THE INSPECTION PANEL The Inspection Panel Report on Request for Inspection Nepal: Proposed Arun III Hydroelectric Project and Restructuring of the Arun III AccessRoad Project (Credit 2029-NEP) RequestNo. RQ94/1 December 16, 1994 Washington, D.C. ABBREVIATIONS AND ACRONYMS ACRP - Acquisition, Compensation andRehabilitation Plan BP - Bank Procedures EA - Environmental Assessment EAP - Environmental Action Plan HMG/N - Kingdomof Nepal IDA - InternationalDevelopment Association IEPS - Initial Executive Project Summary LCGEP - Least Cost GenerationExpansion Program MOP - Memorandum andRecommendation of the President MW - Megawatts NEA - Nepal Electricity Authority NGO - Non-governmental Organization OD - Operational Directive OMS - Operational Manual Statement OP - Operational Policies OPN - Operational Policy Note PAF - Project Affected Family PIC - Public Information Center PID - Project Information Document POE - Panel of Experts RAP - Regional Action Plan for Arun III Project SAR - Staff Appraisal Report SPAF - Seriously Project Affected Family TABLE OFCONTENTS Page Preface 2 A. BACKGROUND ..................................... 3 PR OPOSED PROJECT3 .................................... 4 THEREQUEST .................. 3 REGISTRATION.................. 4 OPERATIONAL POLICIES AND PROCEDURES..................................... 4 B. THE REQUEST and THE RESPONSE ..................................... 5 I. Economic Analysis of Investment Operations ..................................... 5 ALTERNATIVES ..................................... 6 RISK ANALYSIS ................... 6 POVERTYREDUCTION ........... ,6 Environmental Assessment......................9 II. ALTERNATIVES. ..................... 9 ALCCESSROAD ALIGNMENT.............1........... CUMULATIVE EFFECTS AND INADEQUACIES.................................... 13 III. DISCLOSURE OF INFORMATION .................................... 15 PROJECT INFORMATION DOCUMENT ("PID").................................... 15 ENVIRONMENTAL ASSESSMENT ("EA') .................................... 15 FACTUAL TECHNICAL INFORMATION.................................... 16 IV. Involuntary Resettlement .................................... 16 HILL ROUTE...................... . . . . . . , . 17 VALLEYROUTE ..................... 17 V. INDIGENOUS PEOPLES ..................... 19 ANNEX A: NOTE ON APPLICABLE OPERATIONAL POLICIES AND PROCEDURES ANNEX B: ACCESS ROAD ALTERNATIVES - COMPARATIVE TABLES ANNEX C: THE REQUEST FOR INSPECTION ANNEX D: MANAGEMENT RESPONSE 1 PREFACE This is the Inspection Panel's Report on the Request for Inspection (the "Request") relating to the proposed Nepal, Arun III Hydroelectric Project and restructuring of the Arun III Access Road Project; Credit 2029-NEP, granted under Development Credit Agreement, dated August 8, 1989 between the Kingdom of Nepal and the International Development Association ("IDA") (collectively referred to as "Arun III"). The Request was filed with the Panel on November 2, 1994 and registered by the Chairman on November 3, 1994. On the same date the Notice of Registration and text of the Request was transmitted to the President of IDA. The Chairman and Panel members note that prompt registration is required by IDA Resolution 93-6 (the "Resolution"). The Panel received the Management Response (the "Response") on November 22, 1994: it addressed the substance of the Request rather than impeding and delaying an independent review of the issues by questioning formalities. The attached report likewise deals with the substance of the Request. The Panel's initial findings are based on the information contained in the text together with a limited review of supporting or referenced documents in the Request and the Response; and in addition, supplementary clarifications from the Requesters, Management, the proposed borrower and the executing entity. On the basis of this preliminary review and in accordance with the Panel's Operating Procedures of August, 1994 (the "Procedures"), the Panel is satisfied that conditions required by paras 12-14 of the Resolution have, in substance, been met. In accordance with the Resolution the Panel consulted the proposed borrower and the Executive Director representing the Kingdom of Nepal on the subject matter of the Request. The Panel wishes to thank all those who assisted them both in Kathmandu and in Washington, D.C. 2 A. BACKGROUND PROPOSED PROJECT 1. Managementof IDAis planningto seekapprovalforan SDR 99.5million development creditto the Kingdomof Nepal ("HMG/N"- the borrower)and the restructuringof an existing creditfor SDR 24.4million(ArunIII AccessRoad Project- Cr. 2029-NEP)to help financethe proposed Arun III HydroelectricProject.! The revised project components include a 122 kilometer access road through the Arun Valley, constructionof a 201 MW run-of-river (includinga 68 meterdam)hydroelectricpowerscheme(thefirstphaseof the ArunIII 402 MW scheme)in the Sankhuwa-SavaDistrictand 122kilometersof transmissionlinesfromthere to Duhabi. TheArunbasinis about170kilometerseastof Kathmandu. 2. Theproposedcreditwouldbe on standardIDAtermswitha 40 year maturity. HMG/N would onlend to the implementingagency,the Nepal ElectricityAuthority ("NEA"), the Nepalese rupee equivalentof US$136.1million plus US$34.3 million (available under the existing Arun III Access Road Project) at a rate of 10.25percent for a period of 30 years includinga 9 year graceperiod. HMG/Nwouldbearthe foreignexchangerisk. The remaining US$4.6 million would be utilized by the Ministry ofWaterResourcesto finance a Regional ActionPlan("RAP"). 3. Total project costs are estimated at about US$800 million. The project would be cofinancedbythe AsianDevelopmentBank,KreditanstaltfurWiederaufbau,the Governmentof France,the SwedishAgencyfor InternationalTechnicaland EconomicCooperation,the Finnish InternationalDevelopmentAgencyandotherdonors. THE REQUEST 4. Summary: ThePanelreceiveda Request,datedOctober24, 1994,fromcitizensof Nepal (the "Requesters") who claim that their rights and interestshave been or are likely to be materiallyand adverselyaffectedbythe actsoromissionsofIDAduringthe designand appraisal of ArunIII. Two of the Requestersclaimthattheyhavebeendirectlyand adverselyaffectedby the design and implementationof the resettlementprogramrelatedto Arun III. The Requesters claim to be, or likely to be affected by alleged violationsof provisions of,inter-alia, the followingpoliciesandprocedures: * Operational Policy/Bank Procedure 10.04: Economic Evaluation of Investment Operations * The World Bank Policy on Disclosure of Information, September 1994; Bank Procedures17.50and 10.00,AnnexA * OperationalDirective4.01: EnvironmentalAssessment * Operational Directive4.30: Involuntary Resettlement * OperationalDirective4.20: IndigenousPeoples 5. The two Requestersfrom the now abandonedHill Route askedfor anonymityand, in accordancewithNepaleselaw, appointedMessrs.Siwakotiand Ghimireof Kathmandu,Nepal (theothertwo Requesters),torepresentthem. (ForfurtherdetailsseeAnnexC) 3 REGISTRATION 6. EligibilityIssues:Para17of theProceduresrequiresthe Chairmantoregisterthe Request "[I]f the Requestappearsto containsufficientrequiredinformation...".While recognizingthat there were deficienciesin the formalities,in accordancewith this para, the Chairman, on November 3, 1994, registeredthe Request in the Panel Register; notifiedthe Requester,the ExecutiveDirectorsandthe Presidentof IDAof the registration;andtransmittedto the President a copy of the original Requesttogetherwith faxed copiesof the attachmentsand evidenceof representation. Upon receipt, on November 8, of the originals of the accompanying documentation,copieswereforwardedtothe PresidentofIDA. 7. ThePaneljudged that the seriousnatureof the substanceof the Request as a whole and its timing in relationto the projectprocessoutweighedoutrightrejectionof the Request onthe groundsof doubts on the standingof the Requestersand incompletecompliance with formal procedures. Managementapparentlycameto the same conclusionsince, as noted before, it addressedthe substanceof the Requestwithoutquestioningits eligibilityunder the applicable termsof theResolution. OPERATIONAL POLICIES AND PROCEDURES 8. Giventhat a periodof about sevenyearshas elapsedsincethe inceptionof Arun III, the evolvingnatureof IDApoliciesand proceduresand the timingof their applicationin relationto variousstages of this proposed projectis a source of disagreementbetweenthe Request and Response. Thesequestionsare addressedin AnnexC and referredto,as necessaryinthe textof thisReport. 4 B. THE REQUESTandTHE RESPONSE 9. The Request lists a number of statements of policies and procedures which the Requesters believe IDA has failed to follow in the course of the design, appraisal and initial implementation of Arun III. The Response provides information indicating that Management believes it has not failed to follow the relevant policies and procedures. The Request and the Response are reviewed briefly below and are followed by the Panel's initial comments. 1.EconomicAnalysisof InvestmentOperations ALTERNATIVES 10. THE REQUEST states that IDA "has violated its operational policies regarding the Economic Evaluation of Investment Operations, as a basic criterion for acceptability. For the project to be acceptable on economic grounds, 'the expected present value of the project's net benefits must be higher than or equal to the expected net present value of mutually exclusive project alternatives.' By not undertaking the relevant studies of the alternatives..., the World Bank has not fulfilled this very basic criteria for acceptabilityof the project". 11. The Request also complains that IDA violated this Directive throughout the project cycle by not considering alternative sequencing until 1993/94 and that the study is incomplete as the comparison was made with only very preliminary costs for the alternative schemes; that the earlier Least Cost Generation Expansion Plans ("LCGEP") of 1987 and 1990 failed to take into account that the same amount of power generated from Arun III could also be generated from a series of smaller alternatives in the 1MW to 100 MW range; and that by not completing feasibility studies of the 30 or more smaller alternatives identified by HMG/N, IDA has not fulfilled the policy requirement to compute the LCGEP for additional power generation for Nepal. The Request also states that "there is every reason to believe that once the detailed studies are completed, the smaller alternatives can be built at prices lower than or competitive with Arun III"..2 12. THE RESPONSE, while answering the Request in line with OP/BP 10.04 suggests, in its Annex A, that this policy was not in effect at the time of identification and appraisal: that only those instructions in this OP/BP which are identical to those in force at the time are applicable. It indicates that the basis for the LCGEP was the initial consideration of "some 3000" alternative generation and expansion plans of which 11 individual hydro investment project candidates of varying sizes were examined to the pre-feasibility level or "beyond." However, "in response to questions, additional alternative strategies were investigated in order to check the robustness of the standard least-cost analysis. This involved the consideration of project candidates that preliminary analysis had previously screened out." The Response concludes that the cost of an alternative was higher than the cost of HMG/N's proposed program.3 13. The Response also states that there are no hard and fast rules on how many alternative proposals should be investigated to the "pre-feasibility" stage, it is a question of professional judgment. The number of hydro candidates explored to the pre-feasibility level is considered to represent "a very respectable effort for a country such as Nepal"--given that the determining factors are the extra cost and associated delays. Noting that the project contains funding for further pre-feasibility and feasibility work for smaller hydro projects4 - which, if attractive, will 5 be accommodatedperiodicallyintothe LCGEP- it is pointedout that thereis no evidencethat suchfurtherstudywoulddisplaceArunIII fromthe LCGEP.5 RISKANALYSIS 14. THEREQUEST complainsthatthe risk analysisisfaulty,inparticularthat: * one largenaturalcatastrophewouldvirtuallyruintheNepaleseeconomy; * noaccounthasbeentakenof the riskof undertakingsucha largeprojectin relationto the sizeof theNepaleseeconomy; * while over 80% of the catchmentarea of the Arun River lies under the controlof China and a proposedChangsunBasin IrrigationProject is pending,no accountof upstreamdevelopments(riparianrights)hasbeenincluded;and * there is no bilateralagreementwithIndiaeventhoughPhaseII of Arun III and future developmentinthevalleydependon surpluspowersalesto India.6 15. THERESPONSEexplainsthat: * underOP 10.04treatmentof risksassociatedwithlargeprojectsis not mentionedand there isnoexplicitpolicywithrespecttothe valuationof risks- as distinguishedfrom the analysis and/or managementof risks - associated with large projects. But "recognitionof Arun's magnitude and importanceto the Nepalese economy was whatledthe Banktoundertakesuchcomprehensiveanalysisofthe project.";' * the analysisdoesnotconsiderthe risksto projectviabilityof the possibleconstruction of the ChangsuoBasinIrrigationProjectbecausethe appraisalteamjudgedtheserisks to be minimal;recentlythe Chineseauthoritieshavereconfirmedtheir non-objection to the projectand that the small size of the projectis likely to have no effect on downstreamwaterusers;8 and o withrespectto salesto India: inthe past bilateralagreementshavenot beennecessary and suggeststhat evenif nosurplussalesoccur,therewouldbeonlya 1%drop inthe project's economicrateof returnwhich remainsabovethe project's opportunitycost of capital.9 POVERTYREDUCTION 16. THE REQUESTsuggeststherewillbe immediateandthreatenedlong-termirreversible adverse impacts on the already absolutepoor inhabitantsof the Arun Valley, as a result, in particular,of NEA'slackof capacityto implementenvironmentaland socialsafeguards. 17. At the nationallevel,the Requestsuggeststhat the largesizeof the projectin relationto Nepal's annualnationalbudgetwill not directlybenefitthe poor as its high cost will crowdout investmentsin socialservicesandtargetedpovertyinterventions. 10 18. THE RESPONSE acknowledgesthat 450,000inhabitantsof the Arun Valley lead a "harsh subsistencelife;" it states that the primary objectiveof the projectis to meet Nepal's growingpowerrequirementsin the mediumterm at least cost so that this constrainton growth and poverty reduction can be overcome. Referring to the EnvironmentalAction Plan the Response suggeststhat it aims to limit negativedirect impactsand to maximizethe Valley's prospectsfor sustainablegrowthand povertyreduction." 6 THE PANEL ALTERNATIVES 19. With respect to examination of alternatives, the Panel notes that previous policies and procedures would appear to be applicable. Apreliminary review (see Annex C) of thosepolicies and procedures suggests that thefundamental requirements are substantially the same as those in OP/BP 10.04. In particular it is noted that OMS 2.21, para 8, states that: "Considerationof altemativesis the single most important feature of proper projectanalysisthroughoutthe projectcycle, fromthe developmentplan for the particularsectorthroughidentificationtoappraisal." It is also noted that the Response deals with the issues of alternatives and analysis of project risks in the context ofthe requirements of OP 10.04. 20. It is clear that Nepal's hydropower potential is considerable (estimated at 25,000 MW). However less than 1% of the resource has been developed and there is no complete inventory that could be used reliablyfor long term planning. 21. Out of about 107 potential hydroelectric sites that have been identified, technical and economic screening criteria yielded only 18 projects for which pre-feasibility or further engineering studies have been carried out. The latest LCGEP considered only 11 projects. It is a matter of judgment whether this is an adequate number of options that should have been considered in the 30-80 MW range. 22. The Panel notes that the MOP recognizes that: "Theonlyrealisticalternativetothe hydropowerinvestmentprogramproposedby the Governmentis a seriesof hydro investmentsin the range of 10MW to 100 MW. Whiletheseare certainlysmallprojectsbyinternationalstandards,most are similarinmagnitudetothe two previousmajorhydroinvestmentsmadeinNepal; namely, Kulekhani (60 and 32 MW) and Marsyangdi(69 MW). Past pre- investmentstudiesinNepal's majorriver systemshaveidentifieda largenumber of suchpotentialinvestments. Pre-feasibilityand feasibilitywork hasbeen done on some 18of the 93 sites identified. About halfof the 18are under 100MW; these have alreadybeen takeninto accountin the least cost generationanalysis. Hence, the effort to developan alternativehydropowerinvestnent programhas had to drawfromamongthoseprojects,mostlyin the 30to 80MW range,which had previously been screened out (on the basis of rather crude technical and economiccriteria)as lessattractivethan thosefor whichpre-feasibilityworkhas beencommissioned. The alternativeinvestmentprogramthusidentifiedhasbeenlabelledPlanB (SAR Annex 5.4, [paras 41, 42]) The costsof Plan B are estimatedto be about 5% higherthan the Government'sproposedinvestmentprogramunder assumptions about the future consideredmost likely, and 5% less in the scenariowhere demandgrowthfollowsthe lowloadforecast.12 23. There is reason to believe that if a less restrictiveassessment, including a wider range of hydro resources, could be undertaken it would result in expanding the number of economically and environmentally acceptable options. 7 RISKAANALYSIS 24. IDApolicies provide for evaluation of investmentprojects to ensure that theypromote the borrower's development goals and that the economic analysis be conducted to determine whether the project creates more net benefits to the economy than other mutually exclusive optionsfor the use of the resources in question; and state that assessing sustainability includes evaluating the project's financial impact on the implementing/sponsoring institution and estimating the direct effect onpublic finances of the project's capital outlays and recurrent costs. This process also includes an analysis of the sources, magnitude and effects of the risks associated with theproposed project. 3 25. The Panel notes that, with the information available, the comparison of the risks associated with theproject and its alternatives is very difficult due to the large number offactors involved including: * natural catastrophic events such as Glacial Lake Outburst Floods (GLOF) and high monsoon rains leading to high riverfloods which constitute a permanent risks in the project area These risks were considered a majorfactor in the original decision to choose a Hill Routefor the accessroad; - the steep tariff rate increases that NEA must implement, likely cost overruns, lower economic growth; - major risks associated with the economic performance of the project are associated with the rate of growth of demand, which in turn is related to the unforseeable response to price increases and export sales The lack of a long term power sales agreement with India poses a potential long term risk to the project.. This risk has been highlighted by IDA, particularly in the case of Nepal, in the 1986 Project PerformanceAudit Reportfor the Kulekhani Hydroelectric Project (Cr. 600-NEP and 600-1-NEP) which concludes that: "Agreementson exportwouldbe requiredprior to the start of any large scale development, and because most countries are reluctant to be dependenton others for electricalenergAy, negotiationson such matters maylastoverextendedperiodsof time".14 The MOP contains a rather detailed discussion of risks and concludes that: "Comparisonof the overallrisks of the alternativestrategiesshowsthat both have problemsrequiringcarefulmanagement. There is simply no low riskwayto meetNepal's powerrequirementsoverthe nextdecadeor so. 26. All power development options require careful risk management unprecedented in Nepal and therefore institutional capacity building is critical to the success of any strategy. Major risks associated with institutional capacity in the NEA and HMG/N emerge as significant in a variety of ways: to oversee construction, long-term O&M, reorganization of the power sector management, and ability to sustain appropriate tariff increases. Each could endanger the viability ofArun III at any time. Whilefunding agencies can supplement institutional capacity in the short-term, the strengthening of institutions will still have to develop rapidly and extensively; 27. The Request cites, as a potential risk thefact that 80percent of the river lies in China The Response refers to the small size of theproposed Changsuo Basin Irrigation Project. At the 8 request of the Panel, Management has provided satisfactory evidence showing that the Government of China does not oppose Arun III 28. Risk assessment must include all factors that might have a bearing on the project, and compare them with those of the alternatives. IDA has attempted to deal with those issues, but, the environmental and social impacts of the alternative have not been systematically analyzed; therefore a realistic comparison of risks associated with theproposed project and its alternatives could not have been carried out. POVERTYALLEVIA TION 29. OP 10.04 states that the economic analysis examines the project's consistency with IDA's poverty reduction strategy. 30. The Panel recognizes two levels ofpotential impacts on poverty. Thefirst relates to the localized effect of Arun III on the Arun basin 'spoor, particularly the people whose land, like that of the Requesters on the abandoned Hill Route, was expropriated; and those on theproposed ValleyRoute whose land might be expropriated The second relates to the likely macro economic impacts on the country as a whole due to the large size of the investment to be undertaken in relation to the size of the economy. These impacts on a national level might result in: (a) an initial increase in poverty because the opportunity cost of capital to address poverty directly and the resources needed for other targeted interventions may be consumed byArun III; (b) a reduced consumption due to the effect of rising electricity tariffs on consumers as they devote a larger share of their disposable income to electricity; and (c) a constraint on public expenditure and investment - as noted in a recent Bank document: " The power sector as a whole is expected to absorb 15 percent of local resources and 40 percent of foreign resources, and AHP [Arun III] alone will absorb close to 20 percent of total development resources during the peak implementationphase in FY97-FY99."'6 31. The high priority of poverty alleviation in Nepal has been reiterated by the Bank However, steps already taken by IDA and HMG/N suggest it will be more difficult to implement thepolicies on poverty. Future steps, such asfurther cancellation of "low priority projects" in social sectors and the largefiscal demands of Arun III may contribute to the risk thatpolicies on poverty cannot be implemented. 11.EnvironmentalAssessment ALTERNATIVES 32. THE REQUEST states that the environmental and social issues and available alternatives to Arun III were not integrated into decisions on whether to proceed with the project. Citing the 1991 Basinwide Environmental Impacts Study ("RAP"), it states that: "the road alignment [hill route] and dam site were already decided and the study team did not have the mandate to change these decisions;" and the 1992 study17of the valley route was conducted to 9 detennine whetherit "might providetime and cost savingsin providingaccessto the Arun III hydropowersite. Servingthe needsof the population...is a secondaryconsideration... and that the need for and the siting of the powerprojectand thereforethe justificationfor the road, is takenas a given." It is notedthat, inresponseto pressureto investigatealternativesadequately, and after the EIA process was completed,the Bank commissioneda studyknown as Plan B whichwasconductedfromthe standpointof whetherArunIII isthe "leastcost"optionforNepal - withoutconsiderationofthe environmentalandsocialcostsof eitherArunIII or its alternatives. 33. TheRequestalsopointsoutthat: "[t]heso calledEIAof the Valleyrouteof the accessroadfailsto takeinto considerationand comparefromenvironmentalstandpointany alternative approach to build this road. For example, applying environmentally friendlyapproach in buildingthe roads in the Himalayanfoothills by employing simple and conservation-orientedtechniques and labor intensivemethodshavebeenprovedsuccessful. Thepaceof the proposed constructionof the road and the approach adopted, thus, is a serious environmentalconcernthatthe EIAignores.18 34. THE RESPONSE questions the applicability of the policy on Environmental Assessmentfortiming reasonsbut then statesthat Managementneverthelessproceededas if it were applicable. As evidenceof compliance,the Responsecitesthe considerationof three dam sites in the Arun valley and two differentaccess roads. The Responsenotes that the 1993 Environmental Assessment Executive Summary'9 ("EA Summary") clearly states that identificationof Arun III was basedonleast cost studiesundertakenupto 1990andthat "these studiesaddressedenvironmental/socialissuesatthe reconnaissancelevelforallfeasiblesites.20 THE PANEL 35. Notes that while the current policy was not in effect when the Credit 2029 for the Hill Access Road Project was approved, it was in effect at the time when it was decided to change the access road to the ValleyRoute.21 The 1993EA Summarystatesthat: "The Arun III...was identifiedas the best majorhydropowerschemefor early addition to the Nepal InterconnectedSystem under the LCGEP completedbytheNEAin 1987.... [This] choice was confirmedby an LCGEPUpdate Studycompletedin 1990....This study included estimates of resettlement costs in its comparativeanalysisof the various projects,but not the costs of other environmentalimpactsor economicbenefits". 22 36. The Panel notes that the major environmentaland social impacts of the Arun project are due to the construction of the access road, and not due to the hydroelectric generating facility itself Given the timing of the change of the choice of road alignment the social impact has been magnified and the environmental impact assessment studies dealt primarily with the original route (Hill Route). 37. The Panel finds it necessary to look at this decision in more detail, particularly in view of thefact that almost all of the land of thefamilies on the Hill Route had already been acquired. 10 ACCESS ROADALIGNMENT 38. In 1987, a detailedfeasibility study was carried out by the Department of Roads for the so-called "Hill Route". Detailed designs and tender documents were completed in 1988, in anticipation of an early start of construction, and further refined in thefollowing years. The final alignment chosen, designs and construction methods were referred to in the SAR as environmentally the "state of the art" for a major roadproject inNepal. 39. The SAR for the Arun III Access Road Project of May 12, 1989 refers to the selection of alignment for the access road inpara 3.08: "The route selected as being most economical in terns of construction and maintenance, consistent with sound enviromnental planning, is in mountainous terrain and follows the ridges wherever possible, descending only for crossings of the Piluwa Khola near Chainpur, the Sabhaya Khola at Tumlingtar and at the sites of the powerhouse, adit and dam. The streams and rivers of this area are unpredictable and can be very violent and destructive. They cause excessive steepening of the valley sides and consequent instability of the slopes. The route has therefore been chosen to avoid rivers as far as possible, and to follow the contours closely in order to minimize the quantities of cut and fill, and to reduce negative environmental impact. The contract documents for road construction also incorporate environmental conservation measures."23 40. The Panel notes that within three years of this decision, the project designfor the road took the opposite approach, selecting a route where more than 50 percent runs close to the previously described unstable, steep, unpredictable and hazardous slopes of the Arun River. 