Prachanda and the Corporate Convergence in Khatmandu
by Chris Salzberg
After a decade of conflict and more than 13,000 deaths, Pushpa Kamal Dahal, better known as Chairman Prachanda, leader of the Communist Party of Nepal and commander of arguably the most successful modern-day anti-feudal rebellion, has signaled an apparently abrupt ideological change of course. In an interview with Thomas Bell of the Telegraph, Prachanda declared that he and his party "are not fighting for socialism." Interpreted in the article as a move to the "centre," the statement went conspicuously further. While reiterating his party's opposition to feudalism, the communist leader claimed to be "fighting for a capitalist mode of production," with the aim "to give more profit to the capitalists and industrialists." [1]
Prachanda's pro-industrialist comments mark a serious departure from his traditional anti-bourgeois, anti-imperialist stance. Interviewed in February of this year, he made this position clear, emphasizing that his party's "maximum goals are socialism and communism. Those are the maximum goals of all those accepting Marxism, Leninism and Maoism as philosophical and ideological assumptions." Although admitting in the interview that, given "the international power balance and the overall economic, political and social realities of the country," his party "can't attain those goals at the moment" and thus "should be flexible," no mention was made at the time of supporting profit-driven capitalist ambitions. [2] Later asked if the party, in its recent shift of policy, had not deviated from its communist roots, spokesperson for the rebel movement Krishna Bahadur Mahara made a distinction, clarifying that: "It is not deviation but development." [3]
Strategic Interests
Mahara's choice of words is revealing. Like Prachanda's communist party, Nepal is currently entering a critical stage of "development." King Gyanendra, who seized absolute power in February of 2005 only to have it revoked following pro-democracy protests in April of this year, has since been demoted to the status of ceremonial monarch and has seen his salary cut by nearly two-thirds, the remainder of which he has reportedly taken to gambling away online. [4] The King's departure has fundamentally altered the geopolitical balance of powers within Nepal, triggering a reorienting of strategic interests in surrounding regions as well as internationally. Principally, these are the interests of India, China, and the United States.
Jo Johnson, in an article in the Financial Times, described the Indian and Chinese positions as having the potential "to become a very real source of friction." In economic terms, "India has a strategic interest in ensuring the stability of the Himalayan sources of some of the subcontinent's most vital rivers, among them the Ganges. Chronically short of energy, India also has a keen interest in developing Nepal's underexploited potential to generate and export hydro-power."
The Nepalese population, being ninety percent Hindu, shares a common ethnic affinity with the people of India. The two countries also share a 1750km porous border. From a "domino theory" perspective -- still much in evidence despite the end of the Cold War -- Prachanda's Maoist rebels represent a threat to India's interests in that "a Maoist victory in Nepal would be a shot in the arm for Naxalite and other hard-left movements that are gaining ground in poor states" of India.
These concerns are reflected on Nepal's northern border, where fears that "instability in Nepal would threaten China's grip on Tibet" run high. [5] China, too, has strategic interests in Nepal, in part for its resources, but also politically as a protective buffer against Indian-U.S. military threats (notably nuclear ones [6]), and economically as a target for planned extension of its Tibetan railway service. [7]
Prachanda's recent appeals to "help us get into the capitalist mode of production" indicate a strategic awareness of these foreign interests. His assurances that "revolution or ideology cannot be exported," while echoing earlier statements to the same effect, likewise evidently serve to calm fears that his party's admitted "ideological relationship" with the Naxalites might, according to the U.S. State Department, "threaten stability in the region" [8,9], i.e. jeopardize corporate profits.
