IT is something of a paradox: no one seems to doubt the apparent merits of Nepal's 402 megawatt (mw) Arun III hydroelectric project, yet the scheme has become fraught with controversy.

Almost invariably, the first comment in reply to any reference to the venture is: "Well, Arun III is a good project and Nepal must have it." But before you start wondering if you rang the wrong doorbell, the operative part of the statement follows: "But Nepal is not ready for it yet; Arun III's coming up when the national grid is 1,000 mw is good news, but it is bad when the national grid is only 250 mw."

This might sound logically ill, but Arun III's opponents see the project as detrimental to the development of smaller, more sustainable hydel power projects in the country, which have been effectively scuttled by certain conditions laid down by donor agencies. Even more distressing is the fact that the project will kick up the price of power in Nepal.

"The liabilities. and risks which the Arun m hydroelectric project entails, compared to its promised benefits, are not acceptable to us," says Deepak Gyawali, who resigned as director of the Nepal Electricity Authority (NEA) last year, reportedly in protest against the NEA's decision to go ahead with the project.

While the opposition to Arun ni appears to be strictly on economic grounds, critics of the project are raising issues which question the whole gamut of developmental strategy that Nepal - still making the schizophrenic transition from monarchy to democracy - should take.
Dream project The project boasts of several favourable features, such as an absence of large dams. The Arun river's steady, dependable flow and its superb gradient make Arun iii a power engineer's dream project. Moreover, the human displacement the project will entail is, at best, a trivial issue, considering the handsome compensation package worked out for the oustees. The supporters ofthe project believe that it has excellent potential and comes complete with an attractive international aid package. Detractors on the other hand, question the financial wisdorn of a country,like Nepal - which has an annual budget of a piffling us $500 million - going in for a project that will eat up us $1.2 billion. "Before undertaking such a huge expenditure, we must ascertain how much power we need and what is the cheapest and the most sustainable way of generating it. The Arun in project does not qualify on these counts," says Anil Chitrakar, environmentalist and member of the Alliance for Energy, an informal platform set up to oppose the project.

Chitrakar holds that the cost of power from Arun iii will work out to us $5,000 per kilowatt (kw), compared to us $2,000 per kw in India. According to the tariff under the World Bank's norms calculated by the NEA, consumers will have to fork out Nepalese Rs 8.11 (in terms of per unit cost). Anticipating that Arun ni will have a monstrous appetite for money, power rates were raised by about 300 per cent over the past 3 years to make the returns from the project handsome.

Arun in's supporters, argue that electricity in Nepal is too heavily subsidised and that the new tariff structure will make the consumers pay the real cost of power. And then there is the huge hidden expenditure. "There is no infrastructure in place. The project cost includes the construction of a 117 krn access road and the transmission line through difficult terrain," says Ganesh Mansingh Adhikari of the Group for Arun.

Bad planning
No one cavils against the removal of subsidies, but critics say that it should go hand in hand with other efforts to reduce the real costs. The NEA, for instance, has often been accused of inefficiency and rampant corruption, particularly when it pegs transmission losses at a whopping 30 per cent. If its functioning could be improved, the real cost of power will dive, says Rishi Shaba, electrical engineer and secretary of the Royal Nepal Academy of Science and Technology.

Says Gyawali, "Arun in is like digging a well when what you need urgently is a glass of water." Nepal is blessed with 6,000 rivers, with a total hydel power potential of about 80,000 mw. There are many sites, Gyawali adds, where the basic infrastructure, like access roads, already exists, and would cost less to develop.

Bikas Pandey, member of the Alliance for Energy and head of the Intermediate Technology Develoment Group (ITDG), which has done laudable work in microhydel projects, argues that Nepal's power needs are modest enough to be met by smaller projects. The country has an annual power shortage of about 25-35 mw. "Arun in," he says, "will take about 8 years to be completed. In effect, it will merely fill in the shortages that will accumulate over these 8 years.

One of the most contentious issues here pertains to a condition for aid imposed by the World Bank: the Bank has stipulated that till Arun III is commissioned, the Nepalese government will be dutybound to take its permission before investing in any other power project exceeding a capacity of 10 mw. "This is to ensure that the government has enough money to contribute its share to Arun iii," says R S Mahat, Nepali Congress MP and former chief of Nepal's Planning Commission.

Obviously, detractors see this condition as an armtwisted, decade-long de facto moratorium on new power projects. Chitrakar politely calls this "evidence of shortsightedness" that will keep the national grid weak and vulnerable to future machinations.