41. In 1992, according to the EA Summary,following a decision to revise Arun III's design and reduce initial expenditure and given the sole criterion ofproviding access to thepower sites as quickly as possible, thefeasibility of a "Valley" route was investigated again. Engineering and construction planning studies had shown that although the construction costs would be similar to those of the Hill Route, there would be a time saving of one year and a total length construction of only 122 KM.2" The EA Summarypoints out however, that: "The speed of construction of a project can have a considerable effect on its environmental impact. Slower construction of the access road would allow a less capital- intensive approach with a higher local labor demand (and therefore local benefits), and modified construction techniques with lower physical impact * Slower construction of the hydropower components of Arun III would reduce the size of the labour force required, reduce the volumes of spoil to be excavated and disposed of annually, and pernit more gradual institutional development."25 Comparative data on the tworoutes is given in Tables 6.1 and 6.2. are in Annex B. 11 42. The proposed change in routes was presented to the Panel of Experts (POE) and approved inprinciple by them.26 However, the POE pointed to the apparent disadvantages of the Valley Route: "- increaseof forestedland in the RoW and possiblyless disturbedand higher quality forest and protected wildlife habitat in the ROW: approximately209havs. 145ha - closerproximitytotheMakalu-BarunConservationArea - losses and uncertaintiesresulting from the circumstance that land compensationforthehillrouteis already94percentcompleted - additionalimpactsassociatedwith futureconstructionof spur roads or other connectionsto hill villagesthat wouldhave been connectedby the hill route."27 The POE also concluded, inter alia, that: "The recommendationfromthe environmentalperspectivetherefore is to proceedwiththe designandtenderingof the projectusingthe valleyroute, to dropthe hillroutefromfurtherconsiderationatthis time,to establisha clear and equitablepolicy concerningthe families within the hill route whohavealreadyreceivedcompensation,and toupdateandamendproject environmentaldocuments,in parallel with the detailedengineeringand alongthe followinglines,toreflectthe changeinroute. 1. It wouldbe usefulif the September1992JointVentureEIA of the valleyroute wouldmakea moredetailedcomparisonof the impactsof the hill route and the valley route, including implicationsfor associated changesin transmissionlineimpacts,if any,and optionsand implications for familieswithinthe RoWof the hill route who have alreadyreceived compensation. 2. Regardlessof which route is adopted,the recommendationsand cost estimates(aboutUS$14million)of the KingMahendraTrust report on "EnvironmentalManagementand Sustainable Development in the Arun Basin" should be released to the public, reviewed, screened and prioritized to facilitate the development of an action plan for implementation.Withoutsucha plantherewillbe nomechanisminplace for controllingoff-siteimpacts (especiallyencroachmenton forests and wildlife)in the vicinityof the accessroad and power station, southand eastofthe Makalu-BarunConservationArea."28 43. The decision to pursue the Valley Route led NEA to commission a study to "revise and update the existing environmental impact assessment studyof the access road in accordance with World Bank guidelines " (Terms of Referencefor JV Consultants). This update was supposed to 12 be carried out in a period offour months although the road alignment had not been completed Thefollowing clause was included in the Terms of Reference: "In order to completethe update of the EIA withinthe four months of Period A, it is mandatoryto have a preliminaryalignmentor alignment options availableat the latest six weeks after the commencementof the serviceswithrespectto the accessroad, and in the first week of August [1992]regardingthe transmissionline."29 Also included in the terms of reference is thefollowing disclaimer: "The timeavailablewillnotallowit to performa detailedsocio-economic and ecologicalsurveyalongthe entire alignment. Rather,surveyswillbe of a qualitativenatureandwill concentrateon selectedareasfromwhich 30 conclusionswillhaveto bedrawntothe totallengthof alignment." 44. The Environmental Impact Assessment for Arun Access Road-Valley Route published in September, 1992, concludes that the impact on biological resources is significant since the Valley Route transverses forested areasfor the major part of its length (71 Km out of 124 Km), and that most of the areas show high species diversity and presence of rare, endemic and endangered species of trees and other plants. In addition, the loss of habitat will result in significant impact on vertebrae. The ELAfor the access road concludes that: "The road runs close to the Arun River for 67 km and therefore construction of the road will have direct impact on mammalianand reptilianwildlifedue to directhabitat,severanceof territory,disturbance and increasedaccesstohunting. Quantitativedata onpopulationsizesare not available."31 45. The Panel finds the process of choosing the access road has created uncertainties of a serious nature with regard to IDA's ability tofollow OD 4.01 on environmental assessment. The Response cites three major components to the Environmental Action Plan: an Environmental Mitigation Plan, A Land Acquisition Resettlement and Compensation Plan and a Regional Action Plan ("RAP"). During consultations with the proposed borrower and executing entity, the Panel learned that the updated RAP will not be completed until January 1995. On the basis of the evidence reviewed, the Panel concludes that the environmental assessment and processing of the proposed loan do not appear to be consistent with the provisions of OD 4.01 and its annexes. Thepotential of direct, serious long-termdamage is significant. CUMULATIVEEFFECTS AND INADEQUACIES 46. THE REQUEST states that cumulative impacts of all three Arun Valley hydropower schemes (i.e. Arun III, Upper Arun and Lower Arun) have not been evaluated and that there should be a comprehensive study of the long term effects including those of additional road construction; that other inadequacies of the EIA include no thorough assessment of the impact of the transmission lines, mitigation plans for natural disasters, effects on fish and disposal of construction spoils.32 13 47. THE RESPONSErefersto the 1991basin-wideenvironmentalsustainabilitystudy as meeting the Bank's requirements.33 "The effects of Upper Arun which are likely to be environmentallymore sensitivethan Arun III were studied separatelyin a 1991 feasibility study." It notesthat LowerArun"is generallyrecognizedto have less significantimpacts"; it is acknowledgedthat furtherworkwillbeundertakeninthe firstyearof the projectto verifythat effectson fisheriesareminimalandidentify mitigationmeasuresasnecessary.3 48. Mention is also made of the approval of environmentalmitigationmeasuresby the project's POE35, refefringtoparas3.23.and3.44(b)of theSAR. THE PANEL 49. Observes that, according to the SAR, the POE included a single "expert in environmental management and resettlement" 6 and that in June 1994 a decision was made to "reconstitute the POE by the end-December 1994for review of assistance and guidance on the critical technical and safety aspects and dam safety monitoring during construction and supervision." It is also noted that the reconstituted Panel will be "expanded to include environmental expertise to advise effectively on detailed RAP and resettlement issues."37 In addition the MOP states that a POE, "both international and Nepali, will advise, on, inter alia, the RAP and resettlement implementation, and propose modifications where appropriate." It is pointed out that the reconstituted Panel will "include a core of specialists in area development, resettlement, biodiversity and agriculture management;" and that other experts will be consulted as needed3 8 50. Applicable IDA policies provide for Regional Environmental Assessments and special provisions relating to Dam and Reservoir projects.3 9 In particular Environmental Advisory Panels are recommended: "For major, highly risky, or contentiousprojects with serious and multi-dimensional environmentalconcerns,the borrower should normally engage an advisory panel of independent,internationallyrecognized,environmentalspecialiststo adviseon (a) the terms of reference(TORs)for the EA, (b)key issuesand methodsforpreparingthe EA, (c) recommendationsand findings of the EA, (d) implementation of the EAs recommendations,and (e) developmentof environmentalmanagementcapacityin the implementingagency." 4 51. Given that OD 4.01 was applicable when the Valley Route was chosen and the Arun III Hydroelectric Project appraised, the environmental assessment should have included a comprehensive approach to the Arun basin, including a long term perspective that also considered the Upper and Lower Arun Projects, access roads (including the Valley Route and additional spurs), as well as transmission lines. Environmental assessments should be integrated into project design from its inception and, must go beyond descriptive studies, focusing on the interaction of all project components and decisions that affect the natural and social environment, including mitigation plans and the institutional capacity to develop, implement and monitor them. It is not clear that the composition of the POE properly reflected the requirements set out by IDA policies. 52. Given the nature and complexity of the environmental and social risks of the project, IDA policy would appear to require the existence of a POE solely devoted to environmental and social issues. Instead, IDA and the borrower agreed in 1994 to consolidateplanning for such an environmental panel into the existing POE. 14 Ill. DISCLOSUREOF INFORMATION 53. The World Bank Policy on Disclosure of Information, September 1993, states in part that the Bank "recognizes and endorses the fundamental importance of accountability and transparency .... Dissemination of information to local groups affected by the projects supported by the Bank, including non-governmental organizations, particularly as it will facilitate the participation of those groups in Bank-financed projects, is essential for the effective implementation and sustainability of the projects.... It follows that there is a presumption in favor of disclosure."4 ' PROJECT INFORMATION DOCUMENT ("PID") 54. THE REQUEST complains that the PID was not prepared before January 24, 1994 and has subsequently not been updated to include all the information required by BP 10.00 Annex A. 55. THE RESPONSE states that the "content and dissemination of the Arun PID were substantially in line with Bank policyandprocedures." THE PANEL 56. IDA's Procedures for operations in which major changes are made after appraisal, require preparation of a final revision ofthe PID following appraisal.42 57. The Panel notes that the PID is an effective means of providing timely and concise information on proposed projects. It is highly desirable,for projects that command this degree of interest at the national and international level, that this document be updated in accordance with emerging Bankpolicies. The September 1993 BP 17.50Annex D required a completed PID for all projects beyond the IEPS stage but not yet presented to the Board by January 1, 1994. The document was not available at the Public Information Center ("PIC") until March; and not subsequently updated or expanded after the issuance inJune 1994 which of BP10.00 Annex A. ENVIRONMENTAL ASSESSMENT ("EA'9 58. THE REQUEST asserts that this provision was not followed by IDA and notes that the environmental impact assessment was one of the documents for which release was requested in the law suit filed with the Supreme Court on December 31, 1993.43 59. THE RESPONSE claims that the "dissemination of the results of the Environmental Assessment was substantially in line with Bank policies and procedures.4 THE PANEL 60. Notes that the 1993 procedures on information disclosure require that "before the Bank proceeds to appraisal, the EA [Environmental Assessment] must be made available in the borrowing country at somepublic place accessible to affected groups and local NGOs. " 61. The Panel notes that the EA for the Hill Route (the RAP in this case) was completed in 1991; that the EA Summary was published in Kathmandu in May 1993, and the "Due Process Manual" prepared in Nepali by NEA in November 1993 is restricted to information on land acquisition and compensationprocedures. While the Response provides detailed information on 15 the timing and applicability of specific IDA policies on disclosure of information, it does not refer to the relevant policiesrelating toEnvironmentAssessment. 62. Considerable efforts have been made to gather and release environmental data about the project and the IDA appears to have made substantial efforts to make it available in Washington. However, much of the relevant information was not available inNepal. FACTUAL TECHNICAL INFORMATION 63. THE REQUEST claims that factual technical information was requested during project preparation to enable the Requesters to have aninput into the design and promote alternatives but such information was received too late (after appraisal) to allow input. In particular it is noted that the study of alternatives was not released until after appraisal and the completion of loan negotiations.45 64. THE RESPONSE mentions initial delays in implementing the new disclosure policy in this respect but notes that sections of the SAR have been available at the PIC since September 1994. THE PANEL 65. IDA policy allows for the release, by the Country Director concerned, of additional factual technical informationfor projects underpreparation through the PIC. 46. 66. The Panel notes Management's prompt disclosure of relevant parts of the SAR but the Request suggests this is not available in Nepal. In light of the high degree of interest in the project in Nepal it appears unfortunate that delays in implementing the newpolicy occurred and that no mention is made in the Response of supplying such factual technical information to NEA 'sArun Information Center. 67. The Panel is concerned about the seriousproblem of enforcing release of information in borrowing countries; and notes a gap in the availability of information in Washington, on the one hand, and in the country where the project is located on the other - in particular in the actual project area. 68. With regard to overall disclosure of information, the Panel recognizes theprogress made by the Management in last two years in relation toprojects such as Arun III. In the borrowing countries progress varies, as evidenced by the need to take cases to the Nepalese Supreme Court twice thisyear to obtain release ofproject information. 69. Disclosure is not an end in itself, according to Bank policy, but rather a means of enhancing the ability of affected people toparticipate in the design and consideration of project alternatives. 70. Meeting the requirements of Bank policy on release of information in Nepal appears to have been difficult. The Panel urges continued attention to this evolving issue. IV. InvoluntaryResettlement 71. THE REQUEST claims that (a) specific violations of IDA's policies or involuntary resettlement have occurred (Hill Route) and that (b) violations of the policies are likely to occur (Valley Route). 16 HILL ROUTE 72. Withreferenceto the cash compensationraisedby two of the Requestersit is claimed that the central objective of improvingor at least restoringaffected people to former living standardshas alreadybeen violated.47It points out that the effect of ACRPhas been to inflate prices far beyond compensatedvalue.;and that in violationof para 14 of the policy, land has been undervalued. TheRequestalsocriticizesthe factthat landfor 48 landcompensationwas not appropriatelyoffered VALLEYROUTE 73. The Request notes that the proposedproject benefits will be electricitybut affected peoplewill not benefit49 that employmentbenefitswillbe temporarybut the adverseeffectsof displacementare permanent- SPAFsare to be givenonly first priorityfor employmenton road construction." The Requestalso notesthat the EIA showsthat cashcompensationwas already failingin case of the Hill Routeand that the ValleyRoutepeoplewill have even lessabilityto deal withcashbecausetheyare poorer: thisraiseswholequestionof landforlandcompensation and actual implementation. According to the Request the law is basicallylimited to cash compensationandPAFsare not beinginformedof a landoption. TheRequestersare not aware that any socio-economicsurvey has been done to determinevalue of land.52 In additionthe Request notes a violationof the policy as no resettlementplan has been establishedbefore appraisalforthosetobe displacedbythetransmissionlines. 74. THERESPONSEexplainsIDA's compliancewiththe OperationalDirective("OD")on Involuntary Resettlement in relation to the Valley Route, noting that implementation arrangementshave been agreed at negotiations; SPAFsare to be offered and are to chose replacementlandto be purchasedby NEA; PAFswill receivecashcompensation; a cadastral survey of all areas expectedto be affected by the project was completed prior to land acquisition.53 75. Furthermore,the Responsesuggeststhat the OD contains no requirementsas to how projectbenefitsshouldbe shared; 54 nor doesit requirethatpermanentemploymentbeprovided todisplacedpersonsbut inthiscasetheACRPprovidesthatat leastonepersonfromeverySPAF is to be offered temporaryemploymentby NEA;35full socioeconomicsurveys covering all PAFs were carriedout for the Hill route in 1990and the Valley Routein 199356;resettlement planning was timely and that only 8 familieswill be affected by transmissionlines.57The Responserefers to preparationof a Due Process Manual in Nepali which describes the ACRP policiesandproceduresanddesignedto informaffectedpeopleof theirrights.58 THE PANEL 76. The Staff Appraisal Reportfor theoriginalAccess Road (Credit 2029-NEP) describes the resettlement plan: "Resettlement. To provide necessarycompensationand rehabilitation measures for the population whose land, buildings and means of livelihoodwould be either temporarilyor permanently affectedby the road/damconstruction,the projectincludesimplementationof an ACRP. The ACRPcontainsan overallplanfor the resettlementto be carriedout under the project as well as details on the nature and magnitudeof the operation, compensation packages offered to the affected families, 17 developmentplans for relocation sites, transfer/transportarrangements, implementation timetable and costs. The legislative basis for implementingthe ACRP is containedin the LandAcquisitionGuidelines 2045approvedbyHMGonJanuary5, 1989."59 77. When the Hill road was designed IDA approved a resettlementplan regarded as a model at that time. The resettlementplan for theproposed Valleyroute is based on it. Hill Route 78. A very large number offamilies (estimated at about 1600) were deprived of their land for purposes of thisproject. After the change in access route alignment it appears that this land is not needed for project purposes. Nevertheless, the "Hill Route RoW will be retained in government ownershipfor future road construction purposes." 60 79. The POE Report No. 7pointed out that among the apparent disadvantages of the Valley Routewere"lossesand uncertaintiesresultingfromthe circumstancethat landcompensationfor the hill route is already 94 percentcompleted,"and concludedthat "[i]f the valley route is selected,NEA's 'EnvironmentalAssessmentand ManagementExecutiveSummary' shouldbe updatedand amended to reflectthe selectionof the valley route, [and] address the issue of impactsonfamilieswithinthe RoWof thehillroutewhohavealreadyreceivedcompensation,"1 6 80. A decision was made, in 1992, to change the Arun access road to the Valley Route. The Panel notes that apart from the reference to completion of a socio-economic survey, the Response does not address the issue of impacts on families within the RoW of the now abandoned Hill Route who have already received compensation. Those affected appear to have beenforgotten which gives rise to a number of issues: land has been purchased from those who will not longer share in any benefits the construction of an accessroad might confer . there is no systematic information on what adverse impacts the acquisition has caused exceptfor the claimsof the two Requesters * there does notyet appear to be any mitigationplanfor the Hill Route people * under Nepalese law it appears that HMG/N is supposed to return land no longer neededfor theprojectfor which it was acquired. ValleyRoute 81. Although no foreign exchange resources have been utilized under the Arun III Access Road Project of 1989. thisproject triggered actions by HMG/N that could have negative impacts on local populations since the land of a large number offamilies was expropriatedfor the RoW of the original route. 82. By the time the change of route was introduced in 1992, most of the landpurchases had been completed for the original route. According to the Panel of Experts' Report No.7, by September 1992, 94 percent of the landpurchases of the RoW had been completed, supposedly according to specific Land Acquisition Guidelines approved by HMG/N. The total number of affectedfamilies by the Hill Route is estimated at 1661. 83. Therefore, the comparison between the number offamilies affected by the Hill and Valley Routes must clarify thefact that over 1600families have already been affected in the Hill Route, while an additional 1146families will also be affectedby the RoW of the Valley route. 18 84. The Panel has received a specific requestfrom two people who claim to be directly and adversely affected by acquisition of their land for the now abandoned Hill Route. This claim requiresfurther study. Prima facie these material adverse effects appear to be a direct result of omissions by IDA during preparation and appraisal of the project and appear to be a serious violation of IDA 's resettlementpolicies. 85. Because this gives rise to uncertainfuture implications regarding implementation of the resettlementprocess for theproposed ValleyRoute, steps need to be taken to ensure the apparent adverse effects of the Hill Route will not be repeated V. INDIGENOUSPEOPLES 86. THE REQUEST claims that there are no benefits provided for the Indigenous peoples, who will suffer only adverse impacts and lists those impacts; there is no mitigation or indigenous peoples plan--it is unclear whether documents contain actual work plans or just recommendations--many recommendations in EIA are not taken into consideration; there are many issues to be resolved in bidding documents - which are secret; mitigation of negative effects on indigenous peoples does not constitute a development plan; land appropriation on the Hill Route started before completion of the cadastral survey; the policy on participation in the decision making process was violated as stated in 1991 EIA - "the road alignment and dam site were already decided and the study team did not have mandate to change these decisions".62 87. THE RESPONSE explains that all aspects of the policy have been met, mostly by reference to documents. It notes that the cadastral survey is nearing completion in Sankhuwasabha and acknowledges that, despite all precautions "a close watch will be necessary throughout project implementation to ensure that the objectives of the OD are met. To this end, the project supervision plan involves careful monitoring and evaluation of the impact of project related activities on vulnerable groups in the valley"63 88. IDA's policy on Indigenous Peoples requires a specific "Indigenous Peoples Development Plan" that is comprehensive, that avoids or mitigates potentially adverse effects and ensures that the indigenous people receive culturally, socially and economically compatible benefits.64 THE PANEL notes that: 89. There are a variety of different ethnic groups along the Arun basin. The original regional action plan (RAP) whichfocuses on the Hill Route reviews an extensive range of social and environmental issues including vulnerable groups, indigenouspeoples and women. Some of these groups are unfamiliar with a cash economy which poses additional risks to their welfare requiring special attention. 90. IDA 'spolicy is that an Indigenous Peoples development plan should be prepared. The NEA has informed the Panel that a revised RAP will be ready in January 1995: it may be that this will contain an appropriate Indigenous Peoples development plan and provisions for implementation. Provision for technical assistance to support the RAP Secretariat at base cost of US$2million aimed atfacilitating implementation of the RAP was introduced and agreed during June 1994 negotiations.6 5 19 ENDNOTES l The President of IDAhascirculatedtothe Board,forinformation,a MemorandumandRecommendationon Arun III (ReportNo. P-6381-NEP,datedAugust29, 1994,hereinafterreferredto as"MOP"),andthe StaffAppraisal ReportNo. 12643-NEP,datedAugust29, 1994(hereinafterreferredtoas "SAR"). 2 Request,4.A. 3Response, Chapter3, paras2-3: unlessotherwisenotedreferencestoparasintheResponsereferto Chapter3. 4The HydroFund (basecostUS$5million)toprovidefundingtoassistNepal'sprivatesectortoundertake feasibilitystudiesof micro/minihydroschemesandtoimplementviableschemeswas agreedto asanadditional projectcomponentduringnegotiationsin June 1994.(SeeAgreedMinutespara 4.(b)) 5 Response,para4. 6 Request,para4.A. 7Response, para8. Ibid, pam 6. 9Ibid, para 7. 10Request, para 5.A. "IResponse,Chapter1,paras 8, 10,11. 12MOP,paras 47-48. 13 OP 10.04,paras 1,5and6. 4 Seepara24. 5 MOP,para 54. 16 See "Nepal - Fiscal Restructuring and Public Resource Management in the Nineties",Report No. 1228 1-NEP, datedMarch171994 (para8at p. iv). Thesamedocumentrecognizesthat: * "thehighcostsand financingrequirementsof AHP[ArunIII]poserisksto theorderlymanagementof theNepal'soveralldevelopmentprogram,includinginvestmentsinhumanresourcesandrural infrastructure."(para3.6) * "Thesimulationshowslocalresourceavailabilitycomingunderseverepressure....Thelocalfinancing gapwouldbeequivalentto 3.1percentof GDPor approximatelyUS$125millionayear,whichwould betoo largeto befilledbyreasonablerevenueeffortandadditionaldomesticborrowing,andsteps wouldhavetobetakentoredresstheimbalance.Inevitably,expendituresotherthanArunwouldhave to contract. Itisdifficulttomap outtheexactnatureof theexpenditurecontractionintheabsenceof a meaningfulprioritization,but basedonpastexperience,non-wageO&Mactivitiesandcapitalintensive programswouldbethemostvulnerable,andthiswouldaffecttherecurrentcostfnancingforvarious sectors,suchastransport irrigation,forestry,agricultureservicesanddrinkingwater,therebylimiting theproductivityof theseactivitiesandthegrowthprocess.Alsowiththelimitson localresources, aidedactivitiesand on-goingprogramswouldhavelongerimplementationdelays."(para3.7) * "...acutbackinsocialprogramswouldbeunavoidableforaccommodatingthelocalfinancinggap." (para3.8) 7 "Environmental ImpactAssessment- ValleyRoute"- MainReport,September,1992. 18 Request,4.D. "Arun III Hydroelectric Project: Environmental Assessmentand Management -Executive Summary", National ElectricityAuthority,Kathmandu,May 1993. 20Response,para 15. 21 OD4.01 AnnexB, para(f)requiresa "systematiccomparisonof theproposedinvestmentdesign,site ....in terms of their potentialenvironmentalimpacts;capitalandrecurrentcosts;suitabilityunder localconditions;and institutional,trainingandmonitoringrequirements.Foreachofthealternatives,the environmentalcostsandbenefits shouldbequantifiedtotheextentpossible,andeconomicvaluesshouldbeattachedwherefeasible. Thebasis forthe selectionof thealternativeproposedfortheprojectdesignmustbestated." 22EASummary,para6.1. 23 For details see SAR(para3.26). 20 EASummary1993,para 6.32. 2 4 25 Ibid,6.2.3. 26 At itsseventhmeetingof September26-October2, 1992. (See:Panelof ExpertsReportNo. 7) 2 7 Panelof ExpertsReportNo. 7, p.21 . Ibid,pp. 22-24. Arun Access Road - ValleyRoute" Volume 2, September1992,Joint 29 "Environmental Impact Assessmentfor VentureArunIII: AnnexA, p A-1. 30 Ibid. AnnexA,p. A-3 September,1992,pp. 4-13. 31 ''The Environmental Impact Assessmentfor Arun Access Road-ValleyRoute ', Request,para4.D. 32 3 Response,para 17. 34 Ibid,paras 18-20. Ibid,para 19. 36 SAR,para3.23. 37 Ibid,para 3.44b. 3 8 MOP,para 32. 39 OD4.01 para5callsforRegionalEAs "wherea numberof similarbut significantdevelopmentactivitieswith potentiallycumulativeimpactsareplanned... [and]areparticularlyusefulwhentheyprecedethefirst ina seriesof projects ... in an undeveloped region ..wherecumulative impacts are anticipated ..."See also, OD 4.01 ANNEX B EnvironmentalPolicyforDamandReservoirProjects:allprovisions(4/89); 40 OD4.01,para 13;para 15of AnnexB"EnvironmentalCapacity of National and Sectorial Institutions: Major damandreservoirprojectsshouldbeusedtohelpbuildenvironmentalcapacity(analytical,regulatory,and enforcement)inthe institutionsatthenationalandsectoriallevelsthroughtraining,consultancy,and policydialogue, andto fostercoverageof damsandreservoirsby environmentallegislation."Formoredetailon theselectionand functionsof thepanel,seepara 18of OD4.00,AnnexB. 41 SectionII, pp.2-3. 42 BP17.50(para4). Request,para4.C. 44 Response,para 14. 