Strengthening infrastructure governance in Nepal

The need for huge investment to reduce the infrastructure deficit in Nepal is well-known. ‘Infrastructure financing’ has become a dominant narrative in country’s development agenda as the country is takes a gamut of initiatives to mobilise scarce domestic and international resources. However, discussions around the potential savings that could arise from more efficient practices in infrastructure project building and delivery are almost non-existent. This article aims at kick-starting a debate by arguing that improving operational efficiencies in the project selection and management alone can save millions of dollars while improving the quality of infrastructure and shortening project timelines.

The World Bank (2014) estimates that Nepal needs to invest as much as 12 percent of GDP in infrastructure, just to maintain the current rate of GDP growth. This level of investment, which is highest in the South Asian region, shows the massive infrastructure gap. To its credit, the Government of Nepal is taking multifaceted approaches to fulfil the demand. The most prominent among these are formulating the Public Private Partnership (PPP) Policy in 2015 as well as drafting of PPP Act, reforming tax laws, and more recently co-organising theNepal Infrastructure summit, and Nepal Investment Summitsimultaneously in 2017. These measures are imperative to bring foreign and domestic infrastructure investment into the country.

However, much of the development narrative focuses on the financing aspect infrastructure building. The amount of investment has become the sole metric to evaluate the infrastructure development while public discussion on the quality of such development is very limited. In fact, the governance of infrastructure development is largely overlooked. Questions around infrastructure selection and prioritisation criterion, evidence-based project planning, and streamlining project building and operations etc. are not explored.  As a result, we are missing opportunities to make most out of our limited resources.

We need a holistic infrastructure governance framework. In this regards, the recently published report on ‘Infrastructure Finance Strategies for Sustainable Development in Nepal’ (available in the National Planning Commission website), an in-depth study of infrastructure financing strategies for sustainable development, authored by Ashutosh M Dixith as identified three potential sources of public expenditure efficiencies. They highlight robust ways to reduce the cost involved in infrastructure projects and improve overall infrastructure governance. The report draws insights from a study published by McKinsey and Company, which reveals globally successful practices of increasing infrastructure productivity.

The first stepping stone of sound infrastructure governance is to improve project prioritisation in order to optimise the infrastructure portfolio. Reports have shown that eliminating poor performing contracts and selection of improved alternatives could save up to 15-35 per cent of new capital spending. In Nepal’s case, even if the country saves 10 percent of capital expenditure, which amounts to NRS 8 billion, the amount would provide sufficient cushioning to finance large scale infrastructure projects.

Achieving these efficient outcomes demands three key components: 1) identify projects with clear purpose, 2) evaluate projects using improved cost-benefit analysis, and 3) prioritise projects at portfolio level.The government must select projects with clear purpose based on socio-economic priorities. Also, while evaluating the projects, metrics must consider long-term economic, social and environmental effects. It is better to select and prioritise the projects by conducting a cost-benefit analysis which includes social factors such as time saved by commuters, or reducing mortalities, injuries, and noise. The results should then be validated by cross referencing with similar past projects. The infrastructure prioritisation framework recently developed by the World Bank can help improve the infrastructure planning and decision-making process by incorporating financial, economic, social and political factors into project prioritisation. Finally, there should be a system to check project performance relative to predictions. The report also advises there should be a strong database to aid decision making, for which the study recommends maintenance of infrastructure balance sheet

In Nepal, important infrastructure projects have been suffering from implementation delays. For instance, 13 years after the government agreed to the construction, the Melamchi Drinking Project is still work in progress. Upon completion it will supposedly distribute 400 million litres of water daily – a figure which is often questioned. The project started with public private and donor partnership has suffered significant delays and escalating administrative and operational costs. The McKinsey and Company study highlights that to save government has to adopt sophisticated procurement, and streamline permit approvals and land acquisition to reduce bottlenecks.