Corporate Interests
Needless to say, it is in terms of the drive for these profits that U.S. influence on Nepal, very much palpable despite the geographic separation, can most readily be discerned. In the Country Commercial Guide Nepal FY2000, the U.S. and Foreign Commercial Service and the U.S. Department of State reported that: "There are two main investment opportunities in Nepal: hydropower and tourism. While Nepal has some 83,000 megawatts in hydroelectric potential, less than one percent of this potential has been developed." [10] Second only in scale to Brazil, this potential is driven by more than 6000 of the world's most forceful rivers and streams, collectively sending nearly 225 billion cubic meters of water every year from Nepal to the Bay of Bengal via India. [11]
The "investment opportunities" of Nepal's hydropower resources are vast indeed, potentially offering windfall corporate profits. Yet in the six years since publication of the Country Commercial Guide, despite numerous feasibility studies and controversial government offers and agreements [12], hydropower projects envisioned by the corporate sector have largely failed to materialize. The Investment Climate Statement of the U.S. Commercial Service for 2006 identifies key factors that led to this failure, namely: "political instability, a deteriorating security environment caused by the Maoist insurgency, a lengthy and cumbersome licensing process, and the failure to finalize a blanket electric power trade with India ... the only potential market for any exportable electricity produced in Nepal." [13]
Recent sidelining of Nepal's monarchy has put in place the necessary "enabling conditions" -- the term used by the "developmental assistance" agency USAID [14] -- to overcome these concerns, and reports indicate foreign investors have taken notice. As Bikash Sangraula writes: "Immediately after reinstatement of democracy in April this year, 11 foreign companies, most of them Indian, had submitted regular requests, letters of interest and detailed proposals to the ministry and the Department of Electricity Development (DoED)." [15] A "milestone" power summit between India and Nepal held in Kathmandu in September, organized "to understand the ground realities" of hydropower investment, brought together leading power developers, contracting firms, equipment manufacturers, international lending institutions, and insurance companies. [16] According to sources of the Financial Express, agencies identified "projects that are ready for development and others in the pre-development stage," as well as "models for financing." Of note was the mention that: "With the new government, which has recently taken over in Nepal, the developers in particular [also assessed] the security aspect which is quite crucial for the long term investments." [17]
A key attendee of the meeting, Indian Ambassador to Nepal Shiva Shanker Mukherjee made the unprecedented move last Tuesday of meeting privately with Prachanda at the Indian Embassy, no doubt in an effort to address this "security aspect." For his part, it is reported that the rebel leader made "a 'request' [of India] to play a 'pro-active role' in accelerating the ongoing peace process," notably urging Mukherjee to release two senior rebel leaders jailed in India. [18] Prachanda subsequently accepted an invitation, earlier turned down, to address an upcoming summit titled "India: The Next Superpower?," to be held in New Delhi November 17-18 and featuring such prominent international figures as British Foreign Secretary Jack Straw and New York Mayor Rudolf Giuliani. [19]
The convergence of interest in Nepal's rebel leader at this moment in time is not accidental. Nepal is currently entering a critical stage of democratization, with plans to draft a new constitution featuring prominently in this process. Clause 126 of the existing constitution, which applies to any agreement involving natural resources, requires a two-thirds majority of both Houses of Parliament at a joint sitting for ratification. Ananda Bahadur Thapa, former Executive Secretary of Nepal’s Water and Energy Commission, writes that: "Clause 126 of the Constitution has been hailed by all quarters in Nepal as the most important provision that is helping to safeguard the vital national interest of our country." [20] It is not hard to see how such a "safeguard" might serve to impede corporate interests, particularly in the case of large-scale hydropower projects.
Hydropower
Yet all indications are that key government agencies and corporate players are gearing up for initiating just such large-scale projects. A seminar headed by the U.S. Embassy in Nepal, held late last week at the Hotel Radisson in Kathmandu and titled "Empowering Nepal -- Connecting Markets," had as its stated aim "to bring together U.S. companies and other investors with key officials from relevant government agencies in Nepal and India to highlight the substantial opportunities to invest in Nepal's hydropower sector." [21] Jointly organized by USAID-Nepal, the Nepal-US Chamber of Commerce and Industry (NUSACCI), the American Chamber of Commerce in India (AMCHAM-India), and the International Resource Group (IRG), the seminar connected U.S. and Indian corporations with government energy regulators in Nepal. Representatives of U.S. corporate giants General Electric and Alcoa, and Indian corporate giants Reliance Energy and Tata Power Company, reportedly met with heads of the Nepal Electricity Authority (NEA), Department of Energy Development (DoED), and Independent Power Producers' Association of Nepal (IPPAN). [22]
Projects up for grabs at the seminar constitute a total generating capacity of 14,000 megawatts, nearly thirty times the current output of Nepal's entire hydropower system, earmarked exclusively for export to India. Among the offerings was the Arun III Project (402Mw), originally proposed over 10 years ago with backing from the World Bank, estimated at the time to cost $1.1 billion USD (versus an annual Nepalese budget of roughly $700 million USD) but ultimately scrapped in response to concerted efforts by a grassroots movement, the first of its kind in Nepal. [23] Martin Karcher, a division chief at the World Bank and member of the department involved in the proposed operation, resigned from his post amid "reservations and misgivings," remarking in an interview that, "the project was not being handled in an objective and even-handed manner. Since senior management seemed to be committed to the project, a serious and open debate was no longer possible and even common sense questions were being dismissed." [24]
Another project on offer, Kaligandaki II (660Mw), is a follow-up to the largest existing hydropower project in Nepal, the Kaligandaki Dam (144Mw), situated in the deepest river gorge on earth, an area home to abundant vegetation and wildlife. Constructed in 2000 amid controversy over the effects it would have both on the indigenous people in the area and on the environment, the dam has since resulted in flooding leading to soil erosion as well as persistent droughts, putting an end to the local fisheries industry. Kavati Rai, a postgraduate student who studied the effects of dam building on communities, noted: "Kaligandaki is one of the first [projects in Nepal] where indigenous groups have been impacted, so they are learning slowly." [25] The follow-up project, should it be carried out, will likely wreak an even heavier toll.
