The aid industry in Nepal

The aid industry in Nepal
BIG BUGDETS, BIG PROBLEMS

“Foreign aid has not made any significant contribution to reducing poverty in Nepal”, according to a prominent Nepalese politician. Two months later, Maoists win the elections and immediately announce that from now on foreign aid will have to be approved by the people first. Is Nepal being screwed by the aid industry? Has it helped to bring Maoists to power?

Nepal is the poorest country in Asia with an income of less then a dollar a day. According to the United Nations Development Program, poverty in Nepal increased in the last three decades, mostly in rural areas. People in Kathmandu now earn five times more then those in rural areas. The poorest 40% of the population have become worse off, while the richest 10% have become richer. Only a third of the students leave school with a qualification, most of them studied in private schools.

Since 1991, Nepal has been the largest receiver of foreign aid in the whole of South Asia. Over 80% percent of the education budget comes from foreign donors. The share of foreign aid in the national development budget has increased from 50% in the nineties to 70% today. Loans have increased faster then grants.

As a condition for getting loans, Nepal has fulfilled the wishes of financial institutions such as the World Bank to open markets, privatize crucial public institutes and limit domestic borrowing. However, several studies have shown that privatization in Nepal has increased the gap between poor and rich. It didn’t help the economy either.

The aid sector is not geared for introspection. They usually blame corruption and the civil war (1996-2006) for obstructing their plans to develop Nepal. Certainly Maoist insurgents destroyed infrastructures and projects, but foreign aid seems to have done a lot of damage as well, including increasing corruption in the country. According to the anti-corruption agency, nearly one billion US dollar donated for nearly 5000 projects donated by various organisations are not open for accounting by the government.

Flashy health camps with western doctors are actually killing uneducated villagers from a remote district. An illegal and dangerous dam has huge profits for foreigners while causing massive floods and social upheaval. The water mafia gets loans for projects that destroy previous projects, whose own loans are not even paid back. The list is endless, but the tolerance of Nepalese people is not. In every single project discussed in this article the Maoists won by a landslide, often on the promise to end the dictates of foreign donors. In remote West Nepal, a Maoist who threatened to kill anyone coming near to the planned construction site of a dam got his democratic mandate.


A sick system
Despite massive foreign aid, most Nepalese still never see a doctor in their life. The health care system is totally inadequate to meet the people’s needs. In remote rural Myagdi district, we interviewed a hundred people on the standards of health care in their area. There is only one doctor in the area but most of them never visited him. Asked why they said he only came once a week, from his private clinic in Pokhara city. He always told the free government medicines had run out, but he could sell us some better but expensive medicines from his private clinic. This story was repeated in several other rural areas of Nepal. Neglect has been replaced by a mirage of health care interventions. These include the establishment of rural health posts catered by uncaring, corrupt doctors, or no trained personnel at all.

In Humla, a remote, impoverished district in the North-West of Nepal, the Scottish NGO Nepal Trust has come up with an original solution. They fly in a team of European doctors and conduct short health camps, accompanied by a media circus of cameramen and photographers. In their rush to treat thousands of patients in a few days, the camp becomes a fiasco. While they claim to have treated 8000 people, what really happened was that, according to several reliable witnesses, 2000 people queued up on average 4 times. Uneducated patients were seen to return on the next day, complaining they didn’t feel any better after swallowing all the medicines, which were meant to last for two weeks. According to the witnesses, who prefer to stay anonymous, at least three people died shortly after one of the health camps ended. Kids were playing with used needles dumped in a nearby open pit. Local traditional doctors were neglected.

Babita Lama co-founded the Nepal Trust but stepped out in 2002, feeling disgusted about the rude way the Scottish management was treating the staff and locals. Today she feels as if her ‘baby’ is sick. “They didn’t do any research on what local people really need. There is an acute lack of awareness among the people on how to use medicines and a complete lack of follow up after the health camps. The camps resemble a medical circus”, she complained. According to insiders, health camps obscure the real political and economic origins of sickness. They’re like a band-aid on a festering wound.

Nobody gives a dam
The picture of foreign aid doesn’t get any better if you look at big projects, usually foisted upon Nepal by big financial institutions. This large majority of aid money (77%) should bring development on a big scale. The Asian Development Bank (ADB) says: “Nepal needs to harness its vast hydroelectric power potential in a socially and environmentally sustainable way.” Nepal indeed has the second biggest hydropower potential in the world and yet it faces up to eight hours of daily power cuts in the dry season. Nepali’s are now paying one of the highest electricity rates in the world: 9 times more than those in neighbouring Bhutan and 5 times more then in the US or India. Of course, this will not worry the three quarters who don’t have electricity!