The third is better utilisation of existing infrastructure assets. This is important given Nepal’s limited ability to mobilise domestic resources for infrastructure. Adding more roads, constructing hydropower dams and fitting pipelines will not resolve problems if the existing infrastructure is not properly maintained. Nepal should move away from the build, neglect, and rebuild mentality and implement adequate an infrastructure management system together with appropriate financing framework. We should take smart infrastructure utilisation management approach. Take the elimination of power cuts for example a recent success in this area. Nepal used to experience up to 11 hours of load shedding, but now the country enjoys almost 24 hours’ electricity supply which in the real sense is the result of better utilisation and demand management of existing infrastructure. On contrary, the valley road expansion project has proved poor value for money as traffic congestion has not reduced. Instead, the deployment of information technology in establishing intelligent transport system (ITS) for roads would enable the utilisation of the existing road capacity to double or even triple.

Moreover, the opportunity by making most of the infrastructure assets like power and water systems lies in reducing non-technical losses such as electricity leakage and distribution losses. In Nepal, electricity leakage was 25 percent in 2016, the 4thhighest leakage rate in the world. On the other side, in water supply system, non-revenue water, unmetered supplies, stands at 18 percent. This avenue is worth taking seriously as reducing the losses can cost significantly less than what it cost to build a utility infrastructure project.

The above discussion amply suggests an urgent need to have a national level infrastructure governance framework. Such framework would not only help in effective utilisation of the already constraint resources, but also create conducive environment for private investment in infrastructure both domestic and foreign. The efficiency would not only generate much needed saving, and ensure the timely completion of the project, but also send positive message to the investors.

( This article was co-written with Ashutosh Mani Dixit and first published in LSE South Asia Blog here. Image credit: Axel Drainville CC BY-NC 2.0) 

Community participation should be at the heart of Nepal’s post-earthquake reconstruction

It has been one year since twin earthquakes measuring 7.8 and 7.3 in Richter scale hit Nepal and took nearly 9000 lives. In the aftermath, 21,000 people were injured and more than 200,000 houses were destroyed. Millions of others were forced to live under open sky amidst regular aftershocks for weeks. It was a worst natural disaster in Nepal in eighty years.

Despite the paucity of disaster preparedness, Nepal’s immediate rescue and relief effort was laudable. The government was quick to mobilise all public service personnel and security forces. Logistical support provided by neighbouring countries and international agencies expedited the process.

Another highlight of the rescue and relief operations was the voluntary participation of the community to help other affected members. With their help, thousands of temporary shelters sprang up, and medical assistance was able to reach large numbers of the injured. Dead bodies were recovered efficiently, allowing for families to cremate those they had lost in line with their religious beliefs. The efficiency of the initial clean up prevented the spread of disease despite the fact that large numbers of people in affected districts were homeless and had no access to proper sanitation.

However, when it came to post-earthquake reconstruction, the early success story crumbled. To date, there has been little effort towards rebuilding damaged properties, beyond clearing rubble and providing petty contracts to renovate a handful of heritage sites in Kathmandu. The government promised affected families cash to rebuild their houses but it took them nine months to actually hand over the $150 USD. Overall, the government has disbursed less than126 million which constitute mere two percent of estimated reconstruction budget of 6.7 billion.

Aside from political disruption that the country experienced after the earthquake as a result of the promulgation of the new constitution, a major reason for lacklustre performance has been the exclusion of the affected communities from the reconstruction and rebuilding process. The vision of the reconstruction (if any) has been a government-led top-down approach with no space for community participation at any stage in the process.

The Post-Disaster Need Assessment (PDNA) that the government carried out immediately after the earthquakes acknowledged the potential role of the community on the post-disaster reconstruction and recovery, the hastily prepared document did not elaborate the framework within which those affected could voice their concerns. It is surprising to see the absence of community involvement in a country where social engagement is so deeply rooted and have produced some exemplary results in e.g. environmental management.

But why is the participatory approach in post-disaster reconstruction so important, especially in developing countries?

First and foremost, the affected communities have a better understanding of their own needs and can provide valuable insight into the local conditions. Such knowledge is crucial in collecting data and setting priorities in rebuilding process. This is particularly important in dealing with the vulnerable groups like women, children, disabled etc. The inclusion of these groups in design and implementation process is necessary to ensure the plan meets the targeted needs as effectively as possible.

