC responded to this 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; however Shresta remarks that the only studies conducted about the earthquake resistance of the dam are paid for by companies involved in the construction. 
According to a Japanese research institute,  this large scale energy project is not at all socially responsible nor 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 that is hardly known in West Nepal.

A poisonous chalice

Ninety percent of the electricity produced by the West-Seti dam together with all the water will be for India.  Also, the construction of the dam will not be done by Nepalese companies.  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 the wages of Nepalese.  According to Shrestha, after paying back the loans and extracting other costs, only three percent of the total export income will benefit the Nepalese economy.  Indeed, while the profit goes to India, China and Australia, the costs stay in Nepal. 
The farmers in the south of the country together with the 13 000 inhabitants that will be displaced are the first victims.  Even if those people are compensated, 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 when starting a new life.  Nepalese tax payers will have to pick up all the additional costs such as the maintenance or cracking of the dam.  Because of the tremendous amount of sand borne by the rivers from the Himalayas, these extra costs will not be far away.  Even according to the SMEC, there will be huge costs in about fifty years time.  After thirty years, Nepal gets the dam as a gift, although one can see already now that it will be a poisoned chalice. 
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 is not surprised that over the last year there has been an acceleration in finalising the agreement.  ‘The former water agreements between India and Nepal were also negotiated while Nepal was in a transition period.  Just before the rewriting of the constitution in which the governance of water will become the responsibility of the regions, everything is getting arranged very quickly.’  Even after the April elections, half a dozen agreements were signed in India.

Foreign Aid or Aid to Foreigners?

However, the huge budgets and high social costs of the dam are easily avoidable.  Even the World Bank knows that local participation in the choice and design of a project gives a better chance of success.  The people from Palpa district have already known that for a much longer time.  Electricity coming from the micro-hydroelectric power station they have build themselves, is ten times cheaper than what the government offers, and without power cuts.  Not one dollar of foreign aid was used.  Amongst others, former minister for Water Resources Dipak Gyawali poses that locally financed and built micro-hydroelectric power stations, produce electricity at a cost that is a lot lower then mega projects.  Gyawali and others argue that the main reason to choose for these mega projects can be found in the much bigger opportunity for corruption in those projects.  Gyawali wrote 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 the main strategy to help the world out of poverty.  However, in Nepal they seem to create more poverty. 

Water crisis or aid crisis?

Reliable drinking water is a basic condition in order to improve the health of people.  The challenge to provide this is enormous in many Third World countries, especially when they have a fast growing urban population.  In Nepal, the Melamchi Water Supply Project should quench the growing thirst of Kathmandu.  However the project is thirteen years behind schedule and will cost minimum 317 million dollars.  Several politicians were already convicted for diverting several million dollars to their own bank accounts.  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 Melamchi, even though it benefits less then ten percent of the population. In the dry season, 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 that infrastructure are not yet paid back to the Asian Development Bank. That doesn’t prevent it from already making new loans available for the Melamchi project. 

Small-scale initiatives

In 2002, the World Bank withdrew itself from the Melamchi Water Supply Project because ‘important options about the use of existing water resources in the Kathmandu valley were not researched.’  In 2005 and 2006, the Norwegian and Swedish Development Cooperation followed.  In May 2007 the Asian Development Bank threatened to withdraw if their most crucial condition, privatisation of drinking water supply, was not immediately met.  Hisila Yami, Maoist minister for infrastructure had objected to this.  The bank recommended without any competition the British company Severn Trent as private water supplier.  Despite a successful campaign against Severn Trent, privatisation continued; however with a Nepalese company now.  Three foreign experts will guide this company in ‘the right direction’.  Based on the insistence of the bank, the price of drinking water will multiply by three, which results in a situation where half of a middle Nepalese income will be necessary for paying for the minimum required drinking water. 
For this huge infrastructure there also exist small scale alternatives. For example, one could start with the repair of the current pipelines, taking into account that almost seventy percent of the tap water in Kathmandu gets lost through leaks in the pipelines.  Research confirms that collecting fifteen percent of the rain water in Kathmandu should be sufficient to supply everybody with enough water.  According Dipak 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 $. Many small rivers in the areas around Kathmandu are not yet used.  In 1998, research by an engineer of the national water company showed that redundant monsoon water can be stored in underground layers.  Those alternatives have in common that they provide more jobs for less educated people and less damage to the environment.  According to the president for social research, R.K. Baral ‘the problem of water shortage is only caused by the bad governance of the government and donors, not by a lack of actual resources.’  Human Right activist G. Siwakoti even pushes it further in the Reality of Ai- 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.’

David versus Goliath

Fortunately there exist small scale projects that have a positive impact.  Shangrila Home, the most well known Belgian NGO, assists street children with shelter, education, specific training and ultimately also a job.  Unfortunately, the combined impact of all those small projects does not completely offset the damage done by large aid projects.
If it depended on 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 will be over the moment his party has formed a government.  ‘From now on, every project needs to be approved by the people’, he says in a response.  How he will realise this is less clear.  However, Nepalese voters hope that the former rebels will bring international aid closer to its objectives: the reduction of poverty.
This contribution was made possible by the support of the Fonds Pascal Decroos for Investigative Journalism. Info:

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