Silver lining for Pancheshwar project

Prime Minister Pushpa Kamal Dahal’s India visit last month has rekindled hope that the Pancheshwar Multipurpose Project will finally move ahead. Although there are some contentious issues that remain unsettled despite several rounds of talks between Nepal and India in the past years, the two sides have agreed to expedite the bilateral discussions to finalize the detailed project report (DPR) of the project within three months. They have also agreed to conclude the modalities of the project implementation within one year after the DPR approval. In line with the agreement reached at the top level, a meeting of the Pancheshwar Development Authority (PDA) was held in Pokhara this past week. The meeting produced some positive results. As per the agreement, the two sides agreed to renew the term of the expert panel by six months and to convene the meeting of the panel within 10 days to discuss the technical aspects of the DPR. The meeting of the expert panel has not taken place since 2018. During 2016-2018, there were a series of meetings in an attempt to finalize the DPR, but both sides failed to resolve the differences on certain contentious issues. The panel stopped meeting and the tasks related to the proposed 6,480 MW project on the Mahakali river were halted as a result of the Covid-19 pandemic and the map row between Nepal and India. In 2016, PDA had prepared a draft DPR and submitted it to both countries for feedback. To date a mutually acceptable DPR has not been finalized, which remains one of the major roadblocks hindering the project development. While Nepal and India have shown eagerness to finalize the DPR, there are other contentious issues that remain unsettled. Nepal wants a share of the irrigation benefit that India stands to get from the multipurpose project. But the India side has been insisting that since Nepal has a smaller cultivable area than India, it is natural for India to get greater benefit. It has also pointed out the greater risk of flood and inundation that India will be exposed to due to the project. “We have offered to meet the full cost of the irrigation component. The details are yet to be worked out,” says an Indian official. There are also issues concerning the division of cost between irrigation and power. As Nepal wants to put a lot of cost in the irrigation component, there are differences on how to divide the overall cost. Ranjit Rae, former Indian ambassador to Nepal, says both countries should show flexibility in resolving the outstanding issues, namely sharing of water as well as irrigation benefits and cost, so that the DPR can be finalized within three months as prescribed by two prime ministers. “This will be a huge step towards the implementation of the mega multipurpose project that will not only transform the economies of far-western Nepal and the Kumaon region of Uttarakhand,” Rae says. “It will be a significant pillar of our bilateral cooperation and a global symbol of how two neighboring countries can work together in the sensitive area of water resources and energy.” Pancheshwar Multipurpose Project is a bi-national hydropower project to be developed in Mahakali River bordering Nepal and India. Development of the project is an important centerpiece of the Mahakali Treaty between Nepal and India, which states that equal sizes of underground power houses of 3,240MW will be constructed on each side of the Mahakali river in India and Nepal. The project also offers the benefit of regulated water for irrigation to a vast area of agricultural land in both countries as well as the benefit of flood control downstream. According to officials, there has been gradual progress on these projects. Previously there were more than 500 disputes which now have been narrowed down to 127, according to Madhu Prasad Bhetuaal, joint secretary at the Ministry of Energy and Resources. Over the past few years, there has been good progress in the construction of India-invested hydropower projects as well. A senior Nepali official says that this time India has shown eagerness to finalize the DPR of Pancheshwar project. “We are hopeful that India will adopt flexibility to sort out the key contentious issues,” the official adds. In 2017, too, there had been some serious efforts to finalize the DPR, but they could not yield any progress, mainly due to the internal political situation of Nepal. The Mahakali Treaty is already a contentious issue in Nepal, so there is a need for an all-party consensus while finalizing the content of the DPR. Former Nepali ambassador to India Deep Kumar Upadhyay, who  had played a significant role in sorting out the differences concerning the project during the Sher Bahadur Deuba administration, says Indian Prime Minister Narendra Modi is interested in taking the Pancheshwar project ahead. “Former water resources minister of India Nitin Gadkari had told me that Prime Minister Modi was interested and that a high-level team from both sides must steer the project,” says Upadhyay. “Gadkari had also warned me that the project would not move ahead if the two sides continued to engage in a blame game.” He views the resumption of talks at the bureaucracy level as a positive step, but insists that only the top political leadership can settle the disputed issues. “There should be a strong political will to direct the bureaucracy to sort out the key contentious issues,” adds Upadhyay. Deepak Prakash Bhatt, a CPN-UML leader from the far-western region, says the domestic political situation is favorable to move ahead, as major political parties are not opposing the project despite some reservations. “If the technical teams of both countries work seriously, I believe all contentious issues can be sorted out,” he says.