Second, communities are more likely to develop a sense of ownership over the outcome of the process if they are involved. They can bring indigenous ideas and solutions which are sensitive towards local traditions and customs as well as are more likely to suit the local context. Their participation, therefore, not only raises the probability of immediate success but also ensures sustainability.

Last but not the least, community participation opens another avenue for government-community partnership which strengthens the credibility towards the government’s current and future actions. Moreover, the community can keep an eye on the working of government authorities to make sure their actions match their promise. This significantly enhances accountability and reduces potential fraud and corruption.

Having said that, community participation in post-disaster reconstruction is not always straightforward despite its merits. The conflict among different community interest groups can potentially hamper a cohesive designing and planning process. Similarly, confusion about the roles and responsibilities among government bodies and community groups may complicate communication and coordination when it comes to implementing the plan. Such cases could lead to uncertainty and delay in decision-making and, at worse, derail the whole reconstruction process.

These problems are likely to be more severe in case of Nepal which doesn’t currently have elected representatives at local level. In the absence of accountable local government, any effort to decentralise the reconstruction would be vulnerable to hijacking by local elites who affiliate themselves with political parties or local businessmen. In such scenario, attempts at community inclusion can be counterproductive and actually make things worse by excluding the real victims from the process.

Fortunately, there are a number case studies from around the world – both good and bad – which offer a range participatory approaches to reconstruction that Nepal can take inspiration from. In Indonesia, after the December 2004 tsunami, “community-led approaches created better housing construction compare to contractor based approach in terms of quality, accountability and beneficiaries satisfaction”. In contrast, the lack of community consultation in Pakistan following the 2005 earthquake resulted in conflicts based on local land-traditions which has gridlocked the reconstruction of city of Balakot.

Hence, it should be clear to Nepal’s PDR planners that meaningful community participation (beyond using locals as mere construction labour) is essential for smooth and swift reconstruction of public and private properties regardless of the location. It would be incredibly disingenuous for Nepal Reconstruction Authority (NRA), a newly created government body to lead the reconstruction, not to acknowledge the vitality of inclusion of affected community into process.

The NRA can start with setting-up a two-way communication platform where affected people across different communities can share their needs and provide feedback on the plans and policies. It should also identify community leaders or groups which have wider support and can represent voice of all vulnerable groups in the absence of locally elected government. These leaders or groups can work as primary touchpoints for government for further consultation and communication. For earthquake-prone Nepal, such participatory model can work as a useful template to use in future disasters as well.

( This article forms part of LSE South Asia Blog’s Nepal Earthquake Anniversary series,  first published here.)

Sunny days ahead for blossoming China–Nepal ties

One concerning aspect of China’s rising prominence is its troublesome relations with its neighbours. It has fought both real and legal battles on territorial and ideological grounds on several fronts including in India, Vietnam and on the Korean peninsula in the past, and currently is causing controversy with its maritime expansion. But one break in this pattern is the country’s long-standing relationship with Nepal.

Although the two countries share pre-historic ties that date back to the seventh century, modern-day Sino–Nepal relations began with an exchange of diplomatic missions in 1955 and the signing of the treaty of peace and friendship in 1960.

China prioritises relations with Nepal due to its geo-strategic location, lying between India and China’s autonomous region of Tibet. Chinese interest in Nepal has been stoked by national security concerns related to the free Tibet movements. The two countries share 1400 kilometres of remote and relatively unguarded borders. This has provided a safe passage for refugees fleeing Tibet to go to India or Nepal since China’s reclamation of the territory in 1959.

Nepal hosts around 20,000 Tibetan refugees in different camps around the country. The most concerning issue for China is the continuing anti-Chinese protests by Tibetan refugees in Kathmandu, who are joined by free Tibet activists from Dharamsala in India — home to the majority of the exiled Tibetan population. The porous border between India and Nepal has placed Kathmandu as a vantage point for the free-Tibet movement to conduct their operations with relative ease.