Karnali-Chisapani
Yet the Arun III and Kaligandaki projects pale in comparison to the true "jewel," [26] the rivers and gorges of the Karnali basin in western Nepal, an area with numerous sites capable of producing immense quantities of cheap hydroelectric power. Central among proposals for this region is the Karnali-Chisapani mega-dam project, a long-time dream of political and corporate players both within and outside of Nepal. According to the latest design, the rock-fill dam would climb to a towering 270 meters, permanently inundating 339 square km of land in the mid-west valley of Nepal, displacing 60,000 inhabitants, to create a massive reservoir. With a storage volume of 20 billion cubic meters, the dam's reservoir and its projected output of 10,800Mw -- amounting to more than two-thirds of the total generating capacity currently on offer -- rivals the enormity of the 18,200Mw Three Gorges Project (TGP) in China. Yet in contrast to the Chinese dam, the Nepalese proposal has received little attention outside of Nepal, other than among corporate circles with interests in the project.
Plans for realizing the Karnali-Chisapani project first took shape ten years ago, in 1996, with a proposal from a "prestigious" upstart American multinational. Ajaya Dixit, chairman of Nepal Water Conservation Foundation, writes that: "Enron, with no track record of building a single hydropower project anywhere in the world, opted for the mighty 10,800 MW Karnali hydropower project." Nepalese officials, enamored by "the philosophy of building high dams," were only to happy to accommodate; yet the American corporation, "in typical Enron fashion, did not make its approach through the official channel," opting instead to "forward its application through the Prime Minister's Office." [27] Deepak Gyawali, a hydropower expert, remarked at the time that the survey license awarded to Enron, ostensibly arrived at via "political consensus," in fact "involved only four politicians in a room." [28]
Enron's plans for Karnali-Chisapani ultimately failed to materialize, due not to political resistance -- all parties were happy to oblige -- but to political disorganization. A notable exception was then-Water Resources Minister Sailaja Acharya, who had written to Enron requesting that the project be deferred pending further investigation. Santa Bahadur Pun, former Managing Director of the NEA, in an article co-authored by Prachar Mansingh Pradhan, describes the political fallout of this move:
"Our Parliamentarians were so much 'educated' with the virtues of private sector and foreign investment that even her own Congress Party wailed and bemoaned that she had killed the goose that would have surely laid the golden eggs... One can only conjecture what damages Nepal would have incurred if our Parliamentarians' supposed golden goose, Enron, had drowned clutching the Karnali Chisapani license." [29]
Reports indicate that an American company (Texas Power) and a group of non-resident Nepalese backed by Russian banks and consultants are currently vying to get a hold of this very same license. [30] The "golden goose," it would seem, did not drown so easily; it remains to be seen what damage Nepal will incur this time around.