The ADB figured it could help Nepal by teaming up with the Australian Snowy Mountain Engineering Company (SMEC), Chinese banks and India to build a 1.2 billion US $ dam project. Technically, the project is a dangerous mess. At a height of 195m the dam across the West-Seti river will be the highest concrete faced rock filled dam in the world. SMEC preferred this type in a bid to keep the 1.2 billion US $ budget, almost half of the total Nepalese annual government expenditure, ‘under control’. Several highly respected experts have repeatedly warned the government about the dangers of such a dam design. Surya Shresta from the National Society for Earthquake Technology claims that: “Especially in West-Nepal, pressure that has build-up suggests that a very large earthquake is long overdue”. SMEC responded on our inquiries that the dam cannot break, but Shresta confirmed that the companies who build the project also financed the only study on earthquake resistance of the dam.

Downstream, thousands of acres will get submerged with or without dam collapse. A large canal that takes water from the West-Seti for irrigation of North-Indian fields already causes widespread floods in Nepal during the monsoon season. Water expert A.B. Thapa says that once the West-Seti dam and reservoir are completed it will cause year-round flooding for villagers in south Nepal. These aid induced refugees will have to be added to the 13 000 farmers upstream who will see their whole world disappear under water once the reservoir behind the dam fills up.

According to a Japanese research centre the mega project is far from sustainable or environmentally sound and will cause massive social upheaval. It cites several violations of the ADB’s own policies on information disclosure, consultation with affected persons and possible livelihood losses, to name but a few. The only document for the uprooted farmers was an English summary of temporary employment benefits for them, which almost none of them could read.

Once completed, 90 percent of the electricity will be sold to India, while they will take all the water for free. Incredibly, Nepalese business is not involved.

Only 0.1% of the revenues will go to wages for Nepalese workers, according to Ratna Shrestha, a former board member of the Nepal Electricity Authority. After paying back debts, overheads and other costs less then 3% of total export earnings will enter the Nepali economy. While the profits flow to India, China and Australia, Nepal foots the bill for the environmental and social damage. Most of the thousands of villagers whose homes will be flooded are forcibly relocated to an area that has a totally different culture, language, climate, soil and agricultural system.

The taxpayer will have to pay back the loans and bear all unforeseen costs. Thirty years after construction, Nepal will be handed the dam as a poisoned chalice. Studies show that due to the incredibly high transport of sediments in Himalayan rivers, the dam will probably have to be dismantled soon after this period. Even according to SMECs own conservative estimations there will be a huge cost on the dam 50 years after construction, which of course is not included in the contract. By the time this comes out all greying politicians, Australian consultants and ADB bankers involved in signing this contract will be retired or dead.

Foreign aid or aid to foreigners?
To Nepalese lawyer Rabin Subedi from WAFED (Water & Energy Users’ Federation-Nepal) this is a case where “foreign aid violates human rights and works against the interest of Nepali people.” He is not surprised about the timing of signing away Nepal’s resources. He added: “Previous sharing of water resource agreements between India and Nepal have always been signed when Nepal was in a period of political transition like now.” The Nepalese constitution is about to be rewritten and management of resources will be taken over by a number of newly formed federal states. The dam on the West Seti is just one example of a big project pushed through just before the federal states get hold of them.

There’s another fishy thing about the deal, as water resources expert B. Subba wrote as early as 2002. “India actually wants the water but does not wish to pay for it, while Nepal wants to sell electricity but does not get the price it demands.” India wants to interlink dozens of rivers and desperately needs Nepalese water to make the giant scheme work, an enormous bargaining position Nepal is not playing out at all. At the same time, Nepal will now sell electricity from West-Seti to India at a little more then half the price it pays India to import electricity elsewhere

Rabin Subedi claims that by not mentioning the regulation of a shared river they have managed to circumvent Article 156 of the Constitution, which states that a two-third majority in parliament should approve the sharing of natural resources between two or more countries. All this makes things very clear for Subedi “Either they (Nepali politicians) are in the money game, they just don’t understand or they don’t care.”

In their response SMEC gives us detailed figures of the future change in water flow, while admitting literally that they will regulate the West-Seti river.

Shockingly, the construction and operational costs of locally financed projects are much lower than large donor-funded schemes, as research shows. Dipak Gyawali, the former minister of water resources, is only one researcher to come to such conclusions in the book ‘Aid under Stress’. All argue that this is because it is much easier to cover up corruption in the dense thicket of procedures and rules of big projects.

Large aid projects usually have a complete disrespect towards local structures. Gyawali quotes the notorious example of a Finnish forestry project, which destroyed local sawmills and wood industry. He writes: “Both the private foreign actors and the state domestic actors shared a fundamental distrust of the capacity of the local community to take care of the commercially valuable forests”.

And yet even the World Bank admits that including locals in the choice and design of projects increases the chances of success. People in Palpa district have known this all along. They have build a micro hydro project that produces electricity at a tenth of the price then the national electricity supplier, without daily power cuts or massive destruction. Not a dollar of foreign aid was involved.

Thirsty for real development
Unfortunately, the West-Seti is not an exception. There is a revival of large-scale projects as the mainstream development strategy all over the world. In Nepal they seem to do more harm then good.