Gyawali points out that Arun iii will stunt indigenous big power plant creation since the entire project is to be set up by foreign contractors with expensive European technology: the main contractor is Cogefar, and will sub-contract work to Indian giants like Hindustan Construction, Larsen and Toubro and Gammon India.

Mahat sees nothing wrong in farming out work to outsiders: "Nepalese engineers have no experience of building such large projects," he says. "It would be unrealistic to wait for our own engineers to inculcate these skills."

Critics find this sophistry appalling, and part of the government's directory of Catch-22 arguments. "Nepalese engineers cannot build big projects because they have never got a chance to do so," says Chitrakar. "And now their own government is denying them the chance."

Even some Arun iii project supporters acknowledge, rather helplessly, that the deal is loaded against indigenous talent and expertise. Says Binayak Bhadra, a former member of the Planning Commission and a leading supporter of the project, "The apprehension may be true, but these are the realities of international aid and Nepal is in no position to alter them."

Bhadra makes no bones about the fact that international aid piggybacks on the business and other interests of the donors. German aid for Arun III is incumbent upon the purchase of turbines from a particular German company; Finnish aid depends entirely upon Nepal's purchase of Finnish multifuel plants.

But, according to Chitrakar, the German parliament has given the assurance that the German component of the aid package was for sectoral development, and that Nepal is free to use it in accordance with its planning priorities. The government also claims that the International Development Agency (IDA), the Asian Development Bank (ADD) and other donor agencies have given similar assurances.

"However, if there is a hidden agenda, then it is all the more important to expose them by making the facts public," says Chitrakar, not least because these donor agencies have a stake in most countries of the South where aid is an important component of development.

Seeing through planning
In fact, a key issue in this controversy is transparency in deciding developmental projects as a whole. Some sections in the government, used to governance through unquestioned secrecy, are finding it difficult to come to terms with the changes that the democratic constitution of 1990 has brought about. The best example of this appears to be the govern- Dividing ment's response to a petition filed by the Arun Concerned Group (ACG) before the Supreme Court, demandmg that project documents be released for public scrutiny.

Gopal Siwakoti of the ACG alleges that the ministry of al equipment. construc water resources and the NEA have not complied with the Court's verdict: while the government released a list of 151 documents, the ACG was able to procure a list of 298 documents from the World Bank's information centre in July 1994. Following this, the petitioners renewed their demand for a complete list from the NEA in October 1994 and moved the Court again in November for the enforcement of its verdict. In January this year, the Court asked the NEA again to furnish a status report on its order.

"This stubbornness in the face of an unequivocal court directive clearly shows that the old order is still refusing to give in," says hydrologist and Nepal Conservation Foundation member Ajay Dixit. There is enough evidence that the old guard in the Nepalese power system is indeed spoiling for a fight: letters written by the secretary of water resources, S N Upadhyay, to Bikas Pandey, the ITDG'S chairperson, asked Pandey to refrain from "campaigning against the Arun III hydropower project...and not to hinder the development of the much-needed electricity generation capacity". The letter added, "1 regret to inform you that if you continue with the campaign, (the government) will consider appropriate action against the ITDG'S activities in Nepal."

In fact, there are allegations that in the initial phases of the campaign launched by the ACG and the Alliance for Energy, some senior officials had considered "teaching them a lesson" even through extra-constitutional means. The only thing that reined them in was the fear of adverse international publicity.

The government's tendency to guard against the dissemination of information on Arun III has sparked off allegatlons of massive corruptiono There are reports of as much as 10 per cent of the project cost changing hands in the form of"speed money". the Nepalese journalists say that Nepali Congress, which was in power until the November 1994 elections, split largelyon account of the bitter internal bickering over the sharing of the spoils.

Another suggestion of dubious dealings was the removal of Basudev Risal from the post of water resources minister in 1992. Risal, upon taking charge, had ordered a review of the Arun III project by a task force. The task force recommended that projects like Kaligandaki A, Kanaki and Sapta Gandaki should be taken up instead of Arun III to meet the power shortage. The recommendations were based on financial and technical considerations and the availability of infrastructure.

The report of the task force soon became a rallying point for all those questioning the viability of Arun III. Soon after this, Risal was dropped from Girija Prasad Koirala's cabinet in a reshuffle, allegedly under pressure from the pro-Arun III lobby in the party.