West Seti
Karnali-Chisapani is not the only project in the Karnali basin, however. Unmentioned in reports of the recent meeting in Kathmandu is the 750Mw West Seti project, to be built by Australia's Snowy Mountain Engineering Corporation (SMEC) with financing from China's Export-Import Bank and the Asian Development Bank (ADB). [31,32] With a height of 195 meters, the concrete faced rock-fill dam (CFRD) at West Seti would be highest of its kind in the world, comparable dams in China and Mexico rising to 180 m and 185.5 m, respectively. Thapa writes that "the embankment type of dam with impervious earthen core is the best suited for the proposed site," yet the CFRD-type was chosen as a low-cost alternative, with potentially grave consequences:
[O]ur government has not cared to consult a panel of internationally known competent experts to verify the reliability of the design of the proposed dam. It is very clear that tens of thousands of people would be killed if the West Seti Dam collapsed due to faulty design. Vast areas of land in Nepal and India would be laid waste with sand deposits. [33]
There is another issue that arises with West Seti, also crucial in the case of the Karnali-Chisapani Project, referred to as "downstream benefits." Described as "the most contentious issue in water resources cooperation between Nepal and India," these are mediating effects on water levels, incurred in India, that result from massive storage-type hydroelectric projects such as West Seti and Karnali-Chisapani. Water is collected during monsoon season, preventing floods, and later released to provide irrigation benefits in the dry season. Whereas India clearly profits from this arrangement, in Nepal large swaths of land are submerged, displacing thousands of inhabitants. [34] In terms of dollar value, Thapa writes that "the net irrigation benefit of the West Seti project could be much greater than the net power benefit," although the former is typically ignored in calculations [20], a similar discrepancy arises in the case of Karnali-Chisapani. [35] In the latest deal, according to a "highly placed DoED official," the government will "settle" this dollar value issue with India, leaving "the private sector to take care of the rest," notably including "rehabilitation and compensation for inundation of land in Nepal." [30]
A Possible Deal
The importance of Chairman Prachanda's political influence, given the recent convergence of interests in Nepal's vast hydroelectric potential, becomes clear in light of the fact that the populations by far most affected by the mega-dam projects are among his strongest supporters. The west of Nepal, notably encompassing the Karnali-Chisapani (10,800Mw), Pancheshwar (6480 Mw), and West Seti (750 Mw) proposed project sites, is truly the mother load for the corporate hydropower developer: abundant low-cost, high-output sources, and a government that has consistently "promulgated a hydropower policy considered to be very private sector friendly," this according to the former Managing Director of the NEA Janak Lal Karmacharya, [36] also a former consultant to the World Bank and Bechtel. [37] The fact that the west of Nepal is also a Maoist stronghold, controlled by Prachanda and his now "capital-friendly" entourage, is rarely mentioned by the press in the context of hydropower discussions; surely, however, the issues of Maoist arms reduction and hydropower development are strongly linked.
Recently described at as "emerging from a decade-long holding pattern," [38] the global hydropower industry is on the verge of taking off, with Nepal a central focus. Prachanda has reiterated that he favors "the initiation of small and big hydroelectric projects," [39] yet obstacles such as Clause 126 of the current constitution, as well as Maoist armed resistance, pose a serious problem for implementing large-scale projects. Given this situation, it seems reasonable to speculate that Prachanda's recent ideological change-of-heart -- reassuring corporate investors that Nepal is "open for business" -- has been triggered by corporate and/or political offers of some kind; recent overtures by the Indian Ambassador present one possible avenue for such deal-making.
Nor would such a connection be as unprecedented as one might think: the communist leader once worked for USAID, the American government agency with a notorious record of co-opting grassroots movements -- particularly in poor South American countries -- with disastrous consequences. He may have learned from this experience a valuable lesson. As Rajinder Puri keenly observes: "All politics today, including revolutionaries and NGOs, has become corporate activity. It matters little if money comes from governments, agencies, or business houses. What matters is the agenda that is followed." [40] Yet as Prachanda's "agenda" has increasingly narrowed, so too has he lost sight of the real people of Nepal. Pablo Sanchez, a Marxist, notes: "Maoist realpolitic means that removal of the monarchy becomes an end in itself, no matter who you ally with. This is a very risky policy indeed." [41]
Nepal's Other "Jewels": Oil and Water
In controlling three-quarters of Nepal's territory, the Maoist leadership, with Prachanda at its helm, holds a valuable bargaining chip. While hydropower resources figure prominently in this picture, other potential "jewels" abound, particularly when one considers the worldwide resource shortages looming on the horizon. Oil, surprisingly perhaps, is a big one. The UK's Cairn Energy, recently catapulted to fame with big finds in India's Rajasthan, signed contracts two years ago giving it exclusive rights to survey five of ten petroleum exploration blocks along the Nepalese side of the Nepal-India border. Initially reported to be holding back from the oil search due to "deepening unrest" [42] -- i.e., Maoist resistance -- recent restructuring indicates that exploration may yet soon commence. [43]