45 Request,para4.C. 46 BP 17.50para 5 (andtheSeptember1993documentonDisclosureofInformation,para 12) Request,para4.E. 47 48 Ibid. 49 Ibid. 50Ibid. 5' Ibid. 52 Ibid. 5 Response,paras22-25. Ibid,para26. 5 Ibid,para27. Ibid,para28. 5 Ibid,para29. 58Ibid,para 31. SARpara3.11. 60EA Summaryat6.3.2 61 POEReportNo7, pp.23-24. Request,para4.F. 63 Responst,para36. 64OD 4.20 65AgreedMinutes,para4. 21 ANNEX A Bank Policies and Procedures Applicable to the Different Items of the Request for TheResponsestatesthat anumberof policydocumentsreferredto in the Request are not applicabletothe proposedproject(seeits AnnexA). Accordingto the Response this approach means that OP/BP 10.04, "Economic Evaluation of Investrnent Operations,"wouldnot be applicableto this projectbecauseit was issuedin September 1994. The applicablepolicy, accordingto Management,is to be found OMS 2.21, "EconomicAnalysis of Projects," issued in May 1980, and CPN 2.01, "Investment Criteria in EconomicAnalysis,"issued in June 1977. If such is the case however,a number of other CPNs as expressly referred to in OMS 2.21, such as CPN 8.01, "Contingency Allowances in Project Cost Estimates," CPN 2.04, "Economic Analysis of Projects with Foreign Participation," CPN 2.02, "Risk and Sensitivity Analysis in Economic Analysis of Projects," etc., as well as several OPNs, such as OPN 2.05, "ForeignExchangeEffectsand ProjectJustification,"OPN2.06,"Useof the Investment Premium and DistributionWeightsin ProjectAnalysis,"etc., all of which have been supersededby OP/BP 10.04, could also be applicableto the economicevaluationand analysisofthe proposedproject. The applicabilityof policy statementsother than the existingODs and OPs/BPs raisestwo fundamentalissues: (a) whatkindof informationis availableto the publicin general, and to potentially affected parties in particular, about IDA policies and procedureswhichare notcontainedin themostrecentlyissuedandmorewidelypublicly availablepolicystatements;and(b)inthe eventthattwoor morepolicystatementsonthe same subjectcould be applicableduringthe design,appraisal,and implementationof a particular project,what are the substantialpolicyprovisionsto be followedby IDA in eachof suchstages: (a) It is apparentthat currentIDA policystatementsare not widelyavailable in areas, such as the ArunValleyinNepal,wherepeopleaffectedby IDA-financed projectslive. It is alreadya heavyburdenfor such people to identify--evenin substance--whatpoliciesandproceduresIDAmayhaveviolatedwhencausing--in fact or potentially--harmto their rights or interests. This problem would be compoundedif theywererequiredtobe awareof old policystatementsthatdo not seemreadilyavailableto IDAstaff,let aloneany internationalNGOs that could be assistingtheminthe preparationoftheirclaims. Thisproblemmay arise in an array of scenariosranging frompolicy statements issuedright beforeBoard presentationof a given project--asin the present case concerningeconomicevaluationof projects--tostatementsissuedmanyyearsago (see discussionbelow). In any event,this problemis one of many facedby an I affectedparty whentryingto lodge a validrequestpursuantto the terms of the Resolution. (b)Whenpolicystatementsavailabletothe publichavebeenonlyrecentlyissued, it would not be appropriateto make them immediatelyapplicableto a given project and assess IDA's performancein accordancewith the standards and proceduresstated in them. To the extent that new policy statements become applicable in the midst of project processingand implementation,and to the extent that these are not followedby IDA in their entirety,the questionswould then be: (i)do the newpolicystatementsdeviatefromIDA's pre-existingpolicy in a substantialway? and (ii) are the provisionsin the new policy statements different and mutuallyexclusive with the provisionsof the old policy. In reviewing the different policy documents referred to by the Requester and Response,thefollowingquestionsbecomerelevant: (i) OP/BP 10.04, "Economic Evaluation of Investment Operations": fortunately,in this casethe basic premiseof projecteconomicevaluation that "[floreveryinvestmentproject,Bankstaffconducteconomicanalysis to determinewhetherthe projectcreatesmorenet benefitsto the economy than other mutuallyexclusive options for the use of the resources in question"' hasremainedunchangedthroughthe yearsand it is, therefore, fully applicableto the reviewof the factsallegedin the Request. Several policy statements reiterate and fuirtherdefine this requirement. For example, paragraph 8 of OMS 2.21 provides that "consideration of alternativesis the singlemost importantfeatureof properprojectanalysis throughoutthe projectcycle,fromthe developmentplan for the particular sectorthroughidentificationto appraisal,"and OD.4.01,"Environmental Assessment," stresses the importance of a "systematic environmental comparison of alternatives in investments, sites, technologies and designs."2 The Panel believes, therefore,that regardlessof the specific policy statementapplicableto the design of the projectin question,the Panel believesthat IDA policycalls for a systematicand comprehensive analysis and comparisonof all existing mutually exclusive options to attain the objectives of the project to be financed by IDA. Paragraph 1 of OP 10.04, seealso paragraph 8 of OMS 2.21 2OD 4.01, paragraph 4(c), See also Annex B, paragraph2(f). The applicability of OD 4.01 is discussed later in this Response. 2 (ii) OD 4.00, "Environmental Policies," Annexes A and B; OD 4.01, OD "Environmental Assessment"; OD 4.20, "Indigenous People"; and issued 4.30, "Involuntary Resettlement." All of theses documentswere betweenApril28, 1989and October 3, 1991,that is, betweenmore than fiveyearsto almostthreeyearsbeforethe dateonwhichthe MOPand the SAR were issued for Board distribution. Thesepolicy documentswere also issuedbeforethe date on which a decisionwas madeto changethe major individualcomponentof the project,interms of environmentaland resettlement and financial impact. The Panel sees no merit in the allegationsthatthesepolicydocumentsarenotfullyapplicableto ArunIII, becauseof themerefactthatthe IEPSwasissuedbeforethe date onwhich the policy documents were issued. The applicabilityof new policies shouldbe interpretedin a manner consistentwith their objectives. For example,the Responsestatesthat OD 4.01 on Environment Assessment would not be fully applicabletothe new valley route alignment(which raises a numberof environmentrelatedissues)becauseof the mere fact that the IEPS was issuedin 1987. In the Panel'sview, the new valley alignmentrepresenteda majordeparturefromthe projectdescribedin the IEPS and, as such,cannotbe exemptedfromthe standardsor policiesin force when the new project design and executingstudy for the Access Roadwereagreeduponandevaluated. In facttherewasplentyof time to conformtothe newpolicyrequirements. (iii) New policyon disclosure and BP 17.50, "Disclosure of Operational this policy Information." The Panel agrees with IDA Managementthat cannotbe appliedretroactivelyin the caseof ArunIII but it notesthat the new informationrequirementsmust be adheredto as soon as possible, to be consistent with the overall aims of the policy on disclosure of information. Forexample,sincethe PID is the most accessibledocument on project information--bothbecause of its comprehensive and yet condensedformatandthe factthatit is widelyavailable,evenonInternet-- the Panelconcludesthat everyeffortshouldhavebeenmadeto updatethe PID ontheproposedproject,in linewiththenewrequirementsset forthin Annex A of BP 10.00. The fact that the PID has not yet been updated it accordinglymay not constitutea seriousviolationof IDA policy but maybeconstruedas suchbythe public. 3 ANNEX B Page 1 of 2 NEA's Environmental Assessment and Management Executive Summary May 1993 (pages 53 and 54) Table 6.1ARUN ACCESSROAD - COMPARATIVECHART: DISTANCE, LAND USE, LAND TAKE and FAMILIES AFFECTED Route Options Valley' ITEM (includingpowercavern Hill access) Distance(km) New construction 121.9' 197.2 Travel(Hile-Intake) 116.8' 171.4 Forest 27 28.5 ShrubandGrazing 30 16 LandUse Cultivation:Khet 27 41 (%/0) Cultivation:Bari 16 15 Totalcultivation 43 56 Abandoned/Other __0.5 Total 100 100 Forest 106 145 ShrubandGrazing 119 81 LandTake Cultivation:Khet 106 209 (ha) Cultivation:Bari 63 77 Totalcultivation 169 286 Abandoned/Other __3 . Total Land Take 3944 510 AverageLandTakeha/km' 3.2 2.59 AverageHouseholds/km 9.4 8.6 TotalFamiliesAffected 1146 1661 ThiscolumnfromdraftACRPReport,April 1993 2 Recommendedalignmentforaditaccessalongrightbankof Arunriver 3 Thisfigureisbasedon preliminaryengineeringandcouldincreaseby 1%to 2%duringdetailed engineering 4 3375hapermanentplus 19hatemporary HillRouteRoWchangesfrom30mto 20 mat Chhyangkuti,alsopowerhousespur n.d. Nodata(availabledatanotdisaggregated) Page2 of2 Table6.2ARUNACCESSROAD:HILLVERSESVALLEY- A QUALITATIVEASSESSMENT HillRoute Topic ValleyRoute Longer Length: Shorter PhysicalImpacts: soils,slopes,naturalhazards High Moderate BiologicalImpacts: Direct:Moderate Direct:Moderate/Low forests,habitat,wildlife Indirect:High Indirect:Moderate/High SocialImpacts: Moderate landtake,familiesaffected (approx.twothirdsHillRoute) High Construction: Longer (i) time Shorter Equal (ii) costs Equal (iii)constructiondifficulty High Moderate (iv)riskof off-sitedamage/injury Moderate/Low Moderate/High EconomicBenefits: High (i) immediateconnectivity Moderate (ii)long-termregionalaccess High Moderate Conclusion:ValleyRouteispreferable,assumingsoundmanagementof impactsandrisk ANNEXC ARUN CONCERNED GROUPRECEIVED ORIGINALSecretariat: c/o INHURED International 4 OCT 31 Ptl5: 22 uORxINA\18 IGlJ^ ffL P.O. Box2125 Kathmandu. Nepal Tel: (977-1) 419610 * Fax: (977-1) 412538 October 24, 1994 The Inspection Panel The World Bank 1818 H Street, NW Washington, DC 20433 United States REQUEST FOR INSPECTION We, as the Arun Concerned Group, the local residents of the Sankhuwa-Sava District, and the citizens of Nepal. claim the following against the proposed controversial Arun III Hydroelectric Project which is to be partly financed by the World Bank: 1. INTRODUCTIONOF THE PROJECT The World Bank, with other lending agencies (Asian Development Bank, KfW. France, Finland, Sweden), is planning to finance the proposed Arun III Hydroelectric Project in the Sankhuwa-Sava District of Nepal with the total cost of US $1082.3 million for the first 201 MW stage of 402 MW. The Bank is proposing to lend US $175.0 millions in International Development Association (IDA)funds. The Nepal Electricity Authority (NEA)is to invest US $290.7 million from its internal sources. The major project component includes a 122 lan access road, a 68 m dam and power intake, desanding basins and appurtenant structures, an 11.4 km headrace tunnel, a surge tank leading to a power cavern to house three 67 MW turbogenerators, a downstream surge tank and tailrace tunnel, and outlet structures. Transmission equipment includes a 120 km, 220 kV double-circuit line to a 220 kV/ 132 kV sub-station at Duhabi. Because of its size and complexity, the project has implications for the entire country, including significant risks relating to crowding out of high-priority investments in other sectors due to cost overruns, "worse-than-expected" management of the Government budget, or failure of the NEA to meet its share of investment, unforeseen delays in implementation, unsatisfactory design and implementation of Environmental Management Plan, including the Regional Action Plan, and others. 2. RELEVANTPOLICIES AND PROCEDURES OF THE WORLDBANKWHICH HAVE BEEN VIOLATED 2.A. Economnic Evaluation of Investment Operations * OP 10.04 2.B Policies on World Bank Role in the Electric Power Sector and Energy Efficiency and Conservation in the Developing World 2. C The World Bank Policy on Disclosure of Informnation, March 1994 * BP 17.50, page 1, para. 4, updating Project Information Document: * World Bank Policy on Disclosure of Information, March 1994, page 5, para. 10, content of PIDs (see also OD 10.00 Annex A. page 1): * BP 17.50, page 1, para. 5, releasing Factual Technical Information; * BP 17.50, page 3, para. 12, availability of environmental assessment; * World Bank Policy on Disclosure of Information, March 1994, Section II Policy, page 2; importance of accountability, dissemnination of information in order to facilitate participation, and presumption in favor of disclosure. * BP 17.50 Disclosure of Operational Inforrmation 2.D Environmental Assessment * OD 4.01, Annex B, para. 2(f): analysis of alternatives (see also para. 3 in 4.01) * OD 4.01, para. 13: engaging advisory panels for highly risky and contentious projects 1 ' ORIGINAL * OD 4.01, para. 5: regional environmental assessments * OD 4.01, para. 19 and 20: involvement of affected groups and non-governmental organizations * OD 4.01: disclosure of information 2.E Involuntary Resettlement: Land Acquisition, Compensation and Rehabilitation * OD 4.30, para. 3(a) * OD 4.30, para. 3(b) * OD 4.30, general violations * OD 4.30, para. 14 * OD 4.30, para. 11 2.F Indigenous Peoples * OD 4.20, general violations * OD 4.20, para. 3 * OD 4.20, para. 15(d) * OD 4.20, para. 11 2. G Wildlands Policy: In addition to the policies listed above and discussed herein, the claimants request the Inspection Panel to investigate whether there are violations of the Bank's Wildlands Policy OP 4.04 and the Bank Operational Policies on Investment Lending OP 10.00 in connection with the Arun III Project. 3. OUR RIGHTS/INTERESTS A. Effective participation in policy-making and decision-making processes: B. Timely access to information; C. Balanced development: D. Adequate analysis of alternatives: E. Adequate compensation and rehabilitation: F. Fair access to electricity supply at affordableprices.: G. Freedom from debt: H. Freedom from inappropriate lending conditionalities: I. Right to development; J. Maintenance of adequate living standards: and K. Healthy envirornment and sustainable development. 4. VIOLATIONSOF ITS OWNPOLICIESAND PROCEDURES BYTHE BANK 4.A. Violations of Operational Policies: Economic Evaluation of Investment Operations 4.A. 1 Criterion for Acceptability: The Bank has violated its operational policies regarding Econormic Evaluation of Investment Operation, as a basic criterion for acceptability. For the project to be acceptable on economic grounds, "the expected present value of the project's net benefits must be higher than or equal to the expected net present value of mutually exclusive project altemative". By not undertaking the relevant studies of the alternatives such as those listed in Plan B, the World Bank has not fulfilled this very basic criteria for acceptability of the project. 4.A.2 Alternatives: The Least Cost generation and Expansion plan (LCGEP)of 1987 and 1990 failed to take into account that the same amount of power generated from Arun III could also be generated from a series of smaller altematives in the 1 MW to 100 MW range. It was only in the 1993/94 Argonne National Laboratories (ANL)study (Analyses of Options For the Nepal Electrical Generating System, May 1994) that such an altemative sequence was even considered. However, the ANLstudy was clearly incomplete as the comparison was made with very preliminary costs for the alternative schemes. Even though there was an arbitrary addition of 20% to the cost of the alternatives on the grounds that 'costs always go up with more detailed studies', the study concluded that the cost difference between the sequence of doing Arun immediately versus doing it in 10 years was only percent. Thus without undertaking relevant studies of the smaller alternatives to get more accurate costs, and depending solely on "costs always go up with more detailed studies" ground, the criteria for acceptability of the project cannot be concluded to have been fulfilled. Over 30 schemes in the 10 MW to 60 MW range have been identified that can produce in total over 1,000 MW of power in studies conducted by the His Majesty's Government of Nepal (HMG/N). Recently constructed or ready for construction schemes such as Jhimruk (12 MW),Khimti (60 MW1,Modi (14 2 ORIGINAL MW)for which accurate costs are now known have per that are significantly unit installation lower than and energy production that of Arun costs III. There studies are is every reason completed, to believe the smaller that once altematives the detailed Arun III. can be built Feasibility at prices studies lower than of the altematives or competitive with must be policy requirement completed to compute for the Bank the LCGEP to have fulfilled for additional its other World power generation Bank least for Nepal. cost energy (For violations requirements of Resources: see also Tenth Replenishment, IDA 10 Agreement, Additions March 1, to IDA 1993; and World Bank Energy Policies). 4.A.3 Risks: The weak Nepali economy faces numerous Arun III. Due weightage risks in has not been taking on a project given to of the size of could be these risks taken to in preparing reduce the the project risks have for and steps not been that taken. importance: The following issues are of particular i. Riparian Issue with China: Over 80% of the Autonomous catchment Region of of the Arun the Peoples' river lies Republic in the Tibetan China to China. The HMG/N maintain does not the present yet have dry season a guarantee from flow over objection" the lifetime which China of the project. has reportedly The letter sent to the of "no water flow. The fact HMG/N does that a proposal not constitute a guarantee is pending of Arun's in China the Arun for the Changsuo (Punggu) river with Basin Irrigation a proposed Project on half the comrnmandarea dry season of 9.000 hectares flow of Arun that could presents withdraw a serious up to project. This risk to the risk has projected not been economnic taken into account retums of the in the sensitivity analysis. ii. Lack of Power Sales Agreement with India: future development Since Phase in the Valley It of the have been Arun III project predicated and not be approved on the sale until a bi-lateral of power to India, the agreement project must has been reached. iii. All Eggs in One Basket: By the time they are constitute completed. 50% of the total power Phase I and supplied II of the Arun to the national III will the HMG/N grid under agreed to the present by the Bank. investment A natural plan of catastrophe landslide, or a Glacial such as a very large Lake Outburst flood caused Flood (GLOF). by a project would or an earthquake virtually ruin the Nepali that might economy. affect this one This risk national of "putting economy needs to all the eggs be taken in one basket" into account to the in performing the economic analysis 4.B of this project. Policies on World Bank Role in the Electric Power Sector Conservation and Energy Efficiency in the Developing and World The World Bank's Energy Policies require the Bank development in the energy of integrated sector to sustainable be based on the strategies components which include such as demand energy conservation side management or efficiency Agreement, (see also Additions policy requirement to IDA Resources: under IDA Tenth Replenishment. 10 been paid to end-use March 1. efficiency 1993.) Attention in the formulation has not of the Arun III. 4.C Violation of Information Policy Late in the project preparation process, the Bank including released a study on some factual alternatives technical information, known as claimants "Plan B". However, to influence by then the design it was too and planning late for the and loan of the project negotiations as the appraisal between the Bank had been completed and the HMG/N had been completed. The issue of timeliness of information release in a meaningful goes to heart way cannot of the issue be overstated. of who participates This really and who for this project benefits in a project. were not participatory The design at the national and planning or local level. 4.C. 1 Arun III Project Information Document the main (PID): In public document the early stage of the available project, the on a project PID is According in addition to the Bank to the environmental Policy, when it is first assessment. created, elements a PID should of the project, including contain information the project's on the main objectives, financing, expected environmental or probable components, issues, status costs and of procurement undertaken, and consulting implementing services, agencies studies and relevant to be contact points. (See also Attachment In addition - I). to these points, OD 10.00 Annex A: Document requires Outline for an Investment that PIDs contain country and Project Information learned from sector background, the past operations project sustainability, in the country/sector. lessons and project Updated risks. PIDs should include project benefits Despite a high level of interest by Nepali NGOs in the project, of the components the Arun required III PID does by the Bank not contain many policy, for example, critical information: it does not contain any of the following 3 ORiGiNAL i. background description of the country, region or the Arun Valley or exact location of the project; ii. justification for Bank involvement; iii. background on the sector and sector strategy and how this project fits into the overall planning for the energy sector in Nepal; iv. information on project sustainability or lessons from previous experience of large scale darn projects in Nepal; v. information on the Arun Valley and its unique ecosysterns; vi. information on the 450.000 people, including the indigenous groups living in the Valley; vii. information on project benefits or risks; viii. project alternatives which were considered; ix. a discussion of issues and actions; x. information on a cost-benefit analysis; and k. relevant contact person in the World Bank and in the regional office in Nepal. According to Bank Procedures BP 17.50, PIDs are supposed to be expanded and updated as the project progresses. For all operations, the PID is supposed to be updated before appraisal. The PID for Arun III was prepared only in early 1994 (January 24) and has never been updated. 4.C.2 Environmental Information: Under the Bank's information policy and procedures, the environmental impact assessment for IDA funded category A projects is supposed to be made publicly available in the country "at some public place accessible to affected groups" and in a local language before the Droject proceeds to appraisal. The claimants believe this provision was not followed by the Bank. In fact, a law suit was filed with the Supreme Court on December 31, 1993, in order to get access to information about the project. One of the documents listed as demanded was the environmental impact assessment. On March 8, 1994 the Court decision required the government to release information, but this was after the appraisal was started. (See also Attachment - II). 4.C.3 Factual Technical Information on Arun III: Paragraph 5 in Bank's Procedures 17.50 requires the release of factual technical information upon request on project in preparation. This provision was meant to provide interested people with more factual technical information between the time the PID is released and project approval when the final staff appraisal is released. The claimants attempted to obtain factual technical information during project preparation in order to have input in the design or promote alternatives to the project. However, it was not until project appraisal was almost finished that the claimants received factual technical information. 4.C.4 Staff Appraisal Report: The claimants have repeatedly requested the copies of the Staff Appraisal Report (SAR)which is now final and has been sent to the Board of Executive Directors. Under the current Bank information policy, final SARs are only released publicly after the Board approves the project. Under the Bank's current definition of "factual technical information" does not include draft SAR (see Office Memorandum. Jan Wijnand. June 20. 1994). The claimants understand that failure to release the SAR before the Board approval is not a violation of the Bank's current policy. However, the claimants wish to challenge this aspect of the Bank policy, because the SARis the basic technical document of a project and should be classified as factual technical information. The small amount of confidential information contained in the SAR should be excised and the rest of the document should be released. The SAR contains the basic justification for the Bank's involvement in the project. Without access to the SAR before Board approval, it is impossible to understand how the Bank uses, manipulates, or misrepresents other factual technical information to support its involvement in the Arun III project. 4.1D Environmental Impact Assessment 4.D.1 Analysis of Altematives: The ELAreport should include "Systematic comparison of the proposed investment design, site, technology, and operational altematives in terms of their potential environmental impacts, capital and recurrent costs, suitability under local conditions; and institutional training and monitoring requirements. For each of the alternatives, the environmental costs and benefits should be quantified to the extent possible and economic values should be attached where feasible. The basis for selection of the alternative proposed for the project design must be stated". An essential part of any environmental assessment process is the investigation of alternatives to the project. to discover whether there are options which are more viable from an environmental and social standpoint. As stated above, the Bank's OD requires an environmental analyses of alternatives to the proposed project. Unfortunately, in the case of Arun III, the environmnental issues at stake and the available alternatives have not been integrated into decisions about whether to proceed with project. 4 ORIGINAL to investigate alternatives to the dam site or During the 1991 EIA, the team did not have a mandate which the road aligrunent (hill route) at the timne.The King Mahendra Trust for Nature Conservation Impacts Study stated "the road alignment and the dam site undertook the Basinwide Environmental to change these decisions". were already decided, and the study team did not have a mandate for the purpose of determining whether this Later in 1992, an EIA for the Valley route was conducted Arun III hydropower site. Serving route "might provide tirne and cost savings in providing access to the which the road will pass is a secondary the needs of the population in the general area through - Report, September 1992). consideration." (Environmental Impact Assessrnent Valley Route-Main was preferable route even though the EIA This EIA concluded that the Valley route to the hill also limited significant imnpacts to the valley. This EIAwas recognized that there would be irreversible and not to III and road itself, which were both to investigating altematives to the road the Arun and " .... the need for and the siting of the power project, considered a fait accompiL In this case, is taken as a given". Limitations, page therefore the justification for the road, (ETA.Valley Route Study 1-6). Valley route of the access road fails to take into Still more importantly, the so called EIA of the any alternative approach to build this consideration and compare from environmental standpoint the roads in the Himalayan road. For example, applying environmentally friendly approach in building methods have foothills by employing simnpleand conservation-oriented techniques and labor intensive construction of the road and the approach adopted, been proved successful. The pace of the proposed thus, is a serious environmental concern that the EIA ignores. cycle. the Bank comrmissioned a study After the EIA process was compIeted, and well into the project known as "Plan B" was issued only after a year of intense of alternatives to the project. This study The Plan B was local and intemational pressure on the Bank to adequately investigate alternatives. Arun III is the "least cost" option for Nepal, without regard conducted from the standpoint of whether to environrnental and social costs of either Arun III or the alternatives. called 23 public meetings to justify the 4.D.2 Public Participation: The Bank has relied on the so the project. The fundamental question is whether basic participation of the local people in designing available to the local people and the public at large project documents and infornation were made only two or three meetings of before the holding of such consultations. In fact, There have been to discussion on the positive side of the project. consultation nature which were also limited no elaborated information on the project Moreover, during or prior to the so called 23 public meetings, knowledge, there were no public meetings held in Nepali language were made available. So far in our In addition, meetings were held in Kathmandu by the HMG/N or the Bank. all of the above-mentioned information and document before the Nepali Supreme Court's verdict on the disclosure of all project only after the show-cause notice on March 8, 1994. The so called Information Centre was established The govermnent-controlled radio, was issued against the HMG/N and the NEA on the writ petition. and disinform the Nepali people about the existence television and the print media were used only to debate about various aspects of the project. Most benefits of the project but were not open to critical groups and individuals as well as the local importantly, the mere participation of some selective influence cannot represent the whole Arun Valley, and government authorities through governmental of the size and complexity of the project. (See also for this matter, the people of Nepal because Attachment-III). and discussion in the absence of the basic Therefore, we strongly claim that the holding of meetings any sense of meaningful debate about the project documents and information do not make in terms to information and genuine public positive and negative aspects of the project, and meeting the access consultation policy requirements of the Bank. the cumulative impacts to the environment in the Arun 4.D.3 Cumulative Impacts: Furthermore, The World bank has argued valley of Arun III, Lower Arun and Upper Arun have not been evaluated. 