When the budget was presented on 9 June, environmental activists and proponents of clean energy had been hoping Finance Minister Ram Sharan Mahat would come down strongly on gas-run vehicles. When the 3,000 Vikram tempos were taken off the streets in 1998, their owners were allowed to import petrol- and diesel-run microbuses as replacements. They were given massive waivers on import duty and did not have to pay VAT. Similar waivers were announced the next year for gas-run public transport vehicles. As it has turned out, gas-run vehicles are not quite as clean as they were made out to be, and electric vehicles, which are, were never granted similar subsidies for some unfathomable reason.

Mahat addressed the issue in the budget-by removing gas-run vehicles, but not those that use petrol or diesel, from the list of imports eligible for the 99 percent customs and 100 percent VAT exemption. "The government realised its mistake but has chosen to admit it silently because of the massive corruption rule allowed," says Bimal Aryal, a member of the Martin Chautari anti-pollution public interest group.

Private entrepreneurs and green activists say the root of the problem lies in corruption-officials at the Department of Transport Management (DOTM) and the Ministry of Population and Environment (MOPE) are so busy lining their pockets, they say, that they don't seem to have noticed that the policy they wrote and relied on contradicts their own guidelines.

Transport sector watchers say it is too early to celebrate the victory in the budget because a larger problem remains completely un-addressed. "The government needs to immediately address the massive, open corruption that takes place at the Department of Transport Management. Without that, the problem of air pollution cannot be solved," says Aryal, who says he has heard details of the graft from the horse's own unrepentant mouth. "If it does not, we will expose every last corrupt official there."

Sushil Agarwal, technical director of the DOTM, the man in charge of regulating tempos and microbuses, was on vacation and not available for comment.

In December 1999, the MOPE, under pressure from Vikram owners, announced 100 percent VAT exemption for Vikram owners who wanted to import four-wheel microbuses and a 99 percent import duty waiver for petrol-run autos and 75 percent for diesel-run. The regulation was silent on maximum passenger load, which is the other major factor affecting emission levels, and soon the microbuses were squeezing in up to 20 passengers-almost 25 percent more than they are designed to carry.

Then came the next waiver. A few months later another concession-a 99 percent waiver on import duty and 100 percent waiver on VAT-was given to four-wheelers that could be converted to run on gas. To qualify, three- and four-wheelers had to be converted to run on Compressed Natural Gas (CNG), Liquid Natural Gas (LNG) or Liquefied Petroleum Gas (LPG). Importers had to present proof of conversion either from the country of manufacture, or by a government department (which department was not specified) within a stipulated period of time after the vehicle had been imported.

The standards of conversion were not specified. LPG-run vehicles reduce pollution effectively only when they use of catalytic converters. The equipment generally used abroad is sophisticated, and costs about $2,000-3000. In Nepal, operators of such vehicles install substandard equipment, which don't do what they're expected to. Operators decided to go for gas because of lower running costs than petrol or diesel and also because there were no pollution standard until very recently.

We are told an industrialist from Birgunj, said to be very close to senior Nepali Congress leaders, used the rule on gas four wheelers to import three-wheelers, which activists say cannot happen unless you pay fixing charges to government officials and politicians. One company, Kathmandu Tuk Tuk, imported 18 LPG-powered engines, duty and VAT exempt, reportedly claiming that they were four-wheelers. The Tribhuvan University Institute of Engineering in Pulchowk conducted tests on the engines and warned the government that they were not suitable for use in public transport because they could cause serious health and safety hazards. The government pretended it did not hear what the technicians had to say.

And then in October 2000, the MOPE issued yet another order clarifying emission standards for tempos and microbuses. The emission standard for "gas run three wheelers" was being heard for the first time. Public utility vehicles were allowed a maximum carbon monoxide (CO) level of three percent by volume. Four-wheelers were allowed 1,000 ppm (parts per million) of Hydrocarbon (HC), and three- and two-wheelers were allowed 7,800 ppm. The levels specified were the same for petrol-run autos as for gas-run. The government apparently counted the number of wheels to fix the standard.

But, say environmental activists, if gas-run vehicles are cleaner, they should have lower emission ceilings. If they are not cleaner, why subsidise them? "Government charges import duties as well as VAT on petrol-run vehicles, while giving large concessions to LPG-run ones, which now turn out to be subjected to the same criteria of performance," says Dr Usha Sharma of Clean Energy Nepal (CEN). CEN, Martin Chautari, Explore Nepal, Leaders Nepal and Pro-Public worked together to lobby government to take back the duty and tax exemptions for gas-run vehicles. Taking back waivers on petrol- and diesel-run vehicles might prove more difficult, because they are not touted as "clean"-by replacing the Vikram tempos, they simply provide much-needed public transport.

On 24 April, the Valley Traffic Police randomly tested 35 LPG-run vehicles at the request of the CEN. The results were what the environmentalists had been saying all along: 55 percent failed the emission test for Carbon Monoxide (CO), spewing an average of 7.2 percent by volume, more than double the maximum three percent allowed. The vehicles did pass the HC test, mainly because the MOPE imposes the same high level on "clean" gas- and "dirty" petrol- and diesel-run autos.

On 1 June the Supreme Court ordered a ban on the operation of LPG-run vehicles not meeting the emission standards in response to a public interest lawsuit filed by advocate Bharat Mani Gautam a year ago. The government is yet to begin enforcing the court order. "Such inactivity can only be explained by corruption, or else why is no action being taken against the polluters," says Amod Pokharel of the CEN. "All the faulty decisions were taken by mid-level DOTM officials who thought of nothing but filling their own pockets."

And so, until this year's budget is passed by parliament, gas-run vehicles, the centre of this whole fracas, will continue to receive duty and tax waivers, regardless of compliance with safety measures, and with no realistic emission ceilings in place. The country has lost about Rs 450 million in revenue due to exemptions given to the LPG vehicles, and another Rs 600 million on exemptions to petrol- and disel-run microbuses. The gas-run vehicles guzzle 400 tons of the already scarce cooking gas supply each month, the government loses another Rs 306 million in revenue in the form of the subsidised gas the vehicles burn.

The ideal gas to run public transport on would be CNG, but it would have to be imported. India, Pakistan and Bangladesh, all of which use the gas, have trouble meeting their own demand, and the economics would not work out if it were brought in from anywhere else. LPG use in transport reduces pollution, but does not eliminate it, as Nepal's zero-emission labels misleadingly suggests. Vehicles running on cleaner fossil fuels are categorised as either low-, ultra-low or and super ultra-low emission vehicles in many countries, including India.

This depressing story of pollution and corruption does not end here. The truly ironic part is that while all attention is being lavished on gas-run autos, the real zero-emission mobiles, electric vehicles (the battery-operated Safa tempos), get no similar concessions. They are required to pay VAT and only get a one percent exemption from the 15 percent import duty on batteries.

If we are serious about having the cleanest possible vehicles on our roads, the government should be concentrating on producing EVs. "But it is not interested, and we cannot mass produce electric vehicles cheaply without government support," said one electric vehicle producer who did not wish to be named. Industry experts tell us that batteries, their disposal and recycling facilities are not as big a problem as the drain on government revenue due to mis-targeted subsidies and increased pollution. Nepal produces about 2,000 tonnes of lead from used batteries, which are recycled in India. It is not economical to set up a recycling plant for less than 3,000 tonnes of lead from batteries annually, but once we reach that level, there will be investors coming forward to do that, the same industry source added. But that, of course, depends on whether the number of EVs will increase in the first place.

How importers will take this quiet change in the budget is unclear, as is the government's ability to implement the June Supreme Court ruling. Is there any way out of the impasse?