Private sector’s boost may spur economic rebounding

The budget for the next fiscal year (2023/24) aims to present a range of reforms recognizing the private sector as a driving force for economic development. These reforms include initiatives to promote domestic production of various materials such as cement, iron rods, zinc sheets, iron pipes, plastic pipes, and electrical wires. The budget also highlights the importance of public-private partnerships in industrial development, the revision of foreign investment limits, and measures to facilitate boulder and gravel extraction. Furthermore, there is a focus on allocating budget resources to projects with site clearance. While these initiatives are commendable, there are concerns regarding the lack of incentives for industrialists in neighboring countries and the need for correction of import duty rates. The private sector is disgruntled following the tax provisions for FPOs (Follow-on Public Offerings) and mergers and acquisitions. Additionally, the imposition of VAT (Value-added Tax) and luxury tax on tourism-related services may have adverse effects on the industry. It is crucial for effective measures to be implemented to control illegal trade, and to take into consideration recommendations for expansion of the list of items eligible for cash subsidies in the export sector. Addressing challenges such as rising interest rates, reduced demand, cash flow issues, declining production, and job cuts requires a comprehensive approach to reboot the Nepali economy, necessitating collaboration between the private sector and the government. While the budget has addressed several of business communities’ concerns, entrepreneurs have underscored the significance of effective implementation of the budget as a determining factor for its success. However, the government has unveiled a comprehensive set of policies, programs, and budget allocations for the upcoming fiscal year. These initiatives aim to stimulate investment in industries leveraging indigenous raw materials such as agriculture, forestry, herbs and water. By reducing dependency on imports, enhancing exports, and fostering job creation, this strategic approach promises to revitalize the current economic landscape. Considerable strides have already been made in developing diverse industrial infrastructure, including industrial zones and special economic zones. However, further progress necessitates robust collaboration between the government and the private sector. Capitalizing on the existing infrastructural foundations, the joint efforts of both stakeholders are essential in expanding industrial infrastructure. The government has said that it is actively engaged in implementing a series of reforms to cultivate a conducive industrial ecosystem, while the private sector is poised to intensify investment endeavors and attract foreign capital. Upholding the principles of social justice, good governance, and economic prosperity, the government must demonstrate unwavering dedication to expedite economic reforms and progress toward these noble objectives. Industrial promotion is a key aspect that needs to be addressed. Clear provisions should be established to eliminate land restrictions for the industrial sector. It is crucial to thoroughly examine and formulate a comprehensive policy on land delimitation to drive industrial promotion effectively. Sustainable infrastructure development is also essential for fostering a prosperous nation. It is recommended to increase the capital budget and establish a well-defined infrastructure development master plan that aligns with national priorities. This will ensure timely and cost-effective completion of ongoing and upcoming infrastructure projects while maintaining superior quality standards. In the upcoming fiscal budget, a careful analysis of the Public Procurement Act is required to identify areas for structural reforms. Forming a committee and introducing necessary amendments to the Act will create an environment conducive to executing projects within specified timelines and budgets. Furthermore, a reassessment of the low bidding qualification system is necessary to ensure infrastructure quality and timely project delivery. The tourism industry, which has received significant investments from the private sector, holds immense potential for Nepal. However, the flag-carrier’s inability to compete effectively has made Nepal relatively expensive for international tourists. Enhancing the competitiveness of Nepal Airlines Corporation through strategic partnerships is crucial. Efforts should also be made to reinstate direct air connections with European countries, as their discontinuation since 2013 needs urgent rectification. The energy sector plays a vital role in foreign exchange earnings and reducing the trade deficit. Private sector investments in the hydropower industry showcase commendable entrepreneurial spirit and willingness to take risks. Agreements and commitments made during the Prime Minister's visit to India, including a 10-year, 10,000-MW electricity purchase agreement, are expected to attract substantial investments in the energy sector and expand the electricity market in India and Bangladesh. Urgent action is needed to reopen power purchase agreements (PPAs) for over 11,000MW, as their halt poses a risk to private sector investments. Facilitating private sector participation in the electricity trade and considering concessional