Thanks to successful Chinese diplomacy, Nepal steadfastly maintains a ‘One China’ policy by curbing all kinds of anti-China protest. Nepal maintains vigilance over the Tibetan community as exemplified by the ultra-high security arrangement in Kathmandu at the outset of the Beijing Olympics Games in 2008.

It is no coincidence that Chinese aid, including in the security sector, is flowing into Nepal at a rapid rate. China is constructing a training centre for Nepal’s Armed Police Force, a paramilitary force created to combat Maoist rebellions 15 years ago. It also invites high-ranking members of the Nepalese army to do various courses in its military academy. Keeping anti-Chinese activism in check has thus remained the focal point of Chinese foreign policy in Nepal.

Recently, other aspects of the relationship are also burgeoning. On the economic front, the two countries are making strides. Trade is rising and China is now the second largest trading partner of Nepal after India. The number of Chinese tourists visiting Nepal has increased 15 fold since 2003, giving a much needed impetus to the sluggish Nepalese economy.

China recently became the largest foreign investor in Nepal, a position long held by regional rival India. China is investing heavily in infrastructure projects, including in the two largest hydropower projects in Nepal. The two countries have agreed to develop a cross-border transmission line, the construction of an international airport in Nepal’s second largest city of Pokhara, and the extension of the Qinghai–Tibet rail network through the Himalayas to the border town of Lasha and on to the capital Kathmandu.

These infrastructure projects are part of China’s long-term plan to connect to broader South Asia as a part of its Silk Road Economic Belt policy. The projects, if successful, would have huge strategic and economic implications for Chinese relations with Nepal as well as its other South Asian neighbours. And they would provide land-locked Nepal with an alternative route to connect to the outer world without having to rely solely on India.

In return, Nepal played a catalytic role in giving China observatory status in the South Asian Association for Regional Cooperation (SAARC), an apex body of eight South Asian countries including India and Pakistan. Nepal also strongly advocated for granting China full membership of the association given its repeated and explicit desire to play a more influential role in the region through SAARC.

The weakest link in China–Nepal relations has been a minimal connection among the general public in the two countries, with bilateral exchanges largely limited to the official level. Not only are the people on either side of the Himalayas largely oblivious about each other’s language and culture, they often stumble over the geographic location.

Still, both governments have been making attempts to change that scenario in recent years. A branch of the Confucius Institute, a not-for-profit organisation under China’s Ministry of Education, has been set-up in Kathmandu to promote Chinese language and culture. The institute runs regular language classes teaching Mandarin and also organises cultural events across the country.

Increasingly large numbers of students from both countries are travelling under various cultural and educational exchange programs. Many Nepalese students head to Chinese universities on their own for higher education in medicine and engineering.

The Nepalese public are generally positive about their country’s relationship with China. This is due in part to China’s impressive economic success and modernisation in recent decades, and more importantly, the perception that China employs a ‘cooperation without intervention’ policy. This policy in particular has enabled China to accumulate considerable soft power in Nepal.

Considering the often-tense relations China shares with most of the neighbours, having at least one trouble-free relationship in its backyard must be a gratifying success for Chinese diplomacy.

AIIB to unlock South Asia economic potential

South Asia’s economic potential has long been constrained by low levels of economic integration. Despite being closely linked geographically, culturally and historically, intra-regional trade is very low. A major problem has, of course, been political difficulties within and between South Asian countries. But an important, and overlooked, barrier to greater economic integration is the poor quality and inadequate investment in infrastructure in the region. The newly established Asian Infrastructure Investment Bank (AIIB) can play a pivotal role in fixing this problem.

For a long time, infrastructure bottlenecks have been recognised as a barrier to regional trade and economic integration. Access to infrastructure in South Asian countries is limited and the quality of available infrastructure is also poor. In Bangladesh, for example, only 39 per cent of the rural population has access to road transportation. India has the second largest road and rail network in the world, but half of these roads are not paved and cannot be used in all seasons. Despite huge potential in electricity generation, people in the region consume less than 655 kilowatts per capita in intermittent electricity supply in 2012, which is less than one fifth of that in East Asia.