1,044 MW can be generated from the that the benefit of the 122 km road into the Arun valley is that to the environment will thus be confined to one river three schemes in Arun and that the impact it is widely accepted (including by the basin rather than scattered among diverse sites. However, the cumulative impacts of all three schemes will result in Environmental Department of the ADB)that "irreversible environmental damage to the valley". (EIA).The Arun III is The Bank has violated OD 4.01, Annex B on Enviro=nental Impact Assessment Arun Valley. Despite this, environmental only the first phase in a plan to build three dams in the Arun III, and therefore, there is a need of a studies have only covered the adverse impacts of cumulative impacts of building the other two schemes and comprehensive study of the long-term additional road construction in the Valley. 5 ORIGINAL 4.D.4 General Violations: There are clearly noticeable inadequacies in the EIA studies of the various components of the project. For example, there is no thorough assessment of the likely environmental impact by the 120 km high-voltage transmission lines. In the analysis of risks due to GLOF and land-slide floods it is claimed that the risks are minimal. However small the expected risks are, there should be a mitigation plan for the same needs to be developed. The environmental studies lack such mitigation plans for natural disasters. Similarly, no mitigation measures have been developed for the adverse impacts on the fish populations. There are no mitigation plans for the likely adverse environmental impact to be caused by the disposal of construction spoils of project elements like dam, tunnel, power house, access road and the like. The impact of dumping construction spoils into the river has not been studied. Though this is definite to have significant adverse impact on the down-stream side of the river. 4.E Involuntary Resettlement: Land Acquisition, Compensation and Rehabilitation In 1990, the Bank established an involuntary resettlement plan because "development projects that displace people involuntarily generally give rise to severe economic, social and environmental problems." One of the main objectives of the policy is to provide people displaced by a project with the means to improve, or at least restore, their former living standards, earning capacity and production levels. This central objective has already been violated in the case of Arun III. 4.E. 1 Under Valuation of the Compensation: The EIA states "For the majority of households compensation with cash would not enable them to recover from the loss of a significant proportion of the family land holding, unless the money were used to buy an equivalent of land In the vicinity. However, the effect of ACRP on the hill route has been to inflate land prices far beyond the compensated value, thus making the purchase of replacement land impossible for most PAFs" (Project Affected Families), (see, Arun III HEP: Environmental Impact Assessment for Arun Access Road - Valley Route; Volume 1/2 Main Report; Sept. 1992; p. 5-4). The report also confirms that land has been undervalued by the District Land Revenue Officer, therefore, making it impossible for the displaced people to recover their losses. The report further states that "The filed surveys for this report found that land values fixed by the local Land Revenue Offices seriously underrate the reported market value." (see Ibid.). This action also violates para. 14 of OD 4.30 which states 'Valuation of lost assets should be made at their replacement cost." 4.E.2 Opportunities to Share in Project Benefits: The benefit of this project will be electricity. but it is not electricity, however, for the Arun Valley. One section of the EIA(6-11), however, describes the expectation of local people to receive power from this project at affordable rates. The modification made in the project which corresponds with this expectation has been an increase in the width of the transmission lines so that sometime in the future the Valley can benefit from a future electrification program, as of yet undeveloped. In no way will the main benefit of this particular project - electricity - be conferred to people who are directly affectedby the project. 4.E.3 Employment to the Seriously Project Affected Families (SPAFs): Noting that the displacement of project affectedpeople would be permanent, earlier versions of the EIArecommended that permanent employment be made availablefor at least one member ofthose families expected to be severely affected by the Arun III project. In later versions, this recommendation seems not to have been carried through. Localpeople affected by the project are to be given first priority for employment in the construction of the access road. This employment opportunity, however, is not permanent whereas adverse effects ofdisplacement are permanent. 4.E.4 Land Based Resettlement: The World Bank experience and policy on involuntary resettlement states that replacement ofresettlement land ("landfor land strategies") is far superior to cash compensation. In fact, experience has shown that most people who have been displaced by the Bank projects that received only cash for their land have not regained their standard of living, but instead have become impoverished (see Resettlement and Development, April 8, 1994; also Involuntary Resettlement in DevelopmentProjects, MichaelM. Cenea, 1988). In addition, the EIAhas shown that cash compensation is already failing in the case of people displaced by the hill route in the Arun III project. The ETAhas further stated that it is expected that the Valley route Project AffectedFamilies (PAFs)will have been less ability to be able to deal with cash compensation because they are poorer than the people along the hill route. Despite the overwhelmingevidence against cash compensation. it is still the centrepiece of the HMG/N land acquisition guidelines. The updated Land Acquisition, Compensation and Rehabilitation Plan (ACRP)has attempted to cope with this issue by requiring that the project affected people be given the option of receiving land instead of cash. However, the burden of identifying land has been put on the displaced people themselves and they also must arrange for the HMG/N to purchase the land. Furthermore, those 6 ORIGINAL already displaced do not have the option of receiving land. According Awareness Group to the Sankhuwa-Sava that is raising Peoples' its concerns about the project within the Arun documented that the people Valley has recently who received cash compensation earlier have not about whether been informed they would prefer or asked land, and not the cash. (See also Attachment - IV). The HMG/N has now given on October 5, 1994 a 30-day public notice Land Acquisition of land acquisition Act, 1979 in under the Manakamana Village. However, the notice does whether the not say anything families are about eligible to ask for land for land compensation limited to cash since the law compensation. Is basically The claimants believe that many Valley residents' decrease as a standard of living result of cash will compensation, and the loss of land. 4.E.5 Surveys: In violation of section 11 of OD 4.30, there has not been completed on a socio-economic the Valley route survey to determine whose lands will be affected or to deternmine the land. the value of 4.E.6 Resettlement Planring: According to the Bank policy, the resettlement before appraisal. should take place However, no resettlement plan has been established for houses due families who to the power will lose their transmission lines. 4.F Indigenous Peoples There are over 24 different ethnic groups within the Arun Valley. Some cultural identities of which maintain separate and are organized under a network of ethnic groups in Nepal. These and Limbu tribes include the Rai who maintain communal types of land ownership. in the Arun Many of the Valley can be ethnic groups living classified as indigenous people using the characteristics Bank Operational described in World Directive 4.20: Indigenous People. These people natural resources have a close attachment in the Valley. to the They are considered as a series of have well established distinct cultural customary groupings. They social and political institutions and are primarily oriented producers subsistence- (The World Bank Operational Manual; Operational Directive p. 1).The original 4.20; September EIAdescribed 1991; the communities of the Arun Basin as "predominantly little influenced by outsiders. traditional and They are unique in themselves and practice cultural practices. diverse socio-economic and Many local people have never been outside the Valley." Mitigation Plan, In the Environmental a reference is made to protecting indigenous people. These within the rubric definitions clearly of OD 4.20. Operational fall Directive 4.20 has as its basic indigenous people tenant "a] to benefit from ensure that development projects, and b) avoid or effects on indigenous mritigate potentially adverse people caused by Bank-assisted activities." At the policy is to its centre the main objective "ensure that indigenous of people do not suffer adverse process, particularly effects during the development from Bank-financed projects." (See ibid., p. 2). In indigenous the case of the communities Arun III, the in the Valley will be adversely affected by the assessments project. But, do not demonstrate the impact any local benefits for the indigenous commnunities. Adverse impacts identified by the EIAinclude: i. a further deterioration of natural resources upon which local comrnmunitiesdepend population growth because of related to the project: U. further marginalization due to the introduction of an unfamiliar cash economy proposed road along the route; iii. the introduction of disease, through work camps in an area where iv. introduction epidemnicsare unknown- of income inequality between comnmunities situated close to the proposed route and communities road further from the road; v. further income inequality between original inhabitants and migrants and entrepreneurs attracted by the labor and market opportunities: vi. severe food deficits: and vii. cultural disintegration resulting from the employment of up to 6000 non-local workers, of whom will some settle permanently. The cumulative risk to the well-being of the indigenous peoples in the higher. Yet, no Valley could not risk seems to possibly be be great for the Bank. Perhaps the reason the even though Bank is willing the risks are very to go ahead high Is because in essence the Bank does not people, including bear the risk The Nepalis the claimants do. 4.F. 1 Lack of Mitigation Efforts: The HMG/N and the Bank has which mitigation produced three documents in efforts are discussed. These are the Environmental Action Plan and Mitigation Plan, the Regional the Land Acquisition, Compensation and Rehabilitation each of these Plan. The effectiveness plans in coping of with the above problems is questionable. documents It is unclear represent whether the work-plans or only reconunendations for work-plans. Many of the mitigation 7 ORIGINAL recommendations made by relevant experts of the three in the EIA plans. Lastly, have not many issues been taken into consideration are outlined explicitly raised as needing in any in bid documents. to be resolved in tender Whether documents or documents or not are kept this has secret. happened is unclear as the tender 4.F.2 Preparation of the Indigenous Peoples' peoples development Plan: As required plans have by OD been prepared 4.20, no indigenous RAP do not constitute by the project. a regional The mnitigationrecommendations development in the Mitigation plan or of negative a special indigenous impacts on indigenous peoples development peoples do not constitute plan. development. 4.F.3 Lack of Adequate Cadastral Survey: recognize property The World rights should Bank, OD 4.20, be taken states that steps to recognized before land titles. other planning In the case steps that of the Arun may be contingent cadastral III, land appropriation on survey was completed. for the project started before the Section 15.d of OD 4.20 calls for indigenous project peoples planning, participation implementation in decision-making and evaluation. throughout the process was in According question to the because 1991 EIA, "the road the value study team alignment of the whole did not and dam have a site were mandate already to change decided, and the 4.20, but other Bank these decisions." policies This is as well. a violation of not only OD 5. ADVERSE EFFECTS ON OUR RIGHTSAND INTERESTS 5.A Threatened Direct Adverse Impacts on the Claimants Because as Nepalis Nationals of the size and cost of the Arun claimants III project submnit in relation that the to annual project national vill have budget the Nepal, direct adverse of Nepal, including the poorest effects on many parts segments of society. of the population in almost twice one The total years national project cost is US $1082.3 development million claimants budget submit for Nepal which is that in addition (US $640 million to violations for FY 1993-94). The violate the of operational objectives policies, of IDA 10 and if the project IDA's country goes ahead, it will Arun III assistance is completely strategy out of proportion for Nepal. that a project to the size The total cost of of this size of the Nepal's the economy. and cost Cormnon that will sense dictates development not directly benefit at this juncture. the poor The claimants is not appropriate for Nepal's poverty further alleviation believe in Nepal, that the rather project it will contribute will not contribute project requires to more to poverty higher investment because conmnitment of the high investments from the cost of the in social HMG/N sectors and that such as threatens health and education. to "crowd out" 5.A. 1 Project Cost and Crowding Out of countries Social with a Sectors: per capita Nepal annual is one of income the world's malnutrition, of only poorest US $180. overpopulation Nepaii people and illiteracy. suffer from severe poverty, investment Health is a priority and social services need for are currently targeted inadequate, poverty and services interventions and education. According and for health to the Bank's and family planning objective country in Nepal assistance is poverty strategy, alleviation. IDA's main over-arching intensive In order to achieve projects which this there generate should income be investments opportunities in labor health, nutrition, for the and family poor and planning. investments Investments in education, investments in these in the Arun areas. (See III project also Attachment will threaten - IV). to prevent 5.A.2 Institution Building: All the components international contractors. of the project This will are proposed directly adversely to be built by country capacity through affect efforts public by the Nepalis institution building, to increase local management increasing in- and control private in undertaking sector capacity and promoting of the size hydropower 1-60 megawatts schemes. Altemative which are smaller scale projects the Alliance being promoted for Energy by Intermediate and others Technology are already Development Group, sector companies being built in Nepal. by local government Alternatives agencies help build for an IDA and private local institutional Credit for smaller and medium capacity, as well size projects would sector companies as generate income in Nepal employ for local local expertise private sector. and create Private jobs for Nepalis. 5.A.3 Crowding Out of Small and Medium that financing Scale Hydroelectric the Arun III will Projects: directly scale hydropower and adversely The claimants believe affects in Nepal the development by crowding of small size. Smaller out research, and medium development projects have the and financing advantage for projects of this self-sufficiency. of bringing electricity Smaller to rural projects communities are much appropriate less environmentally and promoting for Nepal's development and financially at this juncture. risky and more For fulfilling the requirements of the national 1 MW to grid, the 100 MW range small and medium can be hydropower developed in a number schemes in the of river basins spread throughout the country. 8 Pre-feasibility and reconnaissance studies for such alternatives that can produce over 1,000 MW of power have already been completed by the HMG/N. Feasibility studies for a large number of the alternatives including a full EIA, could be completed within the time period needed just to build the road for the Arun project. Additionally, the schemes that are studied and ready to go now could be already built. Over 500 MW of schemes in the 1 MW to 100 MW range have already been identified close to existing roads. 5.A.4 Underrnining Democratic Processes Inside Nepal: The formal and meaningful debate of the project in the sovereign Parliament is a fundamental requirement under the Constitution and the laws of Nepal since the project involves riparian issues with China, power-sale agreement with India, if any, and huge investment from internal sources as well as other socio-economic, natural and environmental risks. This has never taken place. (See also Attachment - V). 5.B Threatened Adverse Direct Impacts to Claimants in the Arun Valley Violations of the Bank policy on environment, indigenous people, and resettlement, combined with the fact that the NEA does not have the capacity to implement environmental and social safeguards threatens to cause long-term irreversible direct adverse impacts on the claimants. The impacts include the following (See also Attachment - VI): A. Increased Food Deficit, Loss of Income and Increased Unemployment B. Fall in Food Availability.Prices Rise and Fall in Nutritional Level C. Loss of Forests D. Adverse Health Impacts E. Deterioration of Living Standards as a Result of Cash Compensation 6. RESPONSIBILITYOF THE BANK We believe that some of the main responsibilities of the Bank are: A. To ensure that the proposed project promotes just. balanced and equitable national development: B. To justify the achievement of its originally stated goals and objectives; C. To address the priority needs and sectors of the country; D. To be accountable in its assessment and analysis leading to the investment; E. To guarantee transparent and democratic decision-making processes; F. To protect, promote and respect the other rights and interests of the country and the people as stated under the title "Our Rights and Interests" above; and G. To fully ensure, at least, the compliance with its own policies and procedures in the design. planning and implementation of the proposed projects. (See also Attachment-VII). 7. PREVIOUS COMPLAINTSTO THE BANK A. We wrote the Bank in Kathmandu or in Washington, DC numerous times; B. We made our formal presentations during a one-day consultation meeting held on June 28.. 1994 at the Bank's Headquarters; C. We submitted letter of memorandums to the Bank Staff/Management as well as a number of the Executive Directors of the Board: D. We met the Bank officials in Kathmandu, in Washington, DC and in Madrid (during the recent annual meeting) and raised our concerns; and E. We made our concerns public through the publication of booklets and pamphlets, press conferences, and public meetings. (See also Attachment -VIII). 8. RESPONSE ONTHE PREVIOUS COMPLAINTS All our requests were either turned down or ignored or misinterpreted, and we have found most of their answers unsatisfactory and/or unreliable - not based on facts, and not reflecting transparency and accountability. (See also Attachment - IX). 9 ORIG!!Nl AIl 9. ADDITIONAL EFFORTS 9A We wrote and/or contacted several times to the NEA. Residential the Arun Office in Kathmandu, III Project Office,the Bank's and its Headquarters in Washington, document and information DC in seeking as well as satisfactory basic project answers to replied by our queries. the concerned But, mostly authorities, we were never or our requests were rmisinterpreted, and unsatisfactory or we only answers. (See received partial also Attachment - X).. 9.B On December 31, 1993 we filed a law suit against the HMG/N information and documents for the disclosure about the of all project project . The Court ordered to provide the defendants all project documents on March 8, 1994 and information about the laws of Nepal, project under and has further the Constitution established and the a set of procedures Even after for the disclosure the Court's of such information. verdict in our favor, the HMG/N has complete list still been denying of project information the release of the and provide documents. We, therefore, believe that the above actions/ornissions procedures which are have materially contrary to the above and adversely policies or affected our rights/interests recommend to the Bank's and request Executive Directors the Panel to that an investigation order to resolve of these matters the issues be carried and problems out in prior to any final decision. As advised in your Operating Procedures, this Request for Inspection provide you is intended with more details to be brief. and particulars. We can Signature: / 1D Name: Gopal Siwakoti Affiliation:Arun Concerned Group Status: IndirectlyAffectedClaimant; Lawyer.Human Rights Activist Permanent Address: Hwaku 4, Terathum District, Koshi MailingAddress: c/o INHUREDInternational. P.O. Box 2125. Kathmandu. Tel: (977-1) Nepal 419610 * Fax: (977-1) 412538 Signature: Name: Ganesh Kumar Ghinire Affiliation:Arun Concerned Group Status: IndirectlyAffectedClaimant from the Arun Valley; Environmentalist/Sustainable DevelopmentActivist Permanent Address: MaltaVillageDevelopment Committee 5. Sankhuwa-Sava. MailingAddress: Koshi P.O. Box4067. Kathmandu, Nepal - Tel: (977-1) 526722 ARUN CONCERNED GA&"D Secretariat: c/o INHURED InterjtR 8 P1 2: 12 P.O. Box 2125. Kathmandu, Nepal Tel: (977-1) 419610 * Fax: (977-1) 4TR` INSPECTION PANEL November 2. 1994 Ernst-Gunther Br6der Chairman, The Inspection Panel 1818 H Street. NW Room No. MCI 1-103 Washing'ton. DC 20433 Unites States Dear Mr. Chairman: With reference to your fax message of 24 October and 1 November 1994. we are sending herewith the Attachments l-X of the Claim filed at the Inspection Panel on 24 October 1994 and the evidence of the letters of authority to represent the two of the directly affected people from the project-site. Please replace "Attachment-IV" by "Attachment- IV.A"under "5.A.1: Project Cost and Crowding Put of Social Sectors" in the Claim. Regarding the use of the terms "directly" and "indirectly" affected people in the claim, we would like to clarify that all the four claimants, including the undersigned who also represent the other two claimants, are the "directly affected" people from the Arun III project. The term "directly affected" and "indirectly affected" have only been used in the claim simply to make distinction between the claimants who have been eligible for compensation from the project for their acquired land from those who are directly and adversely affected due to the impacts of the project at national and regional levels. The undersigned claimants fall in the latter type. Therefore, we would like to request you to use the term "directly affected people" for all the four claimants for the purpose of the Claim. Please contact us for any further Information that you may need. We would also like to request you to contact Ms. Lori Udall, Washington Director of the International Rivers Network. 1025 Vermont Ave.. NW#300, Washington. DC 20005, tel: (202) 8794280. fax: (202) 879-3186 for additional information and documents regarding the Claim and the Attachments. Ms. Udall is our representative in Washington. DC. Sincereh, yours, Ganesh Kumar Ghimire Gopal Siwakoti Claimant Claimant enclosure U[lUINAL RECEIVED INTERLfl $ov-8 F'M2 12 INTER-CONTINENTAL LAW ASSC P.O. Box 2809 - Putaltsadak. Kathmau LR 7C 226325 The following is an unofficial translation of the authorization to Mr. letter of Ganesh Kumar filing of Ghimire a claim at the Inspection in connection Panel. with the legyallyvalid The original Nepali authorization version (attached) letter according is a to the National Code of Nepal. I, the resident *. of Khrang Village 7, of Sarnkhuwa-Sava District havereceived the cash compensation of my land that of Nepal is acquiredby the Government for the access road for the proposed Arun III Hydroelectric Project. adversely This has affected my economic condition since I was not used to the cash economy already spent the and I money that I received. In the process of compensation, informed nor I was neither asked whether I could choose land to land compensaion. In addition, not been able to I have know what are the direct benefits of the project tome. I am also aware of not well- relevant laws and rules. Iam hearing that there have been many debate controversies and about the project at local, national and international levels. I, authorize Mr. Ganesh thus, hereby Kumar Ghimire, age 34, the resident of Malta Villaae 5, Sankbuwa- Sava Districtpresently leavina in Kathmandu Municipality 10, Kathmandu District, member of the Arun and a Concerned Group, to represent my rights and interests claim against the World by filing a Bank at the Inspection Panel. I have fully accepted defend that a claim my rights to and interests by direct and indirect effectsof the project at present future be or in filed on my behalf. I or my representative will be ready to furnish further informationthat the Panel it may may require.Dated October 16, 1994. Chandra Mani Adhikari, Attorney, Supreme Court of Nepal October 26, 1994 ORiu IixAL RECEIVED INTERLRWS 94NoHj-8 PM2:12 INTER-CONTINENTAL LAW ASSOCIATES, Inc. P.O.Box 2809 - Putalisadak. Kathmandui«lEiMi;1JQkANEL The following is an unofficial translation of the authorization letter of ~- to Mr. Gopal Siwakoti in connection with the filing of a claim at the inspection Panel. The original Nepali version (attached) is a legally valid authorization letter according to the National Code of Nepal. I, . the resident of Baneshwor Village7, Baneshwor Guthi of Sankhuwa-SavaDistrict have been denied the compensation for the Guthi (trust) land that is acquired by the Government of Nepal for the access roadfor the proposed Arun HII Hydroelectric Project. This has adversely affected my economic condition. In addition, I have not been able to know what are the direct benefits of the projectto me. I am also not well-aware of relevant laws and rules. I am hearing that there havebeen many debate and controversies about the project at local, national and international levels. I, thus, hereby authorize Mr. Gopal Siwakoti, age 33, the resident of HwakuVillaae4, Terathum District presently leavingin Kathmandu Municipality 32, Kathrnandu District,and a member of the Arun ConcernedGroup, to represent my rights and interests by filing a claim against the World Bankat the Inspection Panel, and to take necessary steps for the adequate and/or land to land compensation. I have fully accepted that a claim to defend my rights and interests by direct and indirect impacts of the project at present or in future befiled on my behalf. I or myrepresentative will be ready to furnish the Panelfurther irformation that it may require.Dated October 16, 1994. QrafU:U' A&\Vtk.i N 3\T S' .t Chandra Mani Adhikari, Attorney, Supreme Courtof Nepal October 26, 1994 THE HISTORIC DECISION OF THE SUPREME COURT IN FAVOR OF THE RIGHT TO INFORrMATION ON THE PUBLIC LITIGATION OF ARUN III HYDROELECTRC PROJECT On May 8. 