rates for power supply to industries will enhance industrial competitiveness. The information technology (IT) sector holds significant potential for Nepal, given favorable conditions such as availability of electricity and favorable climate. However, the government has still not established IT parks. Defining the minimum prerequisites for IT parks and allowing the private sector to undertake their development is crucial. It is evident that the skilled workforce produced by the IT sector in Nepal is sought after by renowned international companies. This exemplifies the world-class caliber of Nepali IT professionals, with many prominent IT companies in Nepal catering to third countries. Encouraging non-degree IT education by eliminating student quotas in various colleges under different universities is also essential for promoting information technology-related studies. Achieving a six percent economic growth rate in the upcoming fiscal year is vital despite prevailing economic challenges. This necessitates the implementation of an investment-friendly monetary policy to boost the private sector’s confidence. The private sector is adamant on this. To foster an investment-friendly environment, the private sector seeks supportive government policies and administration. Frequent short-term policy changes undermine confidence, and guaranteeing policy stability for at least 10 years regarding laws and regulations will attract investment and facilitate the country's transition from economic recession to a path of prosperity. In the early 1990s, Nepal yielded substantial achievements in socioeconomic development through expanded private sector investment. The country turned from closed to open economy. This led to advancements in education, healthcare, industrial production, employment, and overall economic growth, resulting in Nepal's transition from a least developed to a developing nation. However, recent years have seen excessive regulatory measures impeding the progress of the private sector. Prompt attention to the implementation of the second phase of reforms is crucial. It is encouraging to see the second-phase program prioritized in the budget. Proactive policy and structural reforms should be undertaken to propel the second phase forward. The author is associated with Nepal Rastra Bank. Views expressed are personal

Three-way competition and Nepal

The foremost challenge in Nepal’s foreign policy comes from the adjustments we should make in the changing geopolitical and international circumstances, including managing the conflicting interests, geopolitical rivalries, and strategic competition of our neighbors and great powers. The strategic competition between India and China is not new. Another great power, the United States of America, has entered the scene, sometimes with competing strategic interests. We have to operate without being a playground for competition among our neighbors and great powers. Nepal does not wish to be drawn into the “geopolitical contest”, “strategic competition”, and “big power rivalry”. The three-way geopolitical competition in Nepal involving India, China, and the United States is not necessarily against Nepal’s interests, as it can generate benefits and opportunities in aid, trade, and investment. We should develop relations with all powers, focusing on our interests and without taking sides in their geopolitical contests. During the Cold War era, we managed to maintain the best relations with the superpowers—the United States and the Soviet Union—and obtain aid and support from both. There is no reason why we cannot maintain the best relations with India, China and the United States and benefit from their support and cooperation simultaneously. We should deal with them based on our national interests while finding a niche in their competition so we can benefit from them. Because of our relations with major powers and immediate neighbors, we often face difficulty in reaching decisions regarding the initiatives or proposals they bring from time to time, also because they sometimes contain competing interests. The United States of America has been pursuing its Indo-Pacific Strategy (IPS) and seeking to apply it in the countries of the “Indo-Pacific Region,” including through its Millennium Challenge Corporation (MCC). China has launched multiple initiatives, including the Belt and Road Initiative (BRI), Global Development Initiative (GDI), Global Security Initiative (GSI), Global Civilization Initiative (GCI), etc. We should develop principles for dealing with diplomatic proposals from great powers or our immediate neighbors. We should accept them if they are in our interests and not entertain any if that undermines our foreign policy principles. According to our policy on non-alignment, we cannot become a party to any security or military alliance. We should avoid any overture that has a political or strategic objective that seeks to use us against one or another power or neighbor. We should respond to such proposals by assessing their economic viability and benefits rather than political preferences. We should retain our decision-making autonomy without being compelled to choose for or against such proposals. If we maintain such clarity and keep reiterating them, decisions concerning them will be easier. We should take into account the emerging alliances and partnerships in the region, without being dragged into their competition. They include