Monarchical legacy
Some of those who support the project say that the tendency to hold back information is a legacy of the pre-democracy days. "Attitudes take time to change," says Bhadra, while not unequivocally denying the possibility that some people may have vested interests, too. People who were influential in the panchayat and the monarchical system continue to wield tremendous influence in Nepal.

Many of the country's chronic fencesitters have begun to see Arun III as a trendsetter. Says Shaha, "Arun III is important because the answers to the questions that it raises will also be relevant in future for other development issues,in this country."

Even the economic and human rights issues have acquired importance for the same reason. "We are trying to enforce accountability in the system," says Siwakoti. "If anything goes wrong with the project, the 20 million people of Nepal will have toface the consequences. -quoted questions are: if something goes wrong with the project, who can the people prosecute? In which court of law? And under which sections of the law?

Another part of the deal that is under fire involves the IDA. The Constitution of Nepal makes it mandatory for the NEA's accounts to be scrutinised by the auditor general. But according to the terms of the agreement between the NEA and the IDA, the NEA's accounts are to be overseen by accountants appointed in consultation with the IDA. While this comes as a shocking violation of the Constitution to many people, a senior water resources ministry official is reported to have publicly and with gross impunity said that just a line in the Constitution cannot be allowed to come in the wa of the project.

The regional action plan (RAP),'which has been evolved to mitigate the impact of the project on the local environment and thereby benefit the local population, is anotherlmatter under dispute. The ACG and the Alliance for Energy allege that even though us $13 million have been earmarked for RAP, it has been donewithout taking the targeted population into confidence. "RAP is to be implemented by just another government agency, and unles:s there is effective popular involvement with the RAP, the whole effort will be wasted," says Ganesh Ghimire of the ACG.

Ghimire, who belongs to the district in which Arun III is to be located, says that the government should concentrate on building the infrastructure gradually and preparing the local people to absorb the impact of this project. This, he says, is particularly important in the case of the access road.

The low road
The present proposal envisages the construction of the road simultaneously at 7 points by airlifting a large amount of construction material; us $30 million have been earmarked for what the project document calls, almost militarily, "close air support". The NEA and the IDA authorities justify the costs in terms of economic benefits: this will allow the construction to be completed a year sooner (in 1 year the earnings from Arun III are pegged at us $100 million).

But Ghimire argues that this strategy will play havoc with the local environment. "No one has bothered to find out the likely impact of the sudden influx of so much money, machines and outsiders in this area," he says. Ghimire and Dixit also question the way the environmental impact assessment has been done. The alignment of the access road has undergone several changes - between the ridge route, which is longer (about 190 km), and the valley route (about 117 km). There is no unanimity, even at this late sta e, over which road will have fewer side-effects.

Doubts have also been raised about the available hydrological information on the project. Dixit argues that the entire project is based on the assumption that China will not consume the Arun waters in Tibet. But there are reports of Chinese plans to use this water for irrigation in Tibet - in that case, "the firm energy which is touted as the biggest attraction of this project will be lost".

In almost all areas brought into focus by the project, closer scrutiny, more transparency and greater attention is what the critics are pitching for. The contending parties in Nepal seem determined not to yield even. an inch on their respective positions. "This is because much greater issues are at stake. Arun III is the first large project to be undertaken in democratic Nepal and there will be many more," says Dixit. Hence, the precedents,set by Arun III will have a long-term bearing on development in the country.

While the fate bf @krun III depends now largely on the attitude of the World Bank (especially since the new government has asked for a review to bring the costs down), the forces unleashed by the controversy are there to stay. Already, there is a ping-pong debate on the right strategy for the exploitation of the country's enormous hydropower potential, and on selling this power to India, its largest foreign market.

Already, many individuals and groups like the ACG and Alliance for Energy have mooted ideas towards this objective. But the Nepalese bureaucracy still finds it difficult to entertain ideas from - as Mahat puts it - people who may understand the philosophy of development but have no idea of the realities of development.

This premise is unacceptable to the young turks in the country who, Chitrakar and Ghimire say, "have the same, and often better qualifications, as those sitting in the World Bank and the ADB". Armed with the powers bestowed on the people by a progressive constitution, these intellectuals are determined to enforce the directive principles and policies of the state as laid down in it. And it is for this reason that, regardless of the decision on Arun III, confrontations between the supporters and the opponents of the project will occur over and over again, in one form or another.