1994 the Supreme Court Issued an order In favour of the petitioners and against the defendant: Mini.stry of Finance. Ministry of Water Resources. Nepal Electricity Authority and Arun III hydro-eletric project. T-his came after the series of hearings on the historic public Interest litigation filed by the Executive Director of INHURED International. Advocate Copal Slwakoti 'Chintan, and a human rights activist Dr. Rajesh Gautam. demanding the right to information regarding the controversial Arun III hydroelectric project as the dispute comes under article 88 (2) of the Constitution of Nepal which providles for such litigation andi the solution of the legal andl constitutional disputes regarding the project. Accorling to the dlecisiorn madle by Joint Bench of Justices Mr. Haragovinda Singh l'radhan and Mr. Keshab Prasacd Upadlhyaya, the dlefendants shoulcl provicle all information regarding the Arin III according to the article 16 of the Constitution. The Supreme Court has made a new and historic Interpretation of legal principles in the context of the lack of necessary laws for the enforcement of the right to information In Nepal and the situation In which several provislons of other existing laws are yet to come into force. It has decidled that Lip to the time when appropriate laws are not enacted, the government agencies should provide Information to the Nepali citizens by applying the following gulilelines and procedures: 1. The applicant should first demand the list of documents from the dlefendants. 2. If the defendants provide the list within seven clays. the applicant should demand an inspection of the concerned documents. 3. If the dlenianicl is miadle according to clauses 2 of these procedures. the dlefendants should se( the time. 22 t~~&%2l-i GLOBE ictLz r iorenz.Member. EC Member. GLOBE EC Carlos Pimenta, Vice-Pres.. GLOBAL GLOBE EC ENVIRONMENTAL GROUPS ON ARUN III HYDRO-PROJECT Kaneshige Wakamatsu. Member.GLOBEJapan Eva Quistdorp. As the debate on the status of Eva gulstdorp, Member, the Arun 111hydro-electric Member. GLOBE EC GLOBEEC project is Intensifying groups in Nepal. have been global envtronmental expressing Tamako Nakanishi.Member. GLOBEJapan the World their critlcal concerns Bank. to other donors government and authorities. the Nepali Such major Kiyoko Ono. concerns Member, GLOBE Japan adverse such as impacts on society, cost and culture beneflt, and environment, debt burden, Anatoly Shabad. donors' Member. GLOBE Russia conditionalities. Inappropriate heavy use absence of foreign manpower of local and human resources. Noboru Usaml. Member. GLdOBEJapan NIo U.participation lack of effective of the local people in decision-making ' Implementation. and Vitaly SevatYanov. Some of theseorganizations Member. GLOBE Russia Include: 1. Both Ends (MTeNetherlands) Constance Morella. Member. GLOBE USA 2. Friends of the Earth (USA) 3. Global Legislators Jolene Organization Unsoeld,Member,GLOBE USA J'UedMmrGUEnvironment for a Balanced (Japan) (printed from 4. International the originaltext) River Network (USA) 5. 6. Netherlands United StatesCommittee Environmental for IUCN (The Netherlands) Address: Protection Agency Ginza Form 21 Bldg.. 7th Floor 7. Women's International League 8-13-4 for Peace Cinza, and Chuo-ku. Freedom (Switzerland) Tokyo,J- 100 Japan Tel: 81-3-3545-9555 Fax: 81-3-3545-8620 20 21 I 2 INTERNATIONAL SOLIDARITY assessments have not adequately taken Intoaccoupt the adverse social Impacts of opening up this isolated area ON ALRUNIII CAMPAIGN of the Arun valley by constructing an access road and bringing thousands of people to the remote projectsite. We urge the Bank to give serious consideration to LElTER OF CONCERN TO THE WORLD alternatives put forth by Nepalese NGOs that utilize the BANKBYTHE GLOBE extensive small-scale and mini-hydro potential of Nepal. GlobalLegislators Organisatlon for a Balanced Environment Such an approach would be considerably less expensive and result in a lower debt burden for the Nepalese. be March. 8. 1994 less detrimental to the environment and probablywould Mr. LewlsT. Preston not require the construction of new roads into this President pristine area. and would be decentralized and smaller in The World BanK scale than the Arun Ill proposal, Finally. this type of 1818 H Street. NW approach would make greater use of local materials and Washington. DC 20433 expertise. and could Involve a greater number of Nepalese in all levels of the project decision-makingand Dear Mr. Preston: Implementationthan the current plan. Wewrite to express our concern overthe proposed Arun We strongly encourage the World Bank to carefully Ill hydroelectric dam project on the Arun River In reexamine the economic, environmental, and social eastern Nepal. It Is our understanding that this project implications of the Arun IlI project and to give the same Is scheduled to come before the Board for a vote In levelof consideraUon to alternative approaches. We also April. ask the Bank to evaluate whether Arun Ill Is the "least- cost" approach to meeting the energy needs of Nepal. a We recognize that detailed environmental Impact critical criterion of the WorldBank's energy policy. statements have been prepared for the Arun project and that the Government of Nepal supports the building of Weappreciate your consideratUonof this important Issue this hydroelectric facility. While we are sensitive to the and lookforwardto your response. Government of Nepal's desire to meet the energy needs of Its country, we are concerned that the Arun hydroelectric dam and Its accompanying access road Sincerely. and associated transmission lines, as currently planned. may pose serious economic, environmental and social Takashi Kosugi.President GLOBEInternational Impacts that have not been adequately addressed. Akiko Domoto, President. GLOBEJapan Arun Ill would be one of the most expensive hydro power projects in the world. As you know, the cost of the John Karry, President. GLOBEUSA project at present Is estimated at $764 million, an amount greater than Nepal's national budget. NikolayVorontsov,President. GLOBERussia Furthermore, there are reasons to believe that. although lengthy. the environmental Impact statements are John Edward Porter.Vice-Pres.GLOBEUSA Incomplete. Finally. we are concerned that the HormoMuntingh, President. GLOBEEC 18 19 technically and economically to 42.000 feasible is put megawatts. at 24 Hydroelectric Projects Studies of which Detailed The existing are Complete: Installed hydroelectric the country capacity (including in small, Nae individual big. government District plants) is about and Capacity 250 megawatts. Production Goal Ram hhap eo.oo0 KW Hyd 1998 roelec triHydroelectric c 'Projects Constructed: Projects Al re Alreadyn-1II(1st ady Kalandi -A Snla140.ooo Aiun-Ill 2ndphase) hase) Syannkliwaab KW 1999 sankhuwasabha 201.000 0.000 KW KW 2002 2005 Name District Cnt eThe Ph arI Capacity Production total capacity Kathmandu Year megawatts of national grid SuhnaTin 500 is 280 KatLhfmndu 1 (hydroelectricity PaSouUi and electricity Kavrepalanchowk 6400KW 1911pouedb produced by diesel plants and Pokhara 2.400 KW Nepal Electricity Kaski 1965 Authority oaou Thishul 1,020 KW 1967 supplies electricity 0.0 Sunkoshi Nuwakot famrlies to about Sindhupaichowk 21,000 KW 1972 from this capacity. 300.000 ¶lnau 10.050 KW 1973 cent of the people A total of only 9 per Gandak 1.upandchf1020 of Nepal Nawalparashi KW 1974 are benefitted by Kulekhanl-l electricity. Makawanpur 15.000KW 1979 Devighat 60.000 Dhadng KW 1982 Set Kaskl 14.100 KW 1983 Kulekharn-2 1,500 KW Makawanpur Marsyandi 32.000 KW Tanahu 1986 Andhkhola 69,000 Syanga KW 1990 Tatopani lyads 5.100 KW 1991 1.000 KW 1992 Hydroelectric Projects Construction: Under Name District Capacity Production Goal Jhrlmrook Pyuthhan 12,000KW 1994 June 16 17 2. We appeal to the Honorable Members Parliament. the political of the parties "LETSBRINGARUN-1ll people and all concerned other PROJECTTOANATONAL to Initiate a wide COUNTRY this Issue debate In the on DEBATEANDSAVETHE FROMCOMMISION forthcoming AGENS Parliament. session of the ANDCORRUPTION." 3. All the informnation SOME regarding BITTER FACrS ABOUITARUN III aspects the differentThavrgcotfrIklwtofydeetiiy of the Project should be made by the public government without The average further 1 kilowatt discussion delay cost for of hydroelectricity should and start levels at national is US$ 2,0000 (Sankhuwasabha, and local In the Icase$ CiabotU$400adi 1o500 n Indt a and Bhojpur Dhankuta sU$150i.ni districts) and Immediately China. n the local by Involving bodies. A national According consensus made only can be to the estimated cost of Arun-III, after such 10 debate mlliion with Nepali effective rupees shall be spent every public participation. 10 years. day for In general. there 4. A decision Is a 10 per cent has to be made loss of electricity regarding and national regional level benefits produced from In its transmission. Such In Nepal, concerns the Project. the loss of and benefits transssion imposed should and leakage-amount either not be to 30 from per cent. above It is generally assumed countries. or from foreign that in Programs the international should aid business, and developed be formulated the commission cost immediately ways in different and Infrastructure for local can be benefits up to 15 per cent. In case of Aiun-111, development the Comnimssion Inception before of the the cost of 10 per cent of Project. the official It Is Important cost estimates amounts the people for to 3,800 of Arun valley rupees. million If the Nepali decision-makers mechanisms to know by what are purchased they can be at involved the cost of 10 million rupees decision-making in the each, it can process. purchase It is also 380 decision-makers for important of this country. them to know what developmental benefits and necessary Infrastructures The proposed they entitled are 117 kilometer to and how? be the road for Arun-Ill costliest will road In Nepal per kllometer). (50 million rupees 5. Arun-III Is an attractive Project technical point from the of view. HYDROELECTRICITY preparations So necessary IN NEPAL like (1993) road construction. development local and the search Nepal to be understanding for International is considered rich in water resources. on financial resources The waters other which necessary and of our rivers fnow from studies the should altitude of the Himalayas before lmplementing be undertaken to the Terai (lowlands) It. which is tly Higher th which the Is slightly sea levl. T total hydroelectric higher than potential oftheNepal sea level. Thel MW. is 83,000 The hydroelectric potential -which Is 14 15 . ..I ;~~~~~ II assuniptions - -AA k Iv about ,s,.tvvw.t1ibt-r L GLOF kfAl UlJAy and the 9u caused floods by the stoppage of river Wnternational as a result landslide. of tmnancialInstitutions lkec the Such a risk can World be avoided Bank are decasions regular if a to makc their funal study Is made about in March the level 1994on such a unclear In such of water statc of glacial lakes and thcngs arrangements whcle other made efforts are underway to for the flow of water at conclude an appropriate an agreemcnt wcth Inteowatronal The country time. lacks the contractors capacity for such forcing works the country towards an at present. Such studies unbearable commitment. have so prepared far been only on the Initiative 10. At of foreigners. the moment, Nepal has foreign loans So the of question of follow-up USs 1,800,000,000. and detailed Arun-III will add examination and control million 540 are beyond more on reach. our this amount. If we estimate In this sense, the first condition the loans to be acquired for other projects constriction for the by of Arun III is to the year develop 2000 the total foreign capability. our own debt of will reach Nepal US$ 24,00,000.000 easily. Even if 9. The present the whole revenue cost estimate of 300 million for the proJect a year Is only for Is the first phase. It Includes used for debt services, the dam, the country can only be one tun el, a power free of debt after eight 201MW house wIth years only. thnelatowransmissionline the capacity uapatoiDuhabof By the year' 2000, the per capita andMWtheacesroad.miThere national debt burden wfil lise sptilo be 36,000 rupees abotfnacn iDeab which includes every Ncpall, the those enjoying about electricity fTnanceng ihe scesraTeonds phase nof and those deprived second thea phase Of the of It. At that ahead of Braziltime, Nepal Is certain to be acquiring In terms a soft loan of hydroelectric forlhesecond the projeca. phase of the crompetioSeveral donors resources are talking and the about highest per capita level of the completion ofvratheors renphaseg foreign debt. Of the aofuth is it proper second phasc in the name of development?to add foreign construction of the only by It Is a commercial gaecnest matterdebt of loans. It also said is Uo s that the second grave concerns phase of the to all Ofus. project Is not attractive for such loans. OUR CONCERNS phase If the second of the project can not any reasons, be completed the rushed for first phase construction of the project of the will only mean the l. The country should not make destruction a hasty decision of the landscape on Arun-III of the which valley, requires a big amount of Investment. destructio Similarly. the double ofhe anscaeftmadeafter The final decision should be circuit a national debate. We appeal to all transmission 220 kilovolt line up to Duhabi concerned groups to expose the scheme sufficient. is not of Such transmission making lines the country required are committed to such up to the east and west high sounding an project. which if Implemented The necessary of Duhabi. expenditure for this in its present purpose form, is Is going to result in still unaccounted for unforeseen On the other hand, economic, the social and developmental consequences. 12 13 Implementation (10 years). -- possibly hlzimecIaIilsin forcing arid with only a window dressing the people of one of In saying the five poorest that attention countries shall be given to such of the world to revert things during back to other cheaper, the period of the construction of depletable and environmentally the project), the construction unfriendly of Arun Ill energy sources. Instead of project can a hasty create long decision term and permanent the construction on of Arun negative Ill, we should effects on think the environent. of taking up small and medium size hydro- electric projects 7. Immediately It Is widely which known that can a large part of the supply electricity before the waters year 2000 to be used cheaply for Arun-ilI flows down and with lower investments from the Chinese autonomous by using region of Tibet available financial resources and that and 80% of local this river basin lies in Tibet. capabilities. Otherwise, It has been it is difficult widely discussed to that there are imagine how the several Nepalese projects will use (Irrigation electricity and hydro- at such alarmingly electricity) high prices. in operation in Tibet to use the water of the Arun river. It has also 6. The Arun valley comprising proven been the whole by International of experience that the Sankhuwasabha. agreements many areas of Bhojpur and goodwill and of both countries are a large area necessary of Dhankuta for hydro-electric districts, is development considered to be rich projects In natural on a comnmon resources. river. In this context of The blo-diversity In Its Northern Arun 111.adequate parts as homework be done result a needs to of variation in altitude, In this regard Its micro- and HMG of Nepal has not climatic zones, its made any still intact efforts to plistine forest secure the agreement of in the valley with rare the Chinese wildlife govemment. and valuable At present there are medicinal plants, Its greenery. no big projects river and In Tibet utilizing the water of streams are unique the Arun and they river. However, need to be we can not say with protected. These certainty cannot be protected that such big projects by will not be simply giving directives Initiated to the contractors within a period of 40-50 years In the who are to do the future. construction So. it Is work of necessary the to secure the project. 3 For about agreement 450,000 people living of the Chinese In government in this valley these environmental advance. For such resources long term agreement, the factors are closely s linked parliament to their livelihood. must play a significant role. proper way A of mobilizing these resources In a sustainable 8. way should In spite be developed of many arguments with the of safety against participation of the geographical local people. risks like A basic Glacier Lake Outburst framework can be created Flow (GLOF) within a few years and earthquakes by the by conducting authority, project programs experts for environmental are not satisfied with the protection and the information use of resources with the and studies available and they participation of local say that people. Without the studies a sound and research done so far basis for environmental are Incomplete protection and unsound. No project can be fully free of risks and there is always room for a additional study and research. From 10 11 dimension. In our country where a new that India will buy political system based the electricity generated on the participation of from Arun project at a market rate) and other the people has just been initiated, the future congenital conditions prior of the country to can not be bright unless Implementation. The future holds enormous development and politics are complementary. uncertainties with bleak prospects. In such a context, the lack of clear direction Infrastructures must first be developed, since regarding the available resources to be It takes considerable time for the completion mobilized for development will lead to a of attractive projects, especially big projects. bleak future. The popular slogan few years It Is an established fact that donors propose ago. "Green Forest a is the Wealth of Nepal" has hike In electricity tariffs as a pre-condition now become senseless. Our forests Instead of for loan negotiations. The construction of being assets for development have become a roads, the development of local capacity. liability for the country as they are to be mitigation measures for deteriorating protected with loans and assistance from environmental and social balance, other countries. the It is necessary for all to be Infrastructure for housing in areas conscious with high about the process of gradually population density, community developing and. local water resources. the only development (agriculture, health remaining etc.) are resource in Nepal, In a least cost things which must bc given top priority and optimum manner. Otherwise, like the forest developed first. These preconditions resources, will water resources will prove to be a determine and create necessary burden to the country. If we go on undertaking infrastructures hydro-electric for a huge project projects like Arun beyond our capacity. III. to be Implemented. In the present depend only on foreign consultant services situation, when attention needs and contractors .and to be focus our attention only primarily focused on developing these on big projects, the time will come when we preconditions, it will not be in have the interest of to be fully dependent for the Nepal to decide on the construction of the maintenance of such hydro-electric projects. project while completely ignoring Arun III and its the presentation In the present ' development of basic infrastructures. shape and formnhas Ignored the present and 5. Arun Ill, which is supposed to supply future need of the country and It Is to push electricity after 2000 cannot be the solution the country further towards the brink of for the present scarcity of power load national disaster. shedding. We must look for other alternatives 4. Although Arun III may be projected as an such as Khimti. Bhotekoshi and Modi Khola attractive project by Its proponents, this project to supply electricity project can only before that period. be beneficial to the country The electricity rate is expected to reach when we can sell US $ the electricity produced to 12 cents/KWh or Rs. 6.20 per unit, a very high the northern parts of India (Bihar UP and price even by the standards of a developed West Bengal). In the absence of the country. The implementation of Arun III will commitment of the buyer (such as a guarantee further burden the people with more rate 8 9 zou mw at present to about 700 _.__"vOAJ MW by 2005. &A& LAC uAl AcAACAIILAILUL;IUZC LAC IllIAdI In the future all aspects decision on of national Arun III (US life such Dollar 764 million) as development implementation works. Industries, is taken. transport, If the country Is commerce, committing health, education Itself now to this project and with the administration help of commission sectors agents as well as and corrupt the and Individual and vested Interests, domestic this commitment llfe of many needs to be Nepalese fulfilled will be dependent by any party on the supply which forms of the electricity. government In this situation, in the future the electricity and the country supply system cannot retract of the country or escape will be highly from the adverse dependent effects. A on Arun III. national debate If there are Is necessary any big on problems In this Arun III before risky any further project commitments or If the are electricity made and cannot be It is. Imperative supplied due to hitches for all to work It will be difficult towards a for the country national consensus. to get over the subsequent negative Impacts. Although Arun III Is now claimed to be a 'safe' All the agreements project. the and accords to be 'safe' project concluded Kulekhani or commitments HEP was damaged to be fulfilled considerably regarding Arun by the recent III should be postponed floods and the for the country Is time being still suffering to enable from load-shedding. wide national debate. The big question There Is whether Is a provision the country of about can 10% local withstand Investment this particular (about US risk $ 142 million) and its to be potential made Impact. In view of by the government the low risk and the Nepal bearing Electricity capacity Authority of the country, (NEA) for-the It Is Arun III reasonable to project. This broaden Is a huge the amount bast of Its and It will electricity have to be supply diverted from system, many priority i.e. the national social capacity should sector programs be Increased needed to through uplift the the people construction from poverty. of many medium-sized hydro- electric projects 3. In a developing spread throughout country like different ours where the geographic regions of rate Of growth the country. Is mcntmal In such a the adoptoon of manner the sophisticated element technologies of risk will be reduced. and the use of , Serious thought expensive International towards constructing contractors Arun III without should be proper given at attention a more appropriate to local resources time and when the country capacity has has attained been proven sufficient wrong. Development capacity and does not mean capability. a combination of activities to be carried out only 2. In a country on the strength like Nepal. of the annual budget is about US external Dollar 400 resources mllion inclusive and capability. of all Quite development contrarily, expenditures it Is an Internal for the year process to make (including the Nepalese salaries, society allowances. graft, more self-reliant. the to profit of contractors Increase the standard and the contribution of living of Nepali of poor Nepalese). people and There has in totality been no specific to transform Nepali society to a higher economic and social 6 7 As the financial viablilty of Arun III Is contingent - If any other small, on export of medium or big projects are electricity to India over and above the really less expensive, committed have multiple exchange of 50 MW currently usage and agreed upon with India. are conducive to national the donors insisted and local welfare, Initially on an agreement such projects to be in place should be Implemented for the export In a of power. However. proper cost effective this has yet to and timely manner. materialze. In The reality, a national concensus huge financial is needed in resources necessary for project determining water resource implementation management and as the funding constraints part of a well-planned national necessitated development the postponement of project agenda. construction. This was one of the major reasons. - From the for long changing term perspective, the project the site and the Implementation implementation of Arun schedule for the Installation III In Its present of form may not the 402 MW single be justified to increase stage and the 268 MW, and 134 electricity consumption MW two staged construction and generation to be completed in the by country. 1996/1997 It would therefore and 2000/2001 be proper to respectively. The 201 MW Baby Arun develop the necessary infrastructure has been tailored In a less to meet the expensive manner financial and requirements with public and fit Inside the participation macroeconomic at different levels. resource affordability envelope of - In a poor country the poor country. like ours, It is It must a well known be noted that no , fact. that unbiased LCGEP development has been conducted with the help of to justify the external agencies project as being In Is largely decided the least cost by generation sequence in the commission agents. corrupt changed context decision-makers of delay. revised and businessmen load demand. export constraints and biased International and availability interests. These selfish of latest elements feasibility are always reports of other attractive Interested In big projects projects suited that Involve only to the country's current few people. For development them, many needs. (In the small projects LCGEP study Arun III and the involvement was Included as a project to of many people be constructed in the by 1997 at a cost of decision-making 720 million US Dollars process is problematic and with a not profitable. capacity of 402 MW In According to a single phase.) our experience. large numbers of small and medium projects INDISPUTABLE FACTS can be conducive to national interest helpful to the people. and - Water is considered to be the most dependable factor in the natural resources of CONTROVERSIAL ISSUES Nepal. There Is a necessity of proper 1. The proposed implementation development and multipurpose of Arun III use of water proJect In the present changed resources In Nepal where context wIll available resources push the country for modernizatIon to a great risk. The addition and development are of 402 MW of scarce. This Is an electricity by indisputable fact. a single project like Arun III will increase "the total 4 5 Development Bank and Germany assured US $ 550 be constructed million as assistance at Num Fyaksinda for the in the northem project. A part of Sankhuwasabha district recmnfermation to divert the study or Arun III with waters of the Arun river through two 11.5 commencem manipulationsentpuint199 were again mademade w ae thn whlprojeid . which projected kilometer long tunnels of 5.6 diameter to Arun III as the underground the least cost sequence. Though power housemeters at Pikhuwa the of Iniltial LCGEP tiding Danda looked at the Village. Six unts 402 MW development of 67 MWcapacity wil proda and envisaged 402 construction MW beginning In capacty 1990 and completion of will produce 402 works by flscal MW of electricity year 1996/1997. to be the reconfirmation transmitted study to Duhabi In considered Sunsarl district the by a 220 Implementation kilovolt transmission line. of 402 MW single 120 km long. The phase construction alternative and the 268 of a 117 km. long access MW and 134 road from MW two staged Hile of Dhankuta development district to the alternative power station with and all infrastructures the dam is also needed for considered to the 402 MW be an integral part to be constructed of this project. in the first Though the phase itself. full capability The revised of 402 MW will generate Inple1.entation 2885 GWh shedule of energy. the first Inm2001.eneatof taJorgetedcoummonsIng tchedlmajrgee assmptsionsing phase of 201 1744 GWh outMW will generate average of which 1513 GWh willenergy of be firm Justifying Armn 11 was the expected export of all jsurplus energy. The power, more first phase will wa tha half have only one tunnel e Installed capacltya to and power house India. for 3 generating units only. The capacity. to India. total cost for Following the US $ 764 million. 