the IPS, Quadrilateral Security Dialogue (Quad), the trilateral partnership between Australia, the United Kingdom, and the United States (AUKUS), the Regional Comprehensive Economic Partnership (RCEP), etc. We need not fear them but rather be vigilant without taking sides while not missing opportunities arising from them for our economic development. We must assess changes in geopolitics and adjust our policies accordingly. Though the world has become a“global village,” geopolitics is back. Geopolitical tensions have increased with the rise of new powers in every region, including ours. There was a time when the power that commanded the seas ruled the world. Then, whichever power controlled the Eurasian mainland extending from the Volga to the Yangtze and from the Himalayas to the Arctic, exercised supremacy. Today, the power that commands the Asia-Pacific region can have geopolitical sway. Now called the Indo-Pacific Region, it is rapidly evolving as the center of gravity for geopolitical contests. The balance of power is shifting to developing countries, particularly in Asia. The continent is retaking its lost dominance in the world economically. Asia has also become a new theater of great power contestation, including in the South China Sea. Our region, South Asia, remains a geopolitical hotspot, thanks to the strategic competition involving great powers, Indo-Pakistan relations, extremism and terrorism, unresolved boundary issues, and the crisis in Afghanistan. The 2017 Doklam standoff and the 2020 Galwan Valley border scuffle between India and China highlight the potential risks of unresolved bilateral boundaries in regional stability and security. India and China cooperate on several issues and platforms while engaging in competition in others. They cooperate on climate change, development, and global governance. Both are members of the BRICS, SCO, Asian Infrastructure Investment Bank (AIIB), etc. Their bilateral trade has reached $135bn. They have a stake in working together for their interdependence and regional stability. We have seen what can happen when they bypass us. Their 2015 agreement for opening the Lipulekh Pass for trade and pilgrimage came without consulting us. An African adage says, “Whether the elephants are dancing or mating, the grass will get crushed in either case”. In the past, we handled geopolitical challenges without compromising our independence and sovereignty. We should keep a constructive engagement with our neighbors and great powers by diversifying our relations, resolving outstanding issues, strengthening regional cooperation and economic integration, pursuing political stability and economic development, and fostering national unity. We need not fear geopolitics but handle it according to our interests. It is our priority to maintain the best relations with India and China and benefit from their economic progress. We need to find a niche to benefit from their competition, especially in the economic realm, without being dragged into their sides. Both are our sources of trade, tourism, investment, and aid. So far, little automatic spillovers from their economic growth have come to Nepal. We must take proactive action to benefit from their economic growth. Nepal’s unifier king, Prithvi Narayan Shah, likened Nepal to a ‘yam between two rocks’. The ‘yam’ needs to extend its roots into the crevices of the ‘boulders’. Nepal should seek economic integration with India and China, enter their supply and value chains to benefit from their economic rise. In economic growth, Nepal is a slow-moving tortoise between a marching elephant (India) and a flying dragon (China). It would be in our interest to invoke the Rhino (Gaida) in us to match them with an equally-robust growth trajectory. At the least, we can move like a rabbit—fast and vigilant—to benefit and catch pace with both. We can benefit from India and China by promoting trade opportunities, offering ourselves as a transit economy, focusing on infrastructure development, including connectivity projects, attracting tourists and FDI, and transferring technology, knowledge, and skills from them. We need to move beyond the slogans of ‘transit economy’, ‘dynamic bridge’, ‘land-linked economy’, and ‘trilateral cooperation’ that our leaders keep reiterating. We need evidence-based studies, proactive diplomacy and specific proposals and agreements. The opportunity to serve as a transit economy may not be there forever. We need to catch such opportunities until they are around with us. We must strive to maintain the best relations with our immediate neighbors with a respectable framework of relations based on sovereign equality and mutual benefit. We need to resolve outstanding issues with India, concerning the review of the 1950 treaty and the Kalapani-Lipulkeh-Limpiyadhura boundary issue, including through the logical conclusion of the report of the Eminent Persons Group (EPG) instituted bilaterally. We should focus on building trust and confidence at the political levels and continue to work at diplomatic and technical levels to safeguard Nepal’s national interests and resolve the outstanding issues with neighboring countries, mainly India. With China, we should find a way to implement projects under the BRI and bring into operation the bilateral transit and connectivity agreements. This is an excerpt from the speech of the author delivered at second YKN lecture series

Is ‘left unity’ on the card?