The situation for cross-border infrastructure is even less encouraging. A telephone call from Nepal to India is more expensive than calling to the United States or Europe. Cargo trucks waiting 3–5 days at the border for clearance from customs is normal. Despite sharing a nearly 3000 kilometre-long land border, shipping between India and Pakistan has to go via Dubai. As a result, the cost of trading across borders in South Asia is prohibitively high.

According to the World Bank, South Asia has nearly US$2.6 trillion in shared GDP. While overall trade flows are growing, intra-regional trade among countries is still less than 5 per cent of total trade. This is far less than that within ASEAN (25 per cent) or NAFTA (58 per cent).

Despite this, investment in in-country and cross-border infrastructure has been inadequate over the years. This has created a huge infrastructure investment gap in the region with supply trailing far below demand.

It is estimated that South Asian countries need to invest around 7.6 per cent of GDP in infrastructure per year if they are to achieve economic growth of 7.5 per cent. This amounts to an annual capital investment of US$88 billion in new investment and in maintaining existing capital stock. Currently, actual average investment in infrastructure is around US$28 billion per annum — the lowest in the world, excepting sub-Saharan Africa.

The South Asian Association for Regional Cooperation (SAARC) — which is comprised of Afghanistan, Bhutan, Bangladesh, India, Pakistan, Maldives, Nepal and Sri Lanka — made an attempt to narrow the investment gap recently. For a decade, SAARC negotiated a free-trade agreement called the South Asian Free Trade Agreement (SAFTA). Coming into effect in 2006, SAFTA aims to facilitate the ‘development of communication systems and transport infrastructure’ to facilitate intra-regional trade. Still, the pace of infrastructural reform envisioned by the agreement has been slow.

Other similar initiatives include the establishment of the South Asian Development Fund (SADF) in 1996. Later reworked as the SAARC Development Fund (SDF), its aim is to act as an umbrella funding mechanism for all regional development projects, including infrastructure. But with capital of only US$300 million, the SDF has been unable to go beyond funding some social projects. The idea of setting-up a South Asian Development Bank (SDB), led by India, has also been proposed to provide low-cost funding to member countries for infrastructure projects. But this idea has never taken-off.

There have been some unilateral efforts to improve infrastructure. India, for example, has pledged to invest US$138 billion in railways alone in the next five years. It has also been experimenting with the creation of a ‘National Investment in Infrastructure Fund’.

On the bilateral front, projects like the Central Asia–South Asia Electricity Transmission Project, the Nepal–India Regional Trade and Transport Project, and the Bangladesh–Bhutan–India–Nepal (BBIN) initiatives are currently underway with support from multilateral organisations like the World Bank and the Asian Development Bank (ADB). Still, there are no major cross-country highway or railway projects currently underway.

With this backdrop, the creation of the AIIB has come at the right time. The bank was established with an explicit objective to provide financing for developmental infrastructure like roads, railways, sea and airports, and power generation plants to facilitate greater economic integration in the Asia Pacific.

Although US$100 billion in paid-up capital may not look like much in comparison to the investment demand, the AIIB can play a key role in complementing the work of traditional multilateral lenders like the ADB and the International Finance Corporation.

The AIIB is also expected to have a longer term investment horizon, recognising the fact that returns to infrastructure spending in developing countries can be slow and sometimes low. If the AIIB can also shorten the loan assessment and approval procedures, South Asia could see an investment boom.

The involvement of the AIIB in South Asia will be welcome news for the region. Six out of the eight countries in South Asia (the exceptions are Afghanistan and Bhutan) are founding members of the Bank. India, which was recently elected as a member of the board of the bank, is also likely to prefer the AIIB — with its multi-nation oversight — rather than a situation where China acts alone in what India considers its backyard. With mutual trust and support, the AIIB can help South Asia realise its shared dream of greater economic prosperity.

( This article was first published on East Asia Forum here.)