KIRAN PANDAY RUNNING ON EMPTY: The Kulekhani reservoir on Wednesday is nearly empty despite this week's rains which were not enough to raise water levels. The six-month drought has exacerbated government mismanagement, leading to a serious energy crisis.

Prime Minister Pushpa Kamal Dahal has said his primary mission during his Nordic tour next week will be to encourage foreign investment, especially in energy and IT.

However, his hosts will also want to hear from him just how seriously he is committed to protecting democracy during Nepal's transition to peace, and they will link his track record to future development assistance. Dahal will probably be able to convince the Norwegians and Finns that he is serious about democracy, but he will have a much tougher time with potential investors.

"The investment climate doesn't look good at all," said one European investor, "and what is worrying is that instead of getting better it is getting worse."

In Oslo, Dahal is set to meet executives from Statkraft, the Norwegian state-owned hydropower company that partly owns SN Power that is investing in the 600MW Tama Kosi III. He will be facing some tough questions about security, legal stability, political and bureaucratic delays. The Norwegians are said to be surprised that the minister of water resources is not included in Dahal's entourage.

SN Power's chief executive Nadia Sood was in Nepal last month, and told us: "We are committed to continuing to develop hydropower in Nepal, but a pre-condition to doing so is that we can rely on speedy, reliable and transparent decision-making. Our expansion plans hinge very much on these things being in place."

Indian companies like GMR and Sutlej, which had signed agreements for Arun III and Upper Karnali are said to be wavering because of security at the site. West Seti's offices were vandalised recently in Doti and Sanima's Likhu III was also attacked by locals.

"If labour and security is not addressed, no new foreign investment is coming into this country and even the joint ventures which are here will quit," said one transnational representative in Nepal. Colgate Palmolive, which wound up in Nepal earlier this year has issued a damning annual report in which it cites 'extortion and security' as the main reason.

Besides security, hydropower investors are also worried about corruption in NEA, uncertainties in the Electricity Act and arbitrary taxation. Local expectations have grown with districts with power plants and even households below transmission lines demanding 24-hour power.

For the short-term India's Power Trading Corporation has offered to sell up to 500MW of power to Nepal for IRs 3 per unit, but businesses say that unless investor woes are urgently addressed, Nepal's economic future looks bleak.

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