201 MW first phase Is estimated World Bank's As a result, at loan of about the 4.5 meter wide US $ 34 million access road to construct will become the a very costly access road (1.25 road, the Department million US $ of Roads His per km as comnpared Majesty's Government to the average of Nepal (HMG/N) US $ 0.2 million Invited bids for per km), in the roads In fact, the costliest 1989. Though the road built in lowest bid received Nepal to date. was nearly double In the construction program this amount, of the project, due to reasons powerful Chenuk proven only to the helicopters World Bank and the authorities, are to be regularly the bids were used and the simultaneous rejected and construction the access road of the entry construction road and was integrated with the dam are the Hydroelectric to be done by the same Project activities foreign contractor. to be undertaken During the construction under the Ministry period. the of Water Resources. number of people HMG/N responsibility. to be employed The present for daily work estimated financial will vary from 3.000 to 10,000. cost of the access To complete road Is said the construction to be US $ work 149 million, as early twice the Initial as possible. bid sophisticated amount. machines and latest technologies are to be used with minimal use of local manpower and DETAILS OF resources. The dam, tunnel THE PROJECT arnd access road components a single package have been combined Into and contracted For the run to a foreign of river hydroelectric scheme a 68 metertallrund contracting joint Of venture depriving meter hydroe the local and meter tall and concrete dam will l 155 meter long concrete dam International wlll contractors of road only. bidding for the access 2 3 ARUN-III: AN INTRODUCTION AND ISSUES OF CONCERN According to the Koshi basin study undertaken by the Japan International Cooperation Agency (JICA) in 1985, six sites of the Arun river were identified as attractive for further studies with a view to generate electricity. The third hydro-power site among the six as counted from the north was named as Arun III. The study also concluded that altogether 3 projects -Arun III, Arun II which is called upper Arun and Arun IV which Is called lower Arun - could also be financially competitive. On the basis of this conclusion, the pre-feasibility study of Arun III was Immediately undertaken in 1985 and was completed by 1987. Based on the conclusion and suggestions of these study reports preparcd by foreign consultants with foreign aid, efforts were made to acquire financial assistance for this 402 MW project with their cooperation. A comparative study of other candidate Hydro Electric Projects was undertaken In 1988 (Least Cost Expansion Generation Plan- LCGEP) wherein manipulations were made to justify Arun III project as the least expensive by arbitrarily padding the costs of other attractive candidate projects. With that objective achieved, Arun III was treated as a prlorlty' project and a detailed engineering study was undertaken with financial assistance from foreign donors and lending agencies (hereinafter "donors"). in the meeting held in Paris in May 1988. the (don(ors FOREWORD Arun-III hydro electric project will have tremendous long-term Impacts on the socio- economic life of the Nepalese people. In view of the effect that such an undertaking may have on national development needs, environnment. realization of human rights and promotion of participatory democracy. the Arun Concerned Group (ACG) has evolved from among citizens' groups and lindividuals to raise concerns. ACG Is an open participatory platform of individuals and organizations for equitable and participatory development approaches. enviroinmential conservation, sustainable development and the realization of human rights. This GroLup advocates that Nepal needs adequate infrastructures and local capabilities to pursue the path of sustainable and people-centred development. ACG firmly believes that creating huge superstructures like Arun III shall not meet any worthwhile cause of the Nepali nation and Its people. This document has been prepared by a group of professionals, nanmely Bikash Pande, Ganesh Chimire. Gopal Siwakoti, Copi Upreti and Pitambar Chhetri, for the Arun Concerned Grotup. Contact Address-, cdo INHURED INTERNATIONAL International Institute for Human Rights, Environment and Development P. 0. Box 2125 II~~~ *4 '',>''''t 2d ,. 0 ''' tr--rV01ivv0'u;00 A 0s Dd 0L r,,, i e. t 4 :", .' -' ', " A . " '' , .''@,'''' ,. - .,. t ''. . ''' ' ' -: .'. '' ,' .. ,, ". . ' ' '' . ' ' '' , ,. ' ', " ,, -,.' ' e n=S'i ' , ; , L, BOOK REVIEW DEAR MEMBERS AND WELL-WISHERS, JUSTICE DENIED! HUMAN RIGHTS AND INTERNATIONAL WE WOULD LIKETO EXPRESS OUR APOLOGYFOR FINANCIAL INST111TUTIONS FINANCIAL INSTITUTIONSREGULAR NOTBEINGABLETOPUBLISHNEPALTODAYON BASISDUETo SOMETECHNICAL The book is indispensable for anyone who wants ANDFINANCIALREASONS to understand how the global economic system works today and the terrible toll it is taking on the world's THIS IS GOING TO BE THE LAST ISSUE people and environrment. OF AEPAL TODAY Based on presentations bymore than 25 speakers THATYOUWILLGET FREE OF COST. ataPublicHearingheldduringtheUNWorld Conference WE WILLBE FORCED TO STOP MAILING on Human Rights in Vienna in June 1993, the book THE NEWSLETTERFROM NEXT ISSUE UNLESS addresses obstacles to the realization of civil. political. YOUR MEMBERSHIP / SUBSCRIPION FEE economic, social and cultural rights and the right to IS PAID INADVANCEAS BELOW: development around the world. Speakers cover the effects ofdebt, structural adjustmentand otherpolicies oftheWorld Bank. the International Monetaxy Fund, the "STUDENT$10 General Agreement on Tariffs and Trade, transnational °INDIVIDUAL$15 corporations, donor agencies and governments "FAMILY$20 on children, youth, students, women, peasants. INSTITUTION$30 indigenous peoples, workers, and the environment. uF $100 In easy-to-read language, the voices of the people from all regions of the world help make the connections CHEQUE OR MONEYORDER SHOULD between human rights, the environment, development. BE MAILEDTO peace and security, and democracy and popular participaUon In national and international decision-making. NEPALHUMANRIGHTS COMMITEE-USA The book is a contribution of NGO discussions P.O. BOX 53253. WASHINGTON, DC 20009 and actvities related to the 50th anraversary of the (703) 519-1728 Bretton Woods Institutions, the 50th anniversaxyofthe United Nations, and UN events including WE APPRECIATEVERY MUCH YOUR the International Conference on Population COOPERATIONANDPARTICIPATIONIN and Development, the World Summit on Social Development, and the World Conference on T COLLECTIVEEFFOR1 Women. The book has been edited by Janet Bruin, and NEWS. COMMENTS ANDARTICLES published by Kathmandu-based International Institute AREWELCOMEI for Human Rights. Environment and Development (INHURED International) and Geneva-based Women's International League for Peace and Freedom (WILPF). Copies of the 185-page book can be ordered in US$14 or equivalent from: INHURED International, P.O. Box 2125, Kathmandu. Nepal. tel: 977-1 419610. fax: 977-1-412538 (for Asia and Africa) or WILPF. C.P. 28, 1211 20. Switzerland. MailingAddress: tel: (41-22) 733 6175, fax: (41-22) 740-1063 (forEurope) Nepal Human Rights Committee-USA and Laxman Sedhai, 2705 S. Fern St. # 12,Arlington. VA P.O. Box 53253 22202, tel: (703) 683-7501 (for North America). Washington, DC 20009 Page No. 16 Nepal Today NEPALESE ABROAD a caretaker CONDEMN government DISSOLUTION must be formedwhich willbe OF PARLIAMENTIN NTINNEPAL acceptable to all theconcemed NEPAL ~~~Anational consensus Nepal .byallthepoliticalforcestosafeguardNepalinationalism. and parties. goodwillmust beforged Human Rights Committee-USA monarchicalmulti-party democracy and human rights August inNepal. 2, 1994, Washington, DC Wehopethatthe concemed TheNepal Human Rights people's partieswlllfulfiUthe like to express Committee-USAwould aspiration. its deep concems Weexpress regarding our solidarity dissolution the recent with the of the sisters brothers 'sovereign' Parliament back homeIn and Nepal. upon thesocalledrecommendationofthePrime by the King which Minister was done without proper consultation CONSTITUTIONALPROVISIONS poliUcalparties with the in the Parliament. We viewit than a consequence no more REGARDING of the defective DISSOLUTION provisionsthat Constitutional didnot OFPARUAMENJ7AND"SOVE guarantee the real GNY the Parliament. sovereigntyof but retained the absolute Kingin power manyaspects ofthe such as this. In thelongrun, ArticLe42: Special provisions Conceming Nepal needs is what the struggle forthe Council ofMinisters: amendment controversial, ofthe many undemocratic and unclear provisions the present of Constitution so that (1)Ifno one party the sovereignty has a clearmajority in peopleand the House of the basic ofthe characteristics Representatives. His majesty monarchy can be ofa constitutional shall appoint as Prime miaterialied monarchy~ ~ ~ in real Ministeramemberwhoisabletocommandamajority sense. has been the ~ position ~~~~~~~hThis ra ene with thesupport of NHRC-USAsince si a oftwoormore parties it submitted House.eilvdi represented in critical its recommendations the House. to the Constitution then Recommendaion 2)Ifno member isable to command a majorityin the Withregards ConmmissIonin 1990. tothe present USAwould politicalcxisis,NHRC- House ofRepresentatives evenpursuant like to toclause (1) urge all PrimeMAinster groups poliUcalparties, above,HisMajestyshall and the citizen's people leaderoftheParliamentarypartythatholdsthelargestthe appoint as of Nepal the establishment to work for ofa healthy number and trustworthy ofsets in the House environment political of Representatives. so that free, fairand impartial processes electoral can be ensured for the November (3)APrime Ministerappointed guaranteeing elections pursuant (1) the possibilities or (2) above toclause for the shall be required to obtain democratic, victory of more a vote of honest and confidencefromthe House of Representatives generation dedicated within leadership new who have tirty days. long-term human visions rights and for democracy that need. Nepalisin desperate (4)If a Council ofMinisters constituted the provisionsofclause pursuant to (2)above fails toobtain a vote Alliance for Democracy of confidencefromthe House ofRepresentatives. His and Human Majesty shall dissolve the Rights House in Nepal of Representatives July27. and issue 1994. NewYork months. an order for holding elections within six TheAllianceforDemocracyand Human Nepal expresses Rightsin Its outrage and condemnation ofRepresentativesontheMajestymay dissolvethe Article53(4):His recommendations dissolution oftheHouse of the Mirister. oftheHouse Prime ofRepresentatives His Majesty shall, Sabha - Pratinidhl when so dissolving the onJuly lOth. the undemocratic 1994 by His Majestythe House ofRepresentatives,specifya Kingon and immoral months, date, tobewithin six byPrime MinisterGirijaPrasad recommendaUonmade for new elections to of Representatives the House Koirala- tendered whohad his resignation. earlier The conspiracy and 'Grand Design' The Preambleofthe Constitution states various enacted reactionary by the forces source to weaken of sovereign that -the democracy authority and of the independent and -crush the people'saspirations is obvious. a direct violation of the This action is sovereignNepalisinherent in Constitution thepeople'. Article3ofthe goals and Jana Andolan in spirit realized providesthat by the April 1990. vested in theNepalesepeopleand SThesovereigntyofNepalIs Aslongas thisgoveznmentremains accordance shall beexercised in power,nofairand with the in provisions of the Constitution.' and impartiality Impartialelectionswillbeheld. Toguarantee the fairness of the November Alandmark 1994 interpretation election. expected from of these the Supreme provisions Is Court in fewweeks. Page No. 15 These initiatives have best been examples considered ofNGO-govemmentco-operation as NHRChasreceivedareportfromNDRSGthatLhe effectiveimplementaLionofvarious in the donation rights international has been treaties which human used Nepal to the to provideimmediate flood victims supplies conventions is aState Party (including of Gadhou relating Nipane VDC (Routahat) and discrimination. torture, VDC(Sindhuli). slavery,discrimination racial support NDRSGis these planning tofurther and covenants against two on civil,political, women, villages medical care, in housing. schqoling and and cultural and economic. including rights.) Children social income-generation programs. oftheNational Planning and WomenDepartment Anyone who Is interested finalizing the Commissionisin donation to make a generous report with theprocess of in this effort can send a cheque Watch the representaUves order payable or money and ChildAwareness of Child to the Nepal Human Eights and Group. Committee. organizations Interested NHRCwould can people liketoexpress itssincere contact thanks to Kathmandu. co INHUREDIntemaUonal.P.O.Box2125.Putalisadak. to: Child WVatch, to this thefollowingindividualsfortheirgenerous humanitarian contribution cause tel: 977-1-226325. vicUms in support fax: 977-1-412538. in Nepal: of the Audrey flood Shanker Chapman. Shrestha. Pure Ganesh Chimire. HUMAN Bishnu LalKayastha, RIGHTS Paudel. BalramAryal, YEARBOOK Rita Tiwari. LaxmnanSedhai. Sanjeev 1993 Singh. RELEASED Sukhdev Bir.B.Adhikari.MinaCheetri.Kharel, Shah. RC. Sunita B. Le. Siwakoti. Annie MadhusudanGiri. Goorman. Huyen Informal Morique Voisin. Sector Services Burton. Barbara R. has Quazi released Centre M.Haflz. its 1993 Human (INSEC) Santos. Emil M. Sunley. Joao D.E.N. documented Ania& Nirmala Bhatia. seriesofhumanrightsviolationsand RightsYearbookand has Schultz. Beryl Ram Jeffey.Johannk by police, with special abuses C. Malhotra. Whitesell. Louise L. Boume. Luke of untouchability. highlight on discrimination Homnath Subedi, Mahid The be available 512-page Chubuki Mejid. Tarek from: Yearbook Bhaskar Nepal.Tel:977-1-270770. INSEC.P.O.Box2726, can Giri. BipinKarld.PawanG.C..SonuRegmi. Helen Kathmandu, Abadzi. Acharya. Meena Kablndra Sharma. Devi Sitoula. Netra Chishing. Udaya Suresh Mainali. Baral. NEPAL DISAPPOINTED UN COMMITTEE ARUN AGAINST III COMMISSION TORTURE & ACTIVISTS UNDER PHYSICALTHREAT! TheGeneva-based UN Commritteeagainst a treaty monitoring a tratymoniorig bdy. Torture. eNHRC-USA body. is concerned serious has as concernsoverNepal's2-pageinltialrepotabout its expressed xpresedItsclaiming that a group Ilaattagdtm themselves of people fjeo as the implementation IIIattacked the office htheepeppomsino 'supporter' of Ar-un of ArxunIII Hydroelectricof the AgainstTortureratifled the UN Convention ProjectPeople's Commission and mishandled on some has byNepa2in members requested the 1991-TheCommittee of the Commission government in Kathmandu. on July 22. 1994 report to submilt within one Its detailed However,no serious injuries year. The mob then occurred. judicial. including moved administrativeand legislative. towards Intnational. the officeof INHURED for the othermeasures the Secretariat abolition undertaken of the of the Arun pracUce Concemed punishment of torture Group.withthreatsofphysical to perpetrators in Nepal. but attacks were interrupted toltskey officials. crinme.adequate of torture bythe compensation as a alsosearchingforactivistswhoareleadingthe police.The hooligans were victims and of torture rehabilitation and their to and those campaign law-enforcementagencies. familiesas well training who came t; to to the present World their Bank arguments in June to i tourge on Arun III. NHRCwouldlike i REPORI OF SUPPORT measures the Nepaligovermmentto undertake for the TO FLOOD safety necessary and physical integrity VICTIMSIN who are expressing of those NEPAL their concerns on Arun legal Illand action take NepalHuman activities. against those involved RightsCommitteelunchedafund-raising in such unalawful campaign to support The amount flood victims of$2,680 in Nepal last year. fromthe ELECTIONOBSERVATIONIN EPAL ($253 total as per amount expense) ofS2.933 has Disaster been sent Nepali Relief to the human Natural rights Support a National groups have formed a non-governmental Group Election (NDRSC). Observation relief organization coordinate socialworkers.humanrightsactivistsandpoliUicalpartyof composed local and international Committee (NEOC)to duringtheupcomingelections.Washington. elecUon observers leaders. National Democratic DC-based Institute get involvedin is also planning the monitoring to process. PageNo. 14 PageNo.14 Nepal Today Gautam - (publication). (cultural Prabha coordinator), Bhattarai and Suresh any political and Baral. party Niva Ram Pradhan Malakar and ideology concemed and with and is only Paul Gallmgher national issues at-large. as member of and common democratization concerns ofNepalisocietywithfull The annual meeting respect of theAssociation their human rights. to in the Americas ofNepalese (ANA)also elected Committee. its new Executive Dr. Amar Giri HUMANRIGHTS Washington. as President, also DC in held TRAININGTO,, July. in The representatives Concerned of the Group Arun LAW-ENFORCEMENT OFFICIALS and theAlliance forEnergy issues relating highlighted to Arun III controversy Kathmandu-based International benefit of Nepalese In Nepal InsUtute living for the for in the Human United Rights. States. Environment aNHURED and Development International) BHUTANESE organized a three-day REFUGEES long NUMBER human rights 1,00,000 80 law-enforcement study officials(police,judges, for sessJon about prison and administrative prosecutors, The nurnber officials), and of Bhutanese lawyers and refugees increased in Nepal NGOrepresentatives more has in Kathmandu than prograni was supported in June The to continuingsuppressionofNepali-speakingminorities one hundred thousands by the -due UN Voluntary1993. the Victims Fund for in Bhutan. of TortureU Bi-lateral talks tevict and Swiss refugeeproblemwithBhutanhavebeenheld,butwithout for the resolution ofrtortures of the Deveopment Cooperaton/Nepal. significantprogress. The main on international Lectures question human rights classify remains: norms refugees and standards, and ensure How to minimum their use offorce, measures home-country. safe return for the aboliton These to their days. practice refugees of of the disease, investigation malnutrition, are suffering torture, from of human and lackofadequateshelter rights violations and the relief compensation support despite ofUNHCR to victims, and other and experiences ofhuman rights tion to children agencies. Educa- educationand has become in other a serious countries training people problem. were are complaining Local delivered by Nepali of increasing and international experts, including adverse deforestation, Prof. impacts Reynaldo on social and ofthe and University cultural ofthe ly environment. Philippines, and Ahmed TInternal disagreement and infighting of London-based Othmanl Reform Bhutanese between Penal International. political different parties and The training have human was further rights found deteriorated groups and the situation useful unique according camps. Formore information ofrefugeesin to the participants. the in US. Refugees contact Solidarity Bhutanese Group. on programsareunderwayvwththepreparation ofa manual Follow-up training 02114. 73 Phillips human tel: and (617) SL. Boston. rights education 742-1942 MA training for VJ.Stephens). law-enforcement officials in the country. NATIONALCONCERNS CHILDREN'S RIGHTS SOCIEIY FORMATION SEMINARSAND FORMED OF CHILDWATCH Inspired by the work and achievement INHURED International, Concemed ofthe Child Group Arun NGOFederation. in raising Children hydro-power at Risk and UNICEF-Nepal related jointly issues development- in Nepal, organized a gatheringof national seminar a on the lawyers, concerned implementation journalists, citzens. of the human UN Convention and professionalshavefformedaNationalConcernrights on the activists Rights ofthe in March Child 1993. in Kathmandu The main followed purpose by the of the seminarwas protest Society of Indian Nepal army's to review and a fewmonths intervention make comments ago. The in Society of the on the draftinitial government report fundamental has identified issues some on the Child of national be submitted Convention to the to sincerely concerns UN Committee and that on the immediately need to Child which Rights is based of the the government. be addressed in Geneva. The 200 political by including Theseissuesinclude:adverseeffectsofforcedcitizens parties and 30 children, paricipants of Nepal. coming from Nepal different have parts made of andforeign pnvatization various recommendations aid: structural the adjustment government to donors' realizaton condiUonalities, programs for the and accountabilityand ights (parcuarly of child ofgoverrmentand transparency survival, development, parliament protection reguJation ad (participatin a frmedal India of open follow border: Nepal- uprfedtion and control anld paticipation) offree-flowoflndian and fored to Nepal: a folow up federation resolution immigrants of citizenship I the issuance problem of national with its KathmanduDeclarationontheRightsoftheChildin permit identity for foreign card followed nationals; by work cancellation Nepal-INHUREDlnternationalastheCoordinatorand treaUes with of unequal India, eg. Secretariat so called treaty peace In addition, of 1950. and friendship the same and several another groups facilitated others week-long national water relating seminar resources. to Nepal's of children, and cut in children for defense and by children with Society spending. the establishment is said The to remain Child of a completely Awareness independent Group and from a separate Declaration. Kathmandu Page No. 13 therefore, the project must go ahead-this can not be complete a bachelors accepted as degree and an adequate the time defense. The it takes to do fact is that the so is considerably Government longer than is experiencing the normal something four years. entirely new-it Because going isextremelyrareinNepalforacitizens'groupto for a post-graduate education is not as question much coveted Govemment's in America judgment as it is in on public Nepal, a majority sector investment of those finishing priorities, up college much less takinglegal do not go on action and to do a Master's demanding or Ph.D. explanation! However. if we believe : in a more open systemof government. Despite the hardships manyyoung citizens'involvementin Nepalese face the Jssues in America. of national they still find itattractive interest should to come for college be encouraged here.especiallysincethealternativesofstayinginNepaI andappreciated. It follows then that Government's are not all response that great. to ACG should be viewed as an opportunity to build public This perception. support for however. the project can change and make if we can necessary offer quality adjustments college education if that becomes in Nepal. apparent Better still.ifwe after debating can import both sides an of the Issue. American It will build standard democracy of and also university education will help build a better project. to make available to our college bound. afiluentlids theAmerican-style college education right inside of Nepal. Many of CONSTRAINTS us may remember OF the American UniversityofBerult. war that BeforetheLebanesecivil NEPALI STUDENTS erupted in 1975, INAMERICA this university was the magnet for promising young kids from throughout the - S.D.- Shah S.D.Shauniversity MiddleEast was as muchofcoveted and some parts Asia.Adegree fromthat as from the Growing affluence of the upper middle class familiesclassfamlies best universities in America and Europe. i In Nepal'ss Nepl urban uban centers enter and giveserious most especially anduniversities in Kathmandu Letusinthen has tended Nepal in collaboration consideration with American tohaving imnportsof luxuryitems. to boost the universites In Oneofsuchiltemnshasbeen eal in collaborto the wit akerucan universities college education in American .onofucitmshsbenhemuch and campuses. It would not take up too universities, of much urour own money. Many of the Accurate ownemoney.pMayothe statistics are not available but t American Is suggested universiiues maybewl that a the ingtoprovidehelpin number of Nepalese ding sth ca college undergraduates s awel as makig in American available their universities has t s increased a from only a few hundreds a decade ago to at least two or as much as four thousands currently: NEWS IN BRIEF There is little doubt that the Nepalese parents whoappreciateand can affordqualityeducation fortheir children are INFEDOPENSITS making a right decision in sending their KATBM.ANDU children to American OFFICE universities. However, it may be too much to expect that these young kids can so easily be transplanted in a foreign land and achieve their full potential. The InternaUonal Federation of Nepalis PNFED) has opened its liaison The harsh office in Kathmandu. truth is that most of these INFED is an kids get a aliiance ofNepalis plane ticket and theirorganizaUons to America and probably based outside a little of pocket Nepal. Its main objectives money. You and activities must appreciate are: to work the fact that for flve lakhs the rights and rupees is stll benefits a princely of Nepalis sum in Nepal living abroad. but Its equivalent to encourage of ten thousands and facilitate dollars may their contribuUon be just enough for for the the development plane ticket and one year of Nepal. to campaign of the college for effective and expense. secure labor-supply The truth laws and then is that instituUons most of the and affluent family to undertake programs kids coming to America for a democratic for college Nepal. Those education have to who would take upmenlal like to know more about jobs after a few months INFED. and receive of arrtval. To its newsletter can write economize to: P.O. Box on the tutUon 2809. Kha 2/407 costs. they choose less than Putalisadak. high class Kathmandu, colleges and Nepal. Tl: take fewer 977-1-226525. than the full load of Fax 977-1-412538. courses. It is not unusual to see four or five of them sharing one room OF apartment and arranging ELECTIONS work schedules ANS &ANA in order to minimize overcrowding of IheannualmeetingoftheAmerica-NepaliSociety their limited ltving space. As the time passes, most of held in July them find itdifficult in Virginia has formed to balancetheireducation a new Executive and work Committeeforthe time and. 1994 term.bTheCommitteeis because of the pressing composed need to earn a living. of: Vijaya their education Shah (President). suffers. Probably Linda Shrestha (First Vice- no more than one Presidnet), SarojPrajapati fourth ofthose coming toAmerica (Second Vice-President). Kush fora college education Mainali (Secretary). Gajendra Aryal (Treasurer). Surid Page No. 12 Nepal Today factorsofproduction (land.labor.capital,environment). public sector. It should be noted that, despite Generally, this theory states that .a countly finds it only moderatedomesticinflation, electricitytariffswere cheaper toproduce those things which make use ofits increased by 60 percent in 1991. 