Peter Rhode is head of the German aid agency, GTZ. Before leaving for his new assignment in Uganda, he spoke to Nepali Times about the dissolution of local bodies, how the Maoist insurgency is affecting development, and GTZ's efforts to improve business and trade. Germany is Nepal's fourth largest donor.

You were unhappy with the decision on local governments, what about the cabinet decision to hold local elections by April?
To start with the government's decision not to take a decision was a mistake. It created a lot of confusion and chaos in the villages and districts. It was a decision clearly against a lot of warnings from the inside and outside. We were all shocked, and took it as a step in the wrong direction. The government has decided to hold local elections in this fiscal year, and is looking for alternatives to local bodies. Frankly, I don't like alternatives. Democratically elected bodies should hardly have alternatives. There cannot be any alternatives to elected bodies.

So, will GTZ's aid to local bodies will start flowing again?
That is basically right. It will, however, be done in consultation with our headquarters and other donors. It won't be a unilateral decision.

Has your food security project been hit by the insurgency?
Food security is a very successful cooperation between the World Food Programme (WFP), the Ministry of Local Development and GTZ. The WFP provides food and supplies, the MLD provides funds, and we are providing technical expertise for rural infrastructure and social mobilisation. It is regarded as a very successful poverty alleviation programme. The project is running in at least 25 districts, and the beauty is that it combines income and employment opportunities for rural populations, with food used as remuneration. The programme is very popular and up to now, it has been tolerated by both sides of the conflict, the Maoists and the security forces.

Is that changing?
There is disturbing news reaching me from the districts every week. The working conditions are getting more and more difficult. There are reports of human rights violations not only by the Maoists but also by the security forces, which is quite disappointing. There are serious cases of torture, beating and harassment-not our staff but our NGO partners. There are also stories that both parties are using food and medicine as weapons, blocking food convoys even from the WFP.

The Maoists on the other hand are looting food depots that has led to interruptions. In two or three districts the WFP had zero tolerance, and we all agreed that there must be a signal to the Maoists to stop the looting.

Now, with the new situation of not having local bodies in place I hear that the situation has become even more alarming. There is no line of command, and in many places there is an unholy alliance between civil servants like LDOs, CDOs and line agency staff with security forces. This is leading to a situation where the people are even more frightened and have no courage to criticise or put forth their points of view and demands. Whole districts are in a state of fear and terror.

How do you rate the effectiveness of GTZ-supported projects in Nepal?
We made quite drastic changes in our country portfolio, making local self-governance and civil society key areas. Because we believe in decentralisation we were quite irritated and shocked by the government decision on dissolving local bodies. Renewable energy and health are the other two key areas.

The main challenge, however, is how to reduce poverty in Nepal. The second most important challenge is how to introduce good governance. Nepal has a long way to go, we are trying to help but definitely donors cannot solve the problems. It must be basically and primarily done by Nepalis, and we can do what we can to support the effort.

What is the progress in small hydropower development?
We had built a strategy based on the World Bank's Power Development Fund. We wanted to provide technical advice and consultancies to private investors. The money was to have come from the Bank, but it was stuck, and is still stuck. We have heard from colleagues at the Bank that it will hopefully be arranged by the end of the year. In the meantime we found other ways and opened up new financial sources. What has been achieved is amazing.

When I came five years ago I had discussed with private banks with whom we are dealing and had tried to bring small hydro investors and the banks together. They had no idea of the hydropower sector and were full of negative sentiments. This situation has changed and now more than $40 million worth of investment is in the pipeline, all financed by local banks. I think it is more valuable than opening up another World Bank loan, especially if Nepali banks can allocate the funds.

Your role has been to facilitate that investment?
Yes. The role is to assist the private sector technically, help open doors at the banks and also in dealing with the Nepal Electricity Authority for getting power purchase agreements. The local banks have discovered small hydropower is an area where putting money is worthwhile.

How soon will the local investments you are talking about start flowing?
The first investments have already begun and two or three projects are under construction in the Arun valley. There are five to eight projects in the pipeline, which have reached very advanced stages. Things are moving and not everyone is waiting and watching how the government will decide.

There is another huge German hydro project funded by KfW, how do the two approaches match up?
They are different types of hydro projects. One aims to contribute to the national grid in a different way to help the country cope with the growing demand. At least in the past there was growing demand and hope it remains in the future, which of course depends on the political and economic developments. Our small hydropower projects focus on rural development and remote areas where there is much potential that is hardly used. KfW, the German Development Bank, and GTZ are two sister organisations. They deal with financial cooperation and we provide technical cooperation, expertise and know how.

How has your support for the private sector fared?
It tries to assist the promotion of items which are in demand in German markets to help bilateral trade: carpets, tea and tourism. It does not make a lot of sense to try to promote tourism in the present situation so we are concentrating more on carpets and tea. We are trying to make Nepali tea better known and to create demand not only in Germany but also in Europe. It is also trying to bring the carpet industry up from where it is now. All in all, the project is an attempt to make Nepali carpets the brand and label that they once represented and reverse the situation caused by inferior quality and undercutting of prices.

What is the potential for tea?
Although Germany is a coffee drinking nation more and more people are developing a liking for tea. But hardly anybody knows that Nepal is also a tea producing country. Darjeeling, Assam and Sri Lanka are the more established labels. We think there is a niche for good quality orthodox and organic tea where Nepal can move in with good quality and the image that it is grown in the Himalayas.

How has the training of small businesses helped Nepal?
We had been doing the project for many years. We have changed the strategy of providing that free of charge and our focus now is to support the establishment of a local consulting industry and enable them to provide the services as a business. It is an attempt to promote a service industry because agriculture has its limits, and so does industrial production. Now, when tourism is also down, a service industry like consultancy and training and software development could be the way for the future. It has the potential to create new employment and good opportunities for educated people.

Looking ahead would you say you are cautiously optimistic of the future?
It is a difficult question. A lot, if not all, depends on if it is possible or not to end the conflict. If it escalates or continues then the prospects are rather dim and gruesome, and some of the donors might lose their patience. They may react to the present state of bad governance, corruption and other chronic diseases. If the conflict can be ended and the government is then really able to satisfy the demands of the people-not only make nice speeches on poverty alleviation but provide basic services-then donors would be very happy to continue support.