One such project aims at quenching Kathmandu’s thirst by diverting river water through a tunnel. The 317 million US $ Melamchi Water Supply Project, which is partly financed with ADB loans, is already 13 years overdue for completion and is rife with corruption. Many politicians were convicted for fraud. A joint review mission from both government and donors in 2003 came to the conclusion that; ‘...environmental, social and occupational safety issues have not been adequately addressed in the earlier contracts, while in later contracts these issues are largely ignored by the contractors.’ Of the five-year government budget for water and sanitation 70% goes to the Melamchi project, although it will ‘benefit’ only 10% of the population.

Furthermore, thousands of people downstream of the river where the water is taken from will not only loose almost 80% of their crucial water in the dry season, but their whole way of living from irrigated fields and water mills … which were originally built with other ADB loans. Tank Gajurel, chairman of a local action group, complains; “The new access road to the construction site has already cut through the irrigation system, making our watermill useless.” Tank now uses a diesel generator for his mill in the dry season, but with diesel becoming so expensive he runs on losses. Seven years after their complaint they still have to see the first compensation, but even then, life will never be as it was before. Whole newly constructed villages will disappear again due to the lack of water. Tank; “We don’t want money, we just want our own water.”

The World Bank withdrew from the Melamchi project in 2002 concluding that ‘important options have not been explored to utilize the water resources within the Kathmandu valley’. Gyawali told us the government, in the mid 1980s, choose the most remote and expensive project out of 30 alternatives as potential water supply options for Kathmandu. "They prefer a large project that they alone could manage, furthering their empire-building wit lucrative results for themselves." The Norwegians and Swedish quit in 2005 and 2006. In May 2007 the ADB threatened to leave as well if the distribution of water was not privatised, which they believe would make the venture more efficient. Even Hisila Yemi, the Maoist minister for Physical Constructions, bowed for their condition. At least she managed to keep the UK company Severn Trent out, which got the contract for building the tunnel without any bidding. A fierce campaign against Severn Trent actually forced her to do so.

The Kathmandu Valley Drinking Water Company Limited (KVDWC) will now take over the water distribution, but will also sell the water for profit. The price will increase about threefold up to 13$ a month, which is half the average income in Nepal.

Experts claim that this project is a white elephant anyway. They have proposed alternatives that could deliver the same amount of water in a much faster and cheaper way.

Capturing 15% of rainwater in the Kathmandu Valley would completely solve the problem.
If just 1.5% of the land in the Valley were used as reservoirs the water table would be recharged.
Repairing the current leaks alone would increase supply by 70%.
Monsoon water could be stored in underground reservoirs.

All these solutions would create more labour intensive jobs for poor people and do less harm to the environment. The problem with the alternatives lies in the smaller scope for personal benefits among politicians or profits for companies. According to Gyawali, just building many small reservoirs in 1,5% of the Valley would cost around 7 million US $ to provide the same amount of water as Melamchi. Additional benefits come from the aesthetics and the more equal distribution of groundwater. He goes on to claim that; “repairing leaks does not help hydrocrats in their mission of managing scarcity. They first create scarcity which can subsequently be managed with large and expensive projects” Human rights activist Gopal Siwakoti says in his book ‘The Reality of Aid’, also the name of the International NGO who has studied the Melamchi project that: “The problem is not the lack of alternatives, but the denial of these alternatives due to the big project mind-set and the role of the water mafias.”

Foreign aid to the Maoists
Political analyst E.B. Mihaly concludes in his book ‘Foreign aid and politics in Nepal’ that “on balance the impact of foreign aid has probably harmed rather than furthered Nepal’s economic growth and political stability”.

There are of course notable exceptions. British therapists from Seeing Hands Nepal train blind people to be independent therapists who earn money by massaging tourists.

The Belgian NGO Shangri La Home not only educates street children but also provides them specific skill trainings until they find a job.

Micro credit programs financed by the Dutch organisation ICFON give poor people the chance to manage their own development according to their priorities. However, all these small projects are dwarfed by the budgets and impact of large foreign aid.
Foreign aid is actively influencing the political scene in Nepal. Nepal’s most famous writer, Manjushree Thapa, told us that the development agencies are very much part of the political system, although they will never admit it. The Nepali’s did not only vote against the establishment, but also against the aid industry. Here’s a hard question for them: Is it a coincidence that in all of the project’s area’s mentioned in this article the Maoist have won? The aid industry has certainly ‘helped’ some in Nepal, but most probably not in the way they first envisaged.

In an interview with Sri Ram Dhakal, secretary of the Maoist party headquarters, he boldly stated that “From now on any aid project will have to be approved by the people.” How he thinks to realise this is unclear, but one can only hope that the former communist rebels will bring foreign aid back to what it was all about: reducing poverty.

Nick Meynen
Kathmandu, 12 May 2008

This research was realised with the support of the Pascal Decroos Fund for Investigative Journalism. Info: www.fondspascaldecroos.org