Nepali Times
"After Arun there was a paradigm shift"

Bikash Pandey was with the Alliance for Energy group that opposed the Arun III project 10 years ago. He is now an energy specialist and Nepal representative of Winrock International. He talked to us about lessons learnt from the Arun debacle.

Nepali Times: It's been 10 years since the Arun III project was dumped. Any regrets?
Bikash Pandey:
If you were a resident of the Arun Valley, it was bad news because the road didn't get built. In terms of the power sector, if Arun was built it would have meant a huge jump in power tariffs, even more than we are paying today. In the best case scenario the project would have been completed this year, with the insurgency it may even have been delayed by a few more years. The risks with Arun were enormous, the road was already a mega-project which was to have been built in 40 months back-to-back with the biggest project in Nepal, and this multiplied the risks. The massiveness of Arun meant that nothing else would have come online, and we'd have had much more serious blackouts. It was because the smaller alternatives started coming onstream already in 2000 that we haven't had power shortages.

Were the alternatives really better?
A mix. Kali Gandaki was from the public sector and was fairly big but it was built under the same modalities as Arun. There were the private sector Bhote Kosi and Khimti, and there has been a cost in dealing with the international private sector, but we have learnt from that. You've got Chilime and Indrawati , completely Nepali private sector. The Eighth and Ninth Plans were very much dominated by the so-called least-cost generation expansion planning where one big project crowded out other smaller ones. But the Tenth Plan has all of sudden made plurality a policy: 60 percent to be built by the private sector, more than a third small hydro category. There has been a paradigm shift, but learnt the hard way.

In hindsight, would you have done it differently?
The reason we had a strong campaign 10 years ago was because it wasn't just an anti-Arun thing. We were not being purists and saying small is beautiful. We said there are better alternatives, one need not do this now. In fact, our concern was that the systemic weakness in the way the government and World Bank operated was turning what was one of Nepal's best hydroelectric sites from an asset to a liability by making it too expensive. We said let's build Arun 10 years from now. It wasn't that Arun was expensive it was the process through which Arun was going to be built. So, you had a situation where public funded large projects were coming out to be three times more expensive than locally financed small projects, putting economies of scale completely on its head.

What are the lessons in dealing with the local population?
We never could get this message across to the people of Sankhuwasabha. They wanted the road, the country was going to get power and they didn't really understand why the activists had any problems with it. They said these guys are taking away development from us. One can understand there is disappointment at the local level, but is it worthwhile for the country on the whole? We had the challenging task of telling them there are much better and cheaper ways to build the road than attach it to a $1billion project.

If the argument was economic, it must still be the case.
Our concern at that time was that Nepal's whole hydropower sector had been hijacked by this single-project mentality. You build one project and then you wait ten years to get the next one, there could be no other players during that period. This would take costs beyond the $5000 per kilowatt range, hydropower would stop being a resource for this country because it would be too simply expensive to build. The only way to get out of this trap would to be have plurality, you have competition, you bring in the private sector where appropriate, the public sector should continue. You can take a very attractive project and increase the cost to a point where it is barely feasible. You could have got very high returns from Arun if you had built it at a reasonable cost. So, you build big when the time comes to build big. In the meantime, you build capacity to handle bigger projects.

It seems we learnt our lessons, but did the World Bank?
This is a development philosophy question. The World Bank and the Asian Development Bank can be extremely useful if you are dealing with a competent government. That is the model to which they work. India and China run circles around the World Bank, they use it as a supplementary investment. They do more than 90 percent themselves, and rely on World Bank for only 10 percent. Whereas we are completely dependent, and the World Bank has its own procurement rules, due diligence processes which are cumbersome. It doesn't make sense for them to do small ten megawatt projects. On the other hand, a host country like Nepal tends to be over-ambitious because there is a large donor. If we approached a private lender we may go for a 15 megawatt project, but if it is the World Bank it will move up to 500 megawatts. Then the World Bank bureaucracy kicks in: they say the host government wants it, but the host government is not competent, so they add all kinds of conditionalities and consultants. The system moves you towards large projects and consultants and conditions. So they tell you to raise tariffs, and it is a disaster for building local capacity. It becomes a case of the tail wagging the dog.

What was the one big positive outcome of the cancellation of Arun III?
We predicted it, and it happened: there is a lot of private Nepali money and hydropower has now become an investment opportunity instead of an infrastructure thing to be built by the public sector. It is a different thinking. The international private sector opened the doors for the local investors who saw the rates they were getting and were attracted. Bhote Kosi and Khimti did that for us.

(11 JAN 2013 - 17 JAN 2013)