Pacific Prospective features the research of graduate students.
Memo #139
By Broghen Aitkin – broghen [at] gmail.com
By some estimates Nepal has the potential to generate 42,000 megawatts (MW) of hydroelectricity per annum. In an effort to attract capital, Nepal’s Prime Minister Baburam Bhattarai proclaimed 2012 as “Nepal Investment Year.” The aim is to attract over $6 billion (USD) for key sectors including hydropower. Bhattarai also signed a Bilateral Investment Promotion and Protection Agreement (BIPPA) with India.
A similar agreement with China is set to follow a $119 million (USD) aid investment package pledged by Premier Wen Jiabao. These actions are encouraging and hold great potential to spur economic growth and broader development. But how will Nepal address its domestic deficits and mobilize foreign investment?
Why are there daily 14 hour blackouts, resulting in increased crime, lower hospital admissions, and a halt in most manufacturing?
Hydroelectric projects have been hindered by insufficient domestic capital and chronic political instability. There have been heated debates over water rights and power purchase agreements.
Stalled for over a decade, the 750 MW West Seti project in western Nepal is a clear example. Various financiers, including the China Three Gorges Corporation, have shown interest but won’t follow through with capital investments because of continuing political instability and increasing corruption in Nepal.
Given Nepal’s political volatility and the powerful influence of its neighbours, structural changes are needed to protect national interests and investors. One necessary step is reform of the state-owned Nepal Electric Authority. Mired in debt, it is unable to negotiate favourable deals with foreign parties.
A second ingredient is passing anti-corruption legislation, repeatedly struck down due to hardline Maoist opposition claiming “imperialist pressure.” Nepal ranks #154 on the Corruption Perception Index and illicit practices are so rampant that the anti-money laundering watchdog, Financial Action Task Force, is looking at downgrading Nepal to “high risk” or even blacklist it.
Unless real structural change stabilizes Nepal’s economic and political climate, the “Nepal Investment Year” and knee-jerk investor appeasement like the decision to ban strikes and labour disruptions at power projects will have little effect.
Without these changes, Nepal’s hydroelectric aspirations will be left in the dark for years to come.
Broghen Aitkin – Researcher and International Development Practitioner. During Broghen’s tenure as a Master of Arts – Asia Pacific Policy Studies (MAAPPS) student, he traveled to Nepal to conduct research on post-conflict policymaking.
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Source: Parakhi
Links:
- Ease of Doing Business in Nepal, International Finance Corporation, 2012.
- Intra-party Maoist fued to cost Nepal dear, The Himalayan Times, February 2012.
- West Seti raises equity issue, other concerns, Republica, March 2012.
- China, Nepal issue eight-point joint statement on relations, cooperation, Chinese Government’s Official Web Portal, January 2012.
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