Whenever Nepal's donors are asked whether they are thinking of quitting because of the difficulty of carrying out projects in the field, they are firm in their answer that they will not abandon Nepal in its hour of need.

But it looks like the situation is getting too hot to handle and many are having doubts about how long they can go on. The rebels have asked donor agencies to sign-up with them before doing any work, and they have threatened staff and extorted money from them.

In fact, it has now become impossible to work in many parts of Nepal without acquiescence of the Maoist presence. The degree of cooperation with local Maoists will vary from project to project, and in many cases it is indirect. But project staff admit privately that they can't move without a working relationship with the rebel leadership at the grassroots.

In Kathmandu, most donor officials we interviewed admitted things were getting difficult but said service delivery to needy Nepalis was too important to abandon. One agency admitted to us that it had told its staff to do what needed to be done but to keep the project going.

"There was no way out, we had to go for de facto registration of the project with the rebels," said the head of the group in Kathmandu on condition that he not be named.

Until a few months ago, most donors had been resisting the rebels' pressure to get their project registered. But working in the field is getting more and more difficult for most aid personnel. The government's local administration is now almost non-existent and permission to operate must now come from a different quarter.

Johannes Knapp is program coordinator for the German Technical Cooperation, GTZ and admits that his staff is threatened by rebels. "Our staff may have to yield under such pressure, especially if they take place at gunpoint," he says, "but we have made it mandatory for them to report if anything like that happens. We don't punish staff for yielding under such pressure but we punish them for not reporting the matter to us."

Charge d' Affaires at the Danish Embassy, Gert Meinecke, too feels that field work is getting more difficult. "Because of the security situation, the space for development work is growing narrower," he told us.

Not having working relations with the rebels would mean pulling out. An increasing number of foreign agencies have suspended field operations recently. GTZ pulled out of its green road project in Gorkha. The Danish aid agency, DANIDA, has suspended its rural electrification project in Kanchanpur. The Swiss SDC is also suspending some field-level projects.

Even so, donors say they are willing to help the government augment its development projects. Most bilateral donors have actually increased aid commitment and the aid graph is projected to rise for the next few years. During the Nepal Development Forum last year, donors pledged to provide $560 million a year as assistance under the poverty reduction strategy.

It is not just the problem of signing up with the Maoists. The rebels' policies are also inconsistent. What is acceptable in one place is completely rejected in other areas. The Rural Access Project of the British aid group, DfID, is the only project allowed by the rebels in Bhojpur district but they have prohibited the same project in the neighbouring Khotang district. "It all depends on the whim of the local commander," says NGO Federation President Arjun Karki.

The Maoists' clandestine FM radio in western Nepal recently listed NGOs that it said would be allowed to work in the region. The donor community was hesitant because it was told that the list was not sanctioned by the leadership. This flip-flopping has confused donors. As one aid official told us: "In one area they say one thing and in the other they have something else to say."

In the end it is the people who suffer. As donor-supported service delivery becomes difficult and aid doesn't get to the neediest, education, health, sanitation, water supply and other basic needs projects are being hampered across Nepal.

One way out has been to involve community-based organisations to implement projects. The World Bank funded Surkhet-Jumla highway is going ahead because a Karnali-based project is involving villagers in digging the road. Min Bahadur Shahi, chairman of the Karnali Integrated Rural Development and Research Centre which is involved in the Jumla road, explains: "There can be an understanding with the Maoists even without giving them money or getting ourselves registered with them." Shahi's real problem is that the security forces then suspect his project of colluding with the Maoists just because it is allowed to work on the road. The government finally seems amenable to the idea of working with grassroots groups (see interview, below) even though it knows some of the money may get into Maoists hands.

But foreign agencies working in the field say the idea is not working as well as it should. "The government makes a strong case for community based development but at present, in many parts of the country, it is not possible if they are not accepted by the insurgents", says Jorg Frieden, SDC's country director.

Government officials say they are not as strict about aid disbursement through community based organisations even in Maoist control areas as long as the work gets done. But donors say they can't work directly with the rebels since their legal arrangement is to work with the state. "An agreement with the rebels is simply out of question," says Meinekce at the Danish embassy, "We have our code that does not allow us to recognise the Maoists as representatives of the people."

Knapp agrees. "The operating guidelines of donor agencies in Nepal does not allow them to reach any formal agreement with the Maoists." Ten donor agencies have come with a guideline that requires them to work independent of any political group.

When queried, the local staff of foreign funded projects say it sounds all very good when seen from Kathmandu but in the field they have to either find accommodation with the local Maoists or leave.