Sir Bill Gammell, CEO of Cairn Energy and reportedly an old friend of U.S. President George W. Bush, [42] is joined in his petroleum venture by another businessman hailing from Texas, Max Mazy, president of the U.S. company reportedly holding two other exploration blocks, Texana. Mazy has claimed to have "strong indications that the potential exists for world-class hydrocarbon resources in Nepal," [44] a claim supported by experts, who say that "the Ganga Basin has ideal geomorphological conditions for oil deposits," as well as samples proving "that there is something down there." [45] Like Cairn, Texana too has backed out in the past due to resistance from the Maoist rebellion. [46]
Nepal's other material resource, much taken for granted, is its seemingly unbounded supply of fresh water, rapidly becoming a scarce commodity across the globe. An editorial in The Rising Nepal last week reported that a severe water crisis, caused by the inability of the Nepal Water Supply Corporation to meet demand, had worsened "as spring water sources ... have been slowly drying up over the years." [47] Here too, evidence of the failures of large-scale projects abound. The Melamchi project, intended to fulfill the water needs of Kathmandu, has proven to be a disaster. Sushma Joshi, a native of Kathmandu, writes:
The South Korean company contracted to do it bid so cheaply it is now unable to finish the work. Locals from the area are not compensated for the water that has been taken away, and they are unsure the project will leave them enough water for their own drinking needs.
If larger hydropower projects take hold in Nepal, as seems likely to happen, Sushma predicts "unfair appropriation where water is diverted from areas without concern for local usage is sure to be the norm." [48]
The Road Ahead
Corporate executives, World Bank officials, and government regulators spend considerable energy attempting to convince the Nepalese people that large-scale energy projects, with their inevitably hefty price tags demanding foreign investment and technical assistance, are needed to overcome chronic power shortages and stimulate "economic growth." This sentiment is nicely summed up in a recent statement by the Independent Power Producers Association of Nepal (IPPAN):
The highly-talked about potential of 42,000 MW of installed capacity will require at least 100 billion dollars to develop. Neither the government nor the donor agencies are going to put up such large amounts for hydropower development, when there are other competing social requirements, e.g. health, transport and the education sector. There are no short-cuts and no free lunches; and these hydropower projects will have to be developed in a fully commercial manner. [49]
The unmentioned assumptions inherent in this statement are manifold and need not be elaborated upon here. It is sufficient to note that there are far more effective -- and far cheaper -- alternatives readily available. Bikash Pandey, the Nepalese representative of Winrock International, writes that:
"Investment of a very large percentage of central government resources in medium and large hydropower projects with the support of multilateral and bilateral aid has left inadequate resources for alternatives such as micro-hydropower and solar PV."
Contrary to corporate claims, the latter types of projects "are much more likely to bring modern sources of energy within reach of 85% of the country's population," inhabitants who would otherwise not be supplied by the national grid. [50] Thapa similarly notes that "It is not true that we cannot overcome this difficulty without building hydropower stations ... that have very large storage reservoir[s]," stressing that "for certain types of load it is far more economic to build diesel plants than other types of power stations." [51]
In terms of drinking water supply, Joshi views the standard corporate line -- that "mega hydro-projects would benefit all segments of society" -- as a "fallacy," pointing out that marginalized groups of society "will continue to suffer as long as the water gets routed to those who can pay in urban areas." Kathmandu's water storage problems can be solved, she notes, by methods as simple as "repair and maintenance of old pipes. Unmaintained pipes are major culprits in leaking precious water to the ground." [48]
Despite such small-scale alternatives, the corporate windfall from resource-intensive mega-projects, traced to its ultimate destination in the pockets of wealthy foreign executives and compliant Nepalese regulators, exerts a powerful influence on government policy. Swarms of profit-seekers, supported by the political backing of the world's greatest superpower and its Asian heir apparent, have descended onto Kathmandu with the "jewels" of Nepal in their sight. It will take more than pliant communist leaders seeking "to give more profit to the capitalists" to stop them.
Postscript: Following the writing of this article, it was revealed that the massive Pancheshwar Project, located in the far west of Nepal, with a generating capacity (6480Mw) second only to Karnali-Chisapani, is also apparently up for grabs. [52]
Chris Salzberg is a graduate student at the University of Tokyo, Japan.
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