25 percent in 1992, most abundantly available factors of and by some 40 percent in March 1994.To beginwith, production. Because of the low cost of production of the Government should have more vigorouslyperused goods made out of abundant and. implicitly, lowcost the reform ofthe NepalElectricityAuthority (NEA)with resource, the countiywould tend toexportits abundant a view to substantially reducing personnel coSts and resource intensive products and import those products ensuring the efficient utilization of its repair whichare likelytoutilizeits scarcefactors ofproduction and maintenance expenditure. Anindependent review more intensively and hence can be more costly to of the NEA'sperformance relative Its counterpart in produce. neighboring countries would have suggested ways to Since the electricity weproduce is based on our improveoperating procedures and cut costs. mostabundantresource-thehydropower-itis unusual Becauseofthewell-knowninefficiencyof(Central) that our electricity costs should be the highest in the Govermnent investment in the energy sector, region and, probably, in any other country for which more consideration should have been given data are available. The problem can be stated more to investments by localgovernments and by theprivate generally:Nepalhappens tobeoneofthemostinefficlent sector. Operations of the non-governmental entitles countries in the world in terms of the provision of all wouldhave provided a healthy competitionto the NEA public servicesand notjust the electricity. It isnot that and forcedit to improveefficiencyor goout ofbusiness. the Government does not spend enough money,relative At the least, the NEAshould have been required to to its budgetary resources, on the provision of public privatizeits billcollectionoperations. Itis believedthat services-water, sanitation, health, education, roads large commercialand industrial users ofelectricitypay and, of course, electricity. The more serious problem significantly less than what they actually consume seems to be that the Government is spending it too because oftheir substantial resources to influence the inefficiently.The result, invariably, isthat the qualityof concerned officials.atis rumored that the SoalteeHotel, the publiclyprovided services is lowwhiletheir cost, in for severalyears, paid as little as 50 rupees per month some cases, extremely high. in electricity charges to the NEA) Bccause of the lumpiness of Investment in the l Available Options V. development of hydroelectricity. it may be difficult to V. Available Options attract local entrepreneurs. Therefore. consideration should be givento encourage private investment from In the context of structural reform, overseas, with or without local participation. In this the Government. over the past few years, has been connection, the Government should look Into making vigorous efforts to privatize public the possibility of foreign private investment through sector enterprises. Under private management. it Is build-operate-and-transfer(BOl)and build-operate-and- hoped, they willmake an effortto becomemore efficient own(BOW)arrangements. Such investments Inseveral and competemore successfully or, fallingthat, theywill countrieshaveplayeda catalyticroleinthe development go out of business. Several industrial and commercial oftheirhydro resources. Notonlywouldthe Government entities havebeen privatizedunderthis program and. in avoidthe burden ofdebt and risks ofstructural damage due course, theprogram isbeingexpandedtoincludeall to facilities from floods and earthquakes but also the oftheimportantremaining such entities. However,there operation of these facilities would providea,yardstick has been little discussion of the privatization of public against which the efficiencyof similar facilities in the utilities even when they are widely perceived to be public sector, including that ofNEA.,can bemeasured. wasteful and inefficient because of their monopoly position in the domestic market and VI. Concluding Remarks an absence ofcompetitionfromoutside. In fact. about a dozenofthepublic enterprises have been excludedfrom the privatization program. of which the electricity and In a statement to the press on the Arun controversyin water corporations are the main ones. However,if the February 1994 the Government accused ACG for privatization program Is concerned about improving their obstructionist activities and for efficiencyand reducing waste, the electricity and water creating misunderstandings in public minds about the corporations should have on the top ofthe list ofpublic Arun Project It further added that ACG'sactions may enterprises to be privatized or, at least, moved from leadtodelaysintheimplementationoftheprojectwhich central to localjurisdictions. may prove very costly for the country-total cost Coming back to Arun Project the Government may increasetolUS$S1.1billionfromthepresentUS$764 shouldhaveshownmoresensitivitytothepubic concern millionestimate ifthere is evenone year delay. aboutpoorqualityand high cost ofelectricityservices in Ifthat isall the Government has tosayin defense Nepal before undertalkng any new investment in the oftheArunproject-thatthedelayswillcobtmoneyand, Page No. 11 cost (forreasons of higher wage and service 5. An unnecessarily large amount-some variation in comparison with oLher US$140 million-is being spent on the 117-kilometer costs in richer countries), Nepal's more unfavorable. access road to the project. The proposed road will be countries looks question. then, is not only that almost ten times more costly than other similar road The fundamental should make investments in the Arun projects in Nepal. whether Nepal project but whether it should at all the&,business of 6.TheGovernmentshouldhaveentered.an.agreement with China for assuring the uninterrupted flow of producing electricity! Economic efficiency in an environment of an open watertotheprojectsinceabout80percentoftheArun requires that a country should specialize River's catchment area falls in Tibet. However, trading system ofoonlythose things thatltcanproduce no contacts with the Chinese have been made in theproduction than any other country and. conversely. it and. reportedly. the Chinese Government has its own at lower cost thingswhich others can produce at plans to develop hydroelectric resources in the region. should importthose a lower cost. Usually. the services items, 7.Theprojectliesintheseismicallyactivezonewhich are not tradable goods poses great risks to the long-term viability of the including electricity. project. Also, the risk of flooding from the sudden and. therefore,wouldneedtobeproducedlocallyatany breaks of. glacier lakes has not been evaluated. costifthecommunitydesirestousethatservice. However. in the case of Nepal. because of its location. electricity 8.Thefeasibilityoftheprojectwilldependinsomepart good, probablyamenable to on the sale of surplus electricity to India for which a can be treated as a tradable more convenient transport from the long-term sales agreement should have countries than the normal tradable items. been concluded. This has not been done. neighboring If so. then what is the problem if we let the 9. Because ofthe distance involved betweenthe project site and Kathmandu where most electricity will NepaleseconsumersuseBhutaneseorlndianelectricity hour than making them be consumed (some 200 kilometers). the Arun Group at one rupee per kilowatt electricitywhich costs four, and up contends that as much as 30 percent transmission purchase domestic we can loss can be expected, compared with the normal 10 to 6.2. rupees per kilowatt hour? Certainly, manufacture and airplanes in Nepal but if percent. Other feasible sites closer to Kathmandu automobiles be bought at a fraction of the cost from should have been investigated. these can elsewhere then why bother producing them at all? We on producing III. Cost Effectiveness should. instead, concentrateourresources only those things in which we have got. to use an a comparative advantage. Thissurely Finally, there is the concern about the economicjargon. makes good economic sense and may also help our cost effectiveness of the Arun project which countries. ACG mentions but does not elaborate. However. from relations with the neighboring However, before we can be serious about the author's point of view, this is the most decisive criterion against which the usefulness of this project this particularoption.weneedtoknowwhetherthecost Nepalishlghbecauseofthenatural and and, indeed. of all hydroelectricity projects. past and ofelectricityin technical factors or. so to speak, it is man-made. In my future-should bejudged. It Is entirely thelatter as Is reflected by the The table belowpresents electricitytariffrates for judgment, development in Nepal vis-a- household use for regional countries and for two non- relative cost of hydropower and Vietnam. Bhutan's 384 MW Chukha regional countries to emphasize the vis Bhutan hydroelectricity project. built during the 1980s. cost international character ofthis comparison. Itis assumed about 200 million US doLlars. includingthesettingup of that households are the predominant user of electricity the transmission lines: this works out about US$0.5 in developing countries and. therefore, this is million per MWcapacity. Vietnam's 1.920 MW capacity the representative rate. project. completed this year It is rather surprising that the cost of electricity Hoa Binh hydroelectricity after 15 years' work, cost about US$1y400 nillion or (which is assumed to be reflected in the price per MW capacit Even,400 uming to consumers) is highestin Nepal evenwhenthe country. after 15 US$.73 million per MW capacity. Even assuming reportedly. possesses the world's largest and cost overruns, the Arun III project in the more accessible hydroelectricity resource. the cheapest no significant fir'stphase (201 MWwill costat leastUS$800 million or of all primary energy source. (Nepal's that such estimated hydroelectricitypotential is said to be 83.000 US$4 million per MW capacity. It is unlikely evenafterdlscountingfor inflauon. MW or equivalent to that of the Unlited States and huge costdifferentlal. can be attributed solely to the relative difficulties of the Canada combined). The cost per kilowatt hour is lower terrain which, probably. can be considered worse in the even in Bangladesh. which has very little ofthis resource. case of Bhutan. The most surprising comparison is with Bhutan: even though both Nepal and Bhutan depends IV. Public Sector Efficiency on hydroelectricity resource to about the same degree. per unit cost in Bhutan is only about one tenth of of the principal theories governing Nepal's. In terms of per capita income. which takes into One nations is their relative endowment ofthe account factor price differential as'a possible source of trade between Page No. 10 -NepalToday. never been available to Kathmandu residents on a 24-hourbasis. Even duringthoserestrictedhours II.Issues Raised by the Arun Concemed when electricity is available (presently, two hours Group each in the morning and evening), the incidents of brown outs, black outs. and periods of unusual In a pamnphletissued in February 1994 entitled -Arun surges in the flow of current (requiring the use of III-An Introduction and Issues of Concerrn ACGhas surge suppresser for sensitive appliances) may be made several assertions which raise serious doubts almost a daily occurrence. Inadequate whether the project. as presently conceived.is really in and unreliable supply of electricity in the Valley. the best interest ofNepal.The main points made in the and also in the rest of Nepal, not only add toalso the pamphlet are the following: difficultiesof daily livng but .The project is too large relative to the size of difficulties of daily living but also economy.Estimated costofjust the first phase of the the hamnper commercial and industrial activities and project-some 764 millionUS dollars-is almost one discouragetheintroductionofimproved technology quarter of Nepal's current GDP.ConcentraUonof the based on the use of electricity. This limits the country's meager resources on just one project growth of productivity and makes it difficult to is contrary to the curmnt development theme which improve living standards, locally as well emphasizesdiversification.ACGcontendsthat. instead as nationally. ofspending such a hugeamount ofmoneyon a single It should be good news then that project, preference should have been givento small the Governrnenthasfinallydecidedtodo something andmediumsizeprojectschosenfromvarioussitesin to relieve the shortage of electricity in Kathmandu the country.Thiswould havereducedrisk (notputting and probably sell it at a cheaper to the consumers all your eggs in one basket) and benefited a wider than the current price whichisprobablythe highest segment ofthe population. in the world (see below). The case in point is the 2 .Goverrment'spreferrnceforlargeprojects,inACG's Arun III hydroelectricity project which view. Isrelated tothe expectation ofhugekickbacks the Governnmentintendstoimplnementintwophases fromcontractorswhichmaynotbepossible, oras big, each having 201 MW capacity. (Nepal's present ifthe'projectls relativelysmall.Also.ACGargues that generating capacity is about 300 MW). the large size and romplexnature oftheArun project The estimatedcost of the first phase of the project will require the use ofsophisticated technologyand is 764 million US dollars and it is expected to be skilled manpower which will need to be Imported completed by the year 2000: the second phase of rather than supplied locally . More local resources the project may be completed five or seven years would have been used if several smallprojects had laterbutthatwill depend onthe success ofthefirst been implemented instead. phase ofthe project. 3. ACGIsconcened about theimpactofthe projecton However, the current news is that all is not thefrgileecologyoftheArunValley. homefor450.000 going well with the project. still people. Upto 10.000 peoplewilllwork on the project awaiting inplementation. A citizen council called duringitspeakimplementationperiodbutno provision the'Arun Concemed Group (ACG)' has petitioned has been made for their housing. education. and Nepal's Supreme Court to order the Government health care needs. It Is feared that the squatter type neplsSpeeCut to orderdwitthe Goec vries'ertan setlment s wil followinwa-rdmiigrationand this will not to proceed with the project unless certain devastate local forestry resources and intensify soil conditions aTemet. Under Article 15 of the new erosion. Surprisingly,knitscurrentformtheblueprint Constitution containing citizen rights to of the Arun project includes no plans for public information (similar to the thedevelopmentoftheArunValleyitself-plans that American Freedom of Information Act). the ACG willcontinue tobenefitthelocalpopulationafterwork has asked the Court to require the Government to on the project infrastructure is completed. make public all information pertaining to the Arun 4. The foreignloan commitments for the project will III project. Further, ACG is using the provision of burden the country with unpayable debt. Article 86 of the Constitution dealing with 'public ACGestimates thaL including loan commitments for interest litigation' to raise issue with the technical some otherprojects. Nepal'sforeigndebtwlll increase andfinancialviability3oftheproject. InACG'svlevw. fromUS$1.800 milion to US$2.400 million overthe the Govemment must seek a national consensus next fewyears, which willmquire the Government to before making a final decision on theArun project. spend most ofIts revenuejustfor debt servicing.ACG Reportedly, the Supreme Court has sided perceives that the country will be pushed with ACG and has ordered the Government to into bankruptcy if the Government takes up Arun- make available to them all relevant information on type projects with their heavy dependence on loan the Arun Project. The Govemment is contesting capital. foreign technology and equipment, that decision. and dubious return on investment. Page No. 9 l i I i i. preparation for November elections, particularly: went even further and stated 1.invesUgateviolations that denial ofinformation. of the Bank's Information Policy fully or partially on any grounds and operational that there may be. can procedures by the Bank Management; be challenged in the Court 2. study of issues within 7 days and concerns from the date raised by NGOs during of such denial. the June 28th The Court consultation did not believe meeting held that at the Bank: the government has fulfilled its constitutional 3.review the and legal compliance ofthe Bankls policy. procedures. obligations byreferring guidelines and to some public standards relating meatings and to the project the as the setting up of library after the case obligations was filed in the of a borrower country. and access to basic Court. projectinformationbytheaffectedpeopleandthe citizens The Supreme CourtJustces of Nepal: Hon. Hara Govinda Singh Pradhan 4. ensure the and Hon. debate of the Keshab project in the Prasad next elected Upadhyay delivering Parliament their landmark (November judgment 1994) and its on the approval: right to information, 5. respect the have also established decisions of the following the Supreme Court of Nepal procedures and guidelines on access to for the demand information and release of on Arun III as well as the information until appropriate laws are made: intemal democraUc process; 1.The applicantshould firstdemand 6. take into account thelistof documents the detailed information to from the defendants. be provided byNGOs InNepalonvarious Jssuesrelating 2. If the defendants to Arun provide the III. particularly listwithin seven days. environmental the applicant should impact assessments demand an inspection and mitigation of measures as well as the concemed documents. alternatives toArun III: and 3. Ifthe demand is made according 7. saUsfy withotherunresolved to clauses 2 of these issues relatingto the life procedures. the defendants and sustainabilityoftheprojecL should set the time, date, e.g. riparian issuewith and place and China, provide information glacier outburst. to the applicant alternatives to within three days. energy development, adverse impacts in social sectors. 4. If the applicant wants to make For more information a note or copy of the on Arun III, contact: Arun document after inspection, Concemed Group, he or she should c/o INHURED request the Intemational. P.O. specified authority for the same. Box 2125, Kathmandu. Nepal. Tel: (977-1) 419610- 5.lntheabsenceoflawsforprovidingcopies.thecopies Fax: (977-1)'412538. In United States: Lori Udall. should be certified byacceptingtheexpenses Washington Director, Intemational forcopies Rivers Netwvork 1025 as fees. Vermont Ave., NW #300. Washington, DC 20005. Tel: 6. Ifthe defendants have to deny (202) 879-4280 the zight to provide * Fax: (202) the 879-3186 * E-Mail: list, full or part, or inspection lmdc@igc.apc.org or for providing copies. theyshould indicate thereasonand inform the applicant SUPREME within three days. COURT VERDICT ONARUN 7. In condiUons III AND RIGHT under clause 1 and 6. where TOINFORMATION the applicantisdenied therighttoinformation. the applicant. if not satisfied with reasons for denial. can Illea petition Denial of basic information by the intheSupremeCourtwithinsevendaysafterthereceipt Nepall Government, particularly Nepal of theinformaonofdenial. Electricity Authority (NEA), about the Arun 8.Theprocedurefortheactiondescribedaboveshallbe III Hydroelectric Project has been one of the serious made according matter of eoncers to the rules of the Supreme for the people court. and NGOs in Nepal. A This Supreme formal request Court precedent was made has established by the Kathmandu-based therighttoinformatlonforallccitzensonNepal Internatonal Institut forHuman according Rights. Envirohnment to the Constitution. It has also outlined the possible and Development (INHURED International). Secretariat framework for a future law on of the Arun the right to informaton. Concerned Group, on Decernber 10, 1993 requesting for all information about the project. ARUNIIIAND and copiesoftherequest letterwas also sent to ministries offinance. and water resources as well as to the donors. NATIONAL INTEREST ApublicinterestllUgation was filed bytwohuman rightsacUvists, GopalSiwakotiand Dr. Rajesh Gautam. in the Supreme Court on December - Vijaya Shah 31, 1993 under articles 16 (right to information) and 88.2 (right topublic I. Introduction interest litigaUon) of the Constitution of the Kingdom of Nepal. Byexercising its extra-ordinaryjuxisdiction, the Those of us having Supreme Court the experience delivered a oflving in verdict on May 8. 1994 in favor of the petitioners and ordered the Kathlnandu Nepali Government need no convincing to provide about the acute all documents shortage of electricity in and information the Valley. As in the case about the project. The Court decision of municipal water supply, the electric power has PageNo. 8 djjM NepalToday to hydropower generation that recognizes the comple- Party in the Parliament - Communist Party of Nepal mentarity of private and public sector elements. It also (IJML)-issued an statement and said thatitwill neither acknowledges the interdependence between. and com- approveproject norassumeanyresponsibilityinfuture plementarity of, the large. medium/small and mini/ if the matter is not debated in the Parliament with the micro sectors in the industry. It is a process-oriented disclosure of project information. rather than product-oriented approach, which places There are several other issues involved relating to equal importance on theestablishment of greater hydro- the design. funding and implementation of the prgect power capabilityas on increased power capacityperse. that need approval of the Parliament, e.g. approval of The aim of this approach is to plant Nepal firmly agreement with China on riparian issue (since 86% of on the path toself-sufficiencyin hydropower generation, the water flows from China): status of agreement with and to reduce the country's dependence on foreign aid India on the sale of energy. if it exists; approval of 10% and technical assistance in the long tem. investment by Nepal of the $764 million project and other questions relating to the cost. conditionalities of The essential charactenstics ofthis approach are: donors, and environmental and social impacts. So far · Focusing on schemes that use and enhance the Parliament has not been provided this opportunity. the country's existing capability and significant pressure on the government for the · Investing in building up local capability. in both the disclosure of project documents and a fruitful debate public and private sectors was expected in the present session of the Parliament. *Switchingtoadecentralizedmodelofpower productiorL including independent reports by the Opposition Party which ensures a sharing of risks among a number of and the People'sCommission on Arun III. which is not schemes, and promotes local management and control the case anymore due to recent political developments in of projects the country. *Removing the barriers to private sector investment. The recent dissolut1on of the Parliament, and the and creating an environment which is conducive to calingofmid-termelections on November 13, 1994 have growth, maturation and expansion ofprivate industry created further uncertainty ofArun IIIproject if it is not · Adopting an evolutionary approach to criticallyrevieved bythedonors to win the consensus of hydropower development. wherebytheindustrymoves the fragile political parties and the confidence of the aheadinmanageablesteps,takingonlargerandmore Nepali people. The final decision of the loans for the ambitiousproJectsasitscaPabilltygrowsand matures. project will be viewed as undennining the democratic internal process In Nepal as well as seizing Thisapproachisrealistic. Nepalhasthe technical of -opportunity dunng poliUcal turmoil. The status of capability totake iton. thoughitwill stUllrequire support the project willfurther degrade if the existing members for some years before It Is totally self-reliantL Flnancial of the Cabinet and the ruling party get defeated in the and instituUonalarrangements, however, require serious November elections leading to new opening of debate on consideration. as the currentmechanisns cannot provide Arun I. the necessary support. in conclusion, the information release process Based on the large number ofconcerns regarding hasjustbegan and itneeds moretime fortheir availability the Arun project wewould urge your agency to consider in local language for public consultation with the local utilizing your funds for supporting small and medium people as well as national debate in the Parliament. hydropowerschemesoflessthan IooMWcapacitywhich Since a thorough discussion of the project in the are more economically, environmentally and socially Parliament and its approval is highly significant for the sound for Nepal's current situation. better future of Arun III as well as a secure investment of donors, it Is Important that this opportunity is given NEED OF PARLLUAENTARYDEBATE AND APPROVAL to the forthcoming new Parliament to be elected on Another disturbing issue regarding PArunIII has November 13. 1994 as the existing Parliament has been been the lack offruitful debate in the Parliament andIts dissolved on July 10. 1994 due to political infighting in approval. e gcoverniment has never presented any the ruling party. I would like to assure you that the documents and Information. other than postponement of the Bank date will be viewed by the people, political parties and NGOs in Nepal as the policy statements and general information about the sympathy and support of the Bank and other donors In construction of the project. in the Parliament despite stablllzing the hard-won democracy in Nepal. repeated efforts of Members of Parliament for the disclosure of project documents for debate and WHAT NEEDS TO BE DONEI approval. Agroup ofMembers ofParliamenteven issued a public statement on January 12. 1994 with other It wlll be essential for the borrower country, the public figures and demanded for the release of project people and the donors to postpone the July 26th voting documents and review of the whole project by the of the project by the Bank and reviewthewhole project ParliamenLAroundthesametime,thelargest Opposition with careful attention during the period of electoral Page No. 7 petitions from the business community for tariff reduc- to T*he engineering and management capability tions. project like Arun does not ex:ist in the The high tariff is seen to be a direct consequence build a large Arun means that the entire scheme will be of the high cost of power generation from the country. which with built by international contractors. scheme and is doubly unpopular because together the tariff increase people can expect more load-shedding with large hydro projects in for the foreseeable future. The further 50% tariff in. Previous experience Nepal managed in this way (the Marsyangdi creasethatisexpectedtobeneededtopayfortheenergy that and Kulekhani schemes) demonstrates produced fromArunwillmeanthatNepalwillhavethe onextemal technologiesand expertise highest energy prices in South Asia and threatens to such dependence does nothing to help local capability grow and mature - destabilize the country politically. reverse is often the reality. While there were *There has not been enough preparation fordetailed in fact, the the token provisions madeforlocal capability buildingin plaxininghas nothbeenenoutighapreparon mdetalled developed into needed to two projects named above, they never planning of the mitUgation measures building. It Is hard to see how Arun counter the serious adverse environmental impacts genuine capability will enhance the hydropower capability of Nepal. of the access road to the Ar-un Project. The shortcomings of this approach are already The Arun Valley is a remote area of vast biological experts had to be brought in to assess diversity and ecological fragility. The valley is inhabited clear. Japanese stock (washed away in by 450.000 people comprising 10 ethnic groups. These the damage on theKulekhanipen and the floods of 1993) and fouryears after the completion of people will be extremely vulnerable during road German technicians are still needed long term project construcUon. Over 1000 families will be affected the plant. Pre- power plant. The Japanese by the loss of their homes, lands and livelihoods. to run the Marsyangdi people experts havepointed outthe lack ofroutine maintenance project mitigation activities to prepare the local on the Kulekharii project and almost no record keeping for the effects of the construction of the road has not even of the maintenance that was done. begun and there are only some months left before the in hydropower has been growing and proposed beginningof construction. The Nepal Electric- Local capability the maturingrapidlyoverthelast 10years.particularlyin ity Authority which is in charge of co-ordinating over theprivatesector. Localcompaniesarenowtaklingon mitigation acUvities and has full responsibility plenty big enough to and 50-60MW schemes. which are environmental management during construction However. after commissioning has no capability or experience in meetNepal'srelativelymodestenergyneeds. local initiatives require supportrather than competition this area. There are serious doubts that NEAcan execute from schemes like Arun. these functions effectively in spite ofthe unprecedented level of planning of mitigation for this project'. GGiven Nepal's current development status and priorities. Arun could do more to damage than Public participation both at a local level in the affected overall enhance the country's district and at a national level has been insufficient in prospects. the development of the Arun project. development Its Sawa Nepal is one of the 10poorest countries in theworld. Serious questions that the people of,Sankhuwa services of clean have most urgent needs are for the basic (the district where the project is to be sited) While electricity to the water, sanitation. healthand education. regarding the alignment of the'road. and benefits for Nepal's is high on the list of priorities localpopulaUonofjobs,trainingandaccesstoelectricity 90% of rural communities (which represent have not been adequately answered. The one Public access Hearing that was held in the district was not publicly the population).theystandlittlechanceofgaining their ques- to Grid electricity even in the long terrn. Stand-alone announced. When satisfactory answers to mnini-and micro-hydro schemes offer the only realisUc Uons could not be provided during the Hearing. local option for many of these communiUes ever to benefit leaders asked the organizers. more than once, to termi- from electricity. nate the meeting and go back to Kathmandu. No docu- Given the Bank's emphasis on'poverty alleviaUon' ments regarding the project (including the Environ- strategies for development and the recent concerns mental Impact Assessment in the local language) were raised in the Wapenhans Report about the 'sustainable available to local people before the Hearing. impact' of its projects. it is difficult to see The project affects all the people of Nepal in development the construction of Arun. which will different ways -as consumers of the produced electricity how it justifies and benefit so few, generate no income for the country or as those carxyingthe burden ofthe loan. Government rden debe o officials boycotted a Public Hearing in Kathmandu on inefits increase its burden Ofdebt the project organized by NGOs on February 11th. 1993 ALTERNAMlEAPPROACH and have not organized one of their own. A Public the Hearing needs to be held in Kathmandu to discuss t( and the The alternative approach risks of the project to the naUonal economy approaci hydropower development focuses onasectoral alternatives to Arun that are available to Nepal. Nepal Today measures implemented for the original ridge made available on concessional terms. It is still a huge route alignment. Despite this. no land has been identified burden for a countTy with such a limited budget. One to offer the option of land for land compensation. third ofthe country's national revenue already disappears into loan repayments. Since only 9% of the population 4. Agreements with Neighboring Countries has access toelectricity. the whole countrywill bear the debt burden for the benefits enjoyed by a few.',Large, A. Power Sale Agreement Must be Reached with India centralized power schemes like Arun will not help the Since phase II of the Arun IIIproject and future remaininig 90% gain access to electricity. power developmentin thevalleyhave been predicated on Even to thosewho willbenefit from Arun, the cost the sale ofpower to India, the project must not go ahead will be very high. Despite concessional terms on the until an agreement has been reached. India currently loans from the World Bank and Asian Development buys power from the Chukha dam in Bhutan at prices Bank to His Majesty's Govemment of Nepal (HMG/N). significantly below cost price. The high cost of Arun's the Nepal Electricity Authority willbe required to make power means It is highly unlikely that any power sale payments to HMG/N forthe loan at an interest rate of deal with India will make econormic sense. 