There are no immediate threats to undo the current coalition government led by the CPN (Maoist Center). At least, that’s what Prime Minister Pushpa Kamal Dahal and his primary coalition partner, Sher Bahadur Deuba, of the Nepali Congress have been trying to convince the people. But if one considers the recent formation of the so-called socialist front of the Maoist party and fringe communist forces, talk about the government change made by some NC leaders, and the second-rung leaders of the NC and the UML exploring the possibility of collaboration, it is hard to buy into Prime Minister Dahal and NC President Deuba’s assurance of a stable government. Some leaders in the NC and the UML say that the two parties must come together for the guarantee of political stability for at least another general election. UML leader Gokul Banskota, who is close to the party chairman, KP Oli, has publicly stated that while there cannot be an electoral alliance between the two parties, the UML and NC can form a government to ensure political and economic stability in the country. The UML has historically been the main political rival of the NC, and there are many leaders in both the parties who believe that they should always remain apart. But there are plenty of reasons that could bring these two parties together. The main one being the arrests of and allegations against several UML and NC leaders in corruption cases, like the fake Bhutanese refugee scandal and the Lalita Niwas land grab case. The leaderships of both the NC and the UML are not pleased with the Home Ministry, led by the Maoist party, opening investigations into corruption cases involving high-profile individuals. NC President Deuba, a key partner in the ruling coalition, has so far remained silent regarding government change, but people close to him say that he is not pleased with the Dahal administration, particularly regarding the way the refugee scandal is being pursued by the Home Ministry. The UML is keen to enter serious negotiations with the NC for the formation of a new government without the Maoist Center. But NC leader Min Bahadur Bishwakarma says that the party is committed to keeping the coalition intact. On Sunday, UML Chairman Oli said that there has not been any substantial discussions regarding the formation of a new coalition because the NC was fearful. But, Deuba’s non-committal and his apparent willingness to play second fiddle to the Maoist party do not mean that he is playing the safe card. Talks about a broad alliance of left parties are also gaining momentum of late, and it could see both Dahal and Oli together again. It is worth noting here that though Dahal may be leading the current ruling coalition, his party came in third in the last year’s general elections, far behind the NC and UML—and that too despite forming an electoral alliance with the NC and other fringe parties. So, it is very much in the interest of Dahal and his party to form some sort of lasting alliance at the earliest in order to stay relevant. The evolving dynamics inside the NC has also prompted Dahal to find an alternative. The factions led by Gagan Kumar Thapa and Gururaj Ghimire in the NC are already saying that the NC should not forge an alliance with the Maoist party in the next general elections. Besides, Thapa has also been saying that the current ruling alliance could change if the government fails to deliver. These developments have made Prime Minister Dahal suspicious. He may be in favor of giving continuity to the current coalition, as he has been saying publicly, but he is also aware that his party cannot survive if it were to contest the next general elections on its own. In the previous two general elections, the Maoist Center had forged poll alliances with the UML and the NC respectively. For Prime Minister Dahal’s party, the only lifeline is making an alliance with other parties. So, it sees everything through the prism of election. Several leaders in the Maoist party are convinced that the NC is not committed to a long-term collaboration and that the party should start looking for an alternative. This means the party will align with the UML, if it has to. Already, four political parties have formed a socialist alliance, led by the Maoists, with a purpose of expanding it to the grassroots level. Dahal is also in talks with the leader of Maoist splinter groups to bring them back into the party. He is said to be in talks with former Maoists ideologue Baburam Bhattarai,  now of the Nepal Samajbadi Party,  to explore ways to unite. It is said that before talking with Oli, Dahal first wants to solidify his position by bringing all fringe communist parties under one umbrella. The meteoric rise of the Rastriya Swatantra Party has also alarmed the Maoists. If the RSP continues to ride the wave of popularity until the next general elections, it is not just the Maoists that could get an electoral thrashing, the NC and the UML could also lose their political base. This was evident in the by-elections held earlier this year. The formation of a left alliance will no doubt be welcomed by China. Over the past few years, China has been consistently advising Nepal’s left parties to come together. Beijing’s leadership will ask Prime Minister Dahal for the same when he visits China in September.  Until now, Prime Minister Dahal has been shrugging off the talks about the breakup in the Maoist-NC coalition, but he has also not ruled out the possibility of leftist alliance. He said on Monday that the NC should not overreact to the talks about the formation of left unity, as it does not mean disunity in the current ruling coalition. But if Oli’s recent statement is to be believed, the Maoists and the UML could once again unite to form a large communist party, like they did in 2018 with the short-lived Nepal Communist Party (NCP). A few days back, Oli said that there must be a serious review as to why the NCP split. UML leader Amrit Kumar Bohara says there is a sizable communist voter numbers in the country, and their combined strength will not be known for as long as leftist parties in Nepal are scattered. Chairman of CPN (Unified Socialist) Madhav Kumar Nepal, also former leader of the UML, also believes that only a powerful communist party could bring social and economic changes in the country. Maoist lawmaker Madhav Sapkota says while there is no immediate chance of left parties uniting, efforts are definitely underway. He adds the parties are continuing the efforts after learning lessons from the past. Bishwakarma, the NC leader, says unification among communist parties is an agenda that has been discussed for a long time, and that his party will have no issue if the parties of similar ideologies come together. It will not upset the NC as long as it does not affect the current coalition, he adds.