10.25%. This cost will ultimately be borne by the consumer, who will pay very high electricity tariffs. B. The Riparian Issue Must be Resolved with China. In the Nepali parliament recently, the The scheme will cost $3,800 per installed KW. Water Resources Minister announced that China held Private companies in Nepal can and are building 'noobjection'toNepal'splanstobuildArunMIl. However, small and medium hydro schemes (up to 60MW)at this does not constitute a promise to guarantee Arun's half that rate. water supply for the Iffetime of the project. Even now, a proposal is pending in China for the Changsuo Basin In the light of the high cost of power producUon. irrigation project on the Arun (Phung Chu) river. In itissurprisingthatArun came outas thebest option for addition, there are a large number of glacial lakes in Nepal topursue in the Least Cost Generation Expansion Tibetwhich could produce GlacialLakeOutburstFloods Plan (LCGEP). The LCGEP did not consider all the to which Nepal has no access. Going ahead with Arun possible options for hydropower development in Nepal. without a firm commitment from China and largely Ignored the small/medium scale sector. markedly increases the risk of the project. Local private sector initiatives are consistently building schemes for less than $2.000 per kW installed 5. Conclusion in the small (1-15MW) and medium (15-100MW) hydro ranges, and $1,500 per kW in the mini/micro-hydro The Bank's failure to ensure that its policies on range. The 20 to 25MW of annual incremental power EnvironmentalAssessmentand Information Disclosure needs ofthe national grid can easilybemetwith a basket are beingfollowed is underminingdemocraticprocesses of 1-100MW schemes coming on line one after the other. in Nepal. Webelieve the unresolved issues surrounding this project, and the lack of public consultation and InvestirginArunmeans puttingall Nepal's hydrpower access to information makes it highly unsuitable for eggs in one baslket. This makes it a high-risk option Board consideration at this time. We also question and provides no answer to the current load shedding whether a project of this magnitude and cost Is a problem. reasonable use of IDA funds. If the Bank is to take seriouslyits publiclystated commitment to sustainable Ivesting in more, smaller schemes would spread the development then thereshould bea full investigationof isks of investment and energy proision. If anything alternatives which are more suitable for Nepal's long goes wrong with Arun, the country Will have tenI energy needs. construction of Arun has already been shifted and is If the concerns outlined in this letter are lilkl ob urhrdlyd Shre-getto me not addressed adequately by Bankmanagement. NGOs eikyto be further ddayed. Shorter-gestaton projects be forced to submit a claim to the Bank's Inspection w relieve load sheddingmuch Panel. ' Political stability in the country willbe threatened OTHER CONCERNS if tariffhas to be raised tothe level being insisted on by the World Bank for this project to go ahead. e With a current price tag of $764 million, the Arun III hydropower scheme will cost as much as the entire Since the newly elected democratic government came to national budget for one year. This is a major po electricity tariff was der. raised 61% in November financial commitment way beyond Nepal's limited 1991 and again 40% in February 1992. This has been resources. followed with an increase of 38% in early 1994. This increase of over 200% in the electricity tariff has led to Although much of the loan for the Arun project is being political protests in all the major cities in Nepal and Page No. 5 ~~~~~~ came about following a court case filed by NGOs which least six months. The World Bank Board date and Road led to a Supreme Court decision demanding construction must be postponed until all portions ofthe their disclosure. Despite the ruling. which demanded Regional Action Plan are completed and are in place. the release of all documents related to the Arun III PreviousBank experienceinwhlchprojectconstruction project. many of the key documents are still being was started before to environmental studies withheld bythe Nepalese Government. precluding any were completed and implemented have failed as in the meaningful debate. case of Narmada. The library which was established by the Nepal B. A Realistic Implementation Program and Tumetable Electricity Authority after the law suit was filed in the for the Regional Action Plan and Road Construction Supreme Court does not contain many key documents must be Established such as the. Memorandum of Understanding between Road construction is currently planned ata rapid the Government ofNepaland the World Bankor the draft rate, which will adversely impact on the 450.000 project appraisal documents. In aprojectof this sizeand indigenous people living in thevalley. through an influx cost which wi)l affect the whole nation of Nepal, the of up to 10.000 construction workers, which will put public should be able to access information about pressure on precious food and water resources. There existing agreements between the Govenmment and the are no mitigation measures in place to ensure that these World Bank. Thefull environmentalimpactassessment people are safeguarded. The people oftheArunvalley fit has not been made available in Nepali. which is a the Bank's definition of -indigenous people' in requirement of Bank policy. its operaUonal directive OD 4.20. OD 4.20 states that .successful planning for indigenous peoples frequently C. Failure to Release Bank Documents requires long lead times, as well as arrangements for Both the Bank's Environmental Assessment Policy extended follow-up'. For the Regional Action Plan to be (OD4.01) and the Information Policy (BP 17.50) require effective, itmustbestarted well inadvance ofthe project the timely release of information about the The rapid speed of road construction will project. especially beforepublic consultations take place. further undermine the Regional AcUon Plan's ability to This has beenviolatedconsistentlyhiroughoutall project cushion this sensitive region from the long-term and planning and design. The Bank's new information policy indirectimpactsonthevalley. The construction schedule requires therelease ofthe ProjectInformation Document for the road must be extended to mintimizedisruption to and the release ofall factual technical information about local communities and the environment. the project. While the projectinformation documentwas Moreover. wequestionwhether the Nepal Electric readilyavailableinWashington.ithasnotbeen available Authority which has Its primary interest in promoting in Nepal. Requests for factual technlical informauon on the project has the capability or the will to the project, including studies on alternatives to the properly implement the Regional Action Plan. prject were denied until June 10th. when the Bank released a study on alternatives .by Argonne National C. Long Term Cumulative Environmental Impacts of Laboratories. NGOs have not had sufficient time to Arun Ill and Subsequent Projects analyze this document and many of the assumptions Arun III is only first phase in a plan to build three used in the document are not explained. dams in the Arun Valley. Despite this. Environmental Requests forthegreen-coverstaffappraisal report, studies have only covered the adverse impacts ofArun and other technical information such as hydrological III. Before the project Is approved there should be studies have also been withheld. The staff appraisal a comprehensive study of the long term cumulative reportis the basic technical documentofa projectwhich impacts of dam building and road construction in the contains the project justification and rationale for the ent Arun Vaey Bank's involvement in the projecL It is critical that this document be released, before it becomes final. While we D. The Acqusition. Compensation and Rehabilitation realize there may be a small portion of confidential D-CRPe shon, Rensed tEnsrelit information within, we believe these sections should be Fami ReCeP) Should be Rcvised to Ensure That excised, and therest ofthedocumentshould be released. Families Receive Equitable Compensaton and Tat the The Project Information Document has never been Program is in Compliance With Bank Policy. updated and it contains so little information that it is Families whose land willbe acquisitioned for the useless for NGOs who are questioning the projectarebeingcompensatedataratethatiswellbelow basic assumptions and objectives of the project the market rate fortheir land. In this respect the project is failing to complywith the Banks Operational Directive 3. Environmental And Social Issues on Involuntary Resettlement (OD 4.30. para 2). In addition. Bank policy advocates -land for A.The Regional Action Plan Must Be Completed land' compensation. which is particularly important in The King Mahendra Trust follow-up study to the the Arun valley where people are not linked to the cash MBEIS report, which is essential groundwork for economy. Seriousproblemswerehighlightedinproject the Regional Action Plan, will not be completed for at documents after the earlierround of cash compensation Page No. 4 NepalToday approved by the Parliament before it gets a go ahead. taken to the board for a Recently.NGOsfromNepalandothershaveraised vote. Unless this is done Lhe Bank will not have fulfilled a series ofissues its policy requirement and concernsat to theWorld Bank. These compute the Least Cost analysis for additional include the power dernial of basic project information to the generation for Nepal. public. violations of the Bank's operational standards and policies. and lack ofstudy onaltematives toArun li. 2. Public Participation Nepali and NGOs say Xccess that sinice the release of information process hasjust beganafterthe Supreme to Infornlation Court verdict of May 8, 1994, there can be several Issues to be taken to the Court in future for review and A. Publie Participation consideration and Consultation: according to the Constitution and laws of Public Participation Nepal. in the project has not been adequate. The project Due Is being to the effect portrayed by of campaign on issu,es the governmentofNepalas and concerns havingbeen on Arun III at national chosen through and international a transparent and open levels, this democratic is the fLrst process. time that the However. World Bank invited only in the last six months representatives (with project of preparation the Arun Concerned Group, almost at completion) the Alliance has there for Energy been any and other. NGOs/INGOs serious discussion in Parliament to express their concerns orwith the publicwith at a one-day consultation on the benefit of accurate June28. information. 1994 pertaining Prior to that. to long-termrepercussions Arun of III was consistently presented the proposed projecL to the public (Members as a fait of the Nepali non- accompli. The discussions governmentaldelegationincluded: that have taken place GopiUpreti. have Ganesh been forced by concerned Ghimlre, GopalSiwakotiandArjunKarkifromtheArun groups rather than at the instigation of the Government Concerned of Nepal Group and Bikash or the World Panday. Dr. Pitambar Bank. For example NGOs Chhetri. RajendraDahaL organized a public hearing Ravi Pradhanfrom in the Allinace February 1993 which for Energy. including was boycotted Deepak by the Ministries Gyawali as of independent), Water Resources and Lori Udall and Finance of the International and by the Rivers Network in National PlanningAssociation which meant Washington.DChasbeenactiveasthekeyfacilitatorfor there was no opportunity to challenge local and international the government NGOs. about project. FUNDAMENTAL The alternatives ISSUES to the project (along the lines of Plan B) that are available to Nepal have never been presented 1. Adequate to the people Analysis or the Parliament. of Altematives The Nepali government claims to have held 23 public meetings. 11 of which were in the Arun Valley. While The very high unit cost of it is true that construction and the therewas one public hearinginTumlingtar. corresponding high tariff that manyof the consumers of the energy other meeting being classified from Arun as public hearings III will have were to pay remain a serious concern. meetings strictly to inform Lack of study people about compensation of the altematives during the eight years rates fortheirland. NGOs who tried to raise of preparation issues in the of this project continues to be a major meetings about the adverse environmentaJ criticism of and social this project. The Least Cost impactsoftheprojectwerepreventedfromdoingso.The Expansion Generation Plan exercise that has been used Government has also misinformed tojustify the people in the project to date Arun has been admitted by Bank Valleyabout the project. leading them Managementnot to believe theywill to show conclusively the superiority of receivejobs and electricity. the PlanAoption In reality there (theArun has been no projectas cunientty designed) concrete commitment to supply electricity over Plan B (which to the people proposes to have the project come on in the Arun Valey and only line in the year a small number 2009 after the ofjobs will construction of a number be created forlocal people. because of small and outside workers medium will hydropower schemes) to supply be brought in. thenationalgrid. ThecostoftheplanB projects compared This lack of consultation represents with the Plan A option are a violation of extremely preliminary. The the Bank's Operational study 'Arun Directive III -Cheaper on Energy for Nepal' put to Bank Environmental Assessment, which management requires in April 1994 that the indicates that hydropower government take into account schemes in the under the views of affected 100MW range that have been groups and NGOs in the preparation studied ingreaterdetail of project design in the lastyearhaveall come up and implementation (OD 4.01, para with energy 19) and to publicly costs lower than Arun m. Therehas been no release the draft environmental assessment. response to this document from the Bank In the interests of generating energy for Nepal at B. Failure to Release Information leastcost. Itisimperative thatthe studyofthe alternatives Despite repeated requests be taken to overseveral atleast the feasibility years. only level to allow a proper in the last few months have comparison any project documents with the Arun been project before the project is made available to the Nepali public. Their release only PageNo. 3 Notwithstanding TABLE OF CO7NTENT PMKoiralas above remarks. LhcHioirala Government has pushed hard for the Arun Ill project which will use huge amount EditonaL Mid-Term of foreign aid money. However. Election in Nlepal! the .Arun III and projecthasgeneratedagreatdealofcontroversyandthefuture Arun mIControuersy of the project looks uncertain. Controersial Aru n ContoverialAr-u m Project: Major 11 Proect:Majr Issues IsuesSome Arun Concernedyoung Groupactivists had brought calling the and Concerns a civilthemselves -Gopal Siwakoti spit against the Nepali Govemment ' Suprerne Court to force ittodisclose Verdict on Arun information I and Right concernin gI the Arun IIIProject and clarify issues to Information that the Group considers as vital for thy long-tern interest * of the country. Arun 111Project An article on and National Interest the Arun controversy appears in this issue of Nepal Today - Vgaya Shah which. in our view. makes a fair assessment of the concerns Constraints of Nepali Students in America raised by the Arun Group. From our point of view, the Arun controversy presents a test case 'NJMewsin Brief: for the Government to extend the concept of INFED Opens democracy from Its Kathmandu the realm of Office politics to economics. We have fought for democracy ElectionsofgANSand tobring transparency ANA and accountabiliry to political decision-making: BhutaneseRneSoietNw debates such ored as for Arun will help NationalContcernsSocieWForrned us extend the concept of transparency and accountability HumnartRighr.synigtoLawErcnet to economic spheres. OfiolsWe Children's RighLs Semtnars are not for or against the and Child Watch Arun Project per se. What we desire is that the issue be debated Nepan Rightsaiearbookn1993eReleased in press and parliament in order to Nepal Disappointed reach a national consensus. LINCornnuttee Aga The small group rtst 7borture of burcaucrats Report ofSutpport to Flood Victims and cabinet officials inNepal making decisions on the projectwiilbelonggone Arun before the mistakesare III Commission discovered and and Activists then the Nepaiese urder PhysicaUttack! public willbe left holding the bag. It should be noted that some USS500 Election Observation mnillionof the in Nepal project costs willbe financed by multilateral loans. NepaleseAbroa4CondemnnDissolutionofPrlarner-t There is no forgiveness forsuch loans and multilateral ConstitutionalProvisionsRegardingDissolutionof creditors never take responsibility if the investment fails. ParlamuentandSovereignty Most pertinent issues highlighted Book Review: in this issue of Nlepal Justice Denied. HumlOanRights Today byGopal Siwakoti and Vijaya Shah and International provide the detailed Financial Institutions background of the project, and the efficiency of public sector EDITOMALBOARD investmnent in the energy sector respectively. Our view is that RoshanPokharel. the Governmentmust KabindraSitovla. PurushottamSubedi findways toachieveatleast a comparable level ofefficiencyasin theneighboring countries before it takes CORRESPONDENCE: up another NHRC-USA.P.O. Box rupee worth of investment 53253 in this sector. Washington, DC 20009 CONTROVERSIAL (703)519-1728 ARUNIII Mailing address in NepaL- PROJECT: MAJORISSUES clo INHUREIntemnational.P.O.Bobx2125. AND Kaurnandu CONCERNS MEMBERSHIP / SUBSCRIPTOIVO Student SI 0. Individual $15 Family$20 IrastitutionS30.LifeSIoo Compiled by Gopal Siwakoti NHRC - USA:EXECUJTE COMMIT=EE Executive Director, INHURED Intemational Dr. Balram Aryal (President), S.D. Shah (Vice-President). KabtndraSrtouia(Secretary).SharkerShrestha tereasurer). ('Thefollowinginformation Members: Suresh are based on issues Baral. Puru Ghi.mire. Bhaskar Ginn.ocrL Canesh Lal Kayastha. Deepa ta K.C..AnupPahari.Brinda aebe and concerns oie yteAu that hae been Sitoula, Copal Siwakoti. raised by the Arn HornnathSubedi Bir Thapa. Concemed Group, Shal Upadhya.Roja the Alliance for Energy Upadhyay. GopiUpreti and other INGOs in Nepal and at Honorary Members: the World Bank.) Kathleen Johnson. CliffordPhilipps. KirnberlySrnith.indaShrestha.MarkZuckermrni.Karmit TfheWorld Bank has postponed the vote on the controversial Arun Illhydroelectric Zlysmanrl project in Nepal up to October 1994. Reportedly this Is becausethe Japanese (Views expressed in this newsletter are strictly personal). Government is reluctant to be listed as a donor until it is fully satisfied with the project. and has completed a study mission to Nepal recently. be maintained in the countries receiving their aid. and Other reasons yettheyimposesuch may be that Nepal is facing conditionswhich a putdemocracies political crisis due to the resignaUon like ours in of Prime Minister trouble. I feel they are themselves not sure and dissolution ofthe Parliament ofwhattheywant.' the mid-term elecUons PrimeMinisterGiryaPrasadKoirala are scheduled for November in an interview 13. to SUNDAY,CaLcutta as 1994. There published in is widespread concembothinsideand WEEKEND,May outsidetheWorld 28, 1993, Kathmrandu Bank that the project should be fully debated and Page No. 2 Nepal A Publication of the Today NEPALHumAN RIGHs COMMnTEE-USA P.O. Box 53253 Washington, DC 20009 (703) 683-7501 VOL. 5 No. 1 SUMMAR 1994 E.DITRAL But. instead of resigning from the govenmment and giving his own party and the opposition MID-TERM ELECTION IN NEPALI an opportuniityto forma newgoverznment.Mr. Koiral chose to surrender the constitutional powers to the The people of Nepal wlll go for the mid-term king todissolve the'sovereign Parliamentwhlchmade electionson November13, 1994which isaboutyearand It possible for him to remain as the care-taker Prime ahalfbeforetheflve-yeartermofthedissolved Parliament Minister to conduct mid-term elections. The anger in Last general elections were held in May 1993. Serious the ruling party, the oppositions and the people have questions have been raised in Nepal and around the reached to such levelthat they are callingfor protests world regarding the way the Parliament has and demonstrations around the countryand demanding been dissolvedandtheunpopularmethodthattheKing for the all-party govenmuent to ensure free and fair chose to form a care-taker government to elections. Theworst victims ofPMKoirala'sunpopular conduct elections.Thequestionsisbeingasked:IsNepars steparetherulingpartyltselfand alsothe kingwhomay democracy in dangei? use Mr. Koirala as a conduit to regain absolute power The violent pro-democracy struggle of 1990 against the willofthe people and politicalparties in the abolished the partyless Panchayat dictatorship and Parlent reduced the ibsolute power of the king.The people of It is a sad moment for Nepal and itspeople that Nepalhoped that the newpolitical process will begin a they may have to undergo further suffering because of newea ofdemocratization and economicdevelopment. the personal infightingof the ruling party leaders who theNepaliCongressgovernmentestablishedwithpeople s seemtohave losttouchwith peoples.WhatNepal needs mandate wNlltake strong measui agaist corCrption now Is a new generation leadership with visions for andanepotlsmand snplementbasicreformsin educar oru democraUcNepal.and who canworkwlth alldemocatic heath scia thear~ ad prgrms.Onthecotray,forces tomeet theneeds oftheNepalipeopleand prepar corptiha s incresed ecgratio and saectory corruptfon has increasedo education the country to enter twenty-first century as an equal and soci sectors partner with other dynamic countries ofthe world. have suffered. economic situaUon has worsened and For iths.Nepal Human Rights Commiittee-USA human rights abuse has not stopped. However.ourview wouldFor thi. bestH ights Committhele-s isthat the presentisleaersip leadership rather than tat te pesenrthe tha edeocrcy democracy'isi woli 1ke to send Its best resolvethepresent crisis through wishesconstitutional means to all the leaders to responsible for this unhappy situation. and ensure free and fair elections. The The main problem is that our democraUcleaders foarnd g election.ifnotcanceledduetothe Supreme continue to work with outdated vision and attitude. In Court verdict on the controversy In near future, wil fact. during 30 years of strugge for democracy, the providean opportunity to finallyget rid ofthe country current oldand family-styleleadership neverdid enough outofcorruptand feudalelements which.hopefully,will homework to run the state affairs, and they are only makeltpossibleforatrusted and democraticleadership fighting among themselves for their self-interests after to emerge forthe betterment of Nepalipeopleand their the Installation of democracy. Neither the democratic future. new Constitution nor the party workers and ordinary citizens are responsible for the inter-leadership fight. ARUNIII CONTROVERSY The infighting within the NepalhCongress reached an anti-climaxwhenthedemocatsandllke-mlndedyouths I am a bit disappointed with the World Bank of the ruling party voted out their own leader. Mr- because sometimes they say one thing and sometimes Koirala. in the Parliament in July. another. They say they prefer democracy to PageNo. 1 So far, several applications have been made to the government authorities according to the Court decision, but they have been continuously denying the disclosure of complete lists of project documents and information and facilitate the process of their disclosure to the claimants. Another petition has been considered to be filed again in the Supreme Court on October 31. 1994 against the Nepali government demanding for the compliance with the Court's previous decision in favor of the claimants. Most importantly, the Supreme Court's verdict has established its jurisdiction that aily Issues and concerns that are to be generated from any projects or performance in which the Government of Nepal is a Party, they can be brought In the Court challenging the constitutionality and legality of such governmental policies and actions, including violations of the State's Policies and Directive Principles under articles 25 and 26 of the Nepali Constitution as well as other constitutional and legal rights, e.g. the acceptance of inappropriate conditionallties of lenders and donors in the case of Arun III or compromise of Nepal's sovereignty and national interests. This judicial remedy may be used by the claimants as the last resort In defending the rights and interests that are being and to be affected by the project Ifother measures are found to be unsuccessful or ineffective. The foDowingdocuments are also included for reference: 1. Arun m.An Introduction and Issues of Concemn,Arun Concerned Group, June 1994. Kathmandu. 2. Nepal Today, Vol. 5. No. 1. Summer 1994. a publication of the Nepal Human Rights Committee-USA, Washington, DC containing analytical information about the Arun m. ATrACHMENT-X Under 9: Additional Efforts Series of efforts have been made in resolving the above-mentioned issues and concerns that have effects in our rights and interests through the Government of Nepal, the Nepal Electricity Authority, the Arun m Hydroelectric Project Office, the Bank's Residence Office in Kathmandu, the Bank's Headquarters and other prospective lenders. (Copies of some of the relevant correspondence enclosed.) A first-ever public interest litigation of this nature was ified by Advocate Gopal Siwakoti, Executive Director of INHURED International, Dr. Rajesh Gautam. a human rights activist in the Supreme Court of Nepal demanding for the disclosure of all information and documents relating to the Arun III project and review of other issues and controversies surrounding it. On May 8. 1994 the Supreme Court issued an order In favor of the petitioners, namely the Ministry of Finance, the Ministry of Water Resources, the Nepal Electricity Authority and the Arun m Hydro-electric Project. This came after a series of hearings on the right to information regarding the project under article 88(2) of the Constitution of the Kingdom of Nepal. Article 88(2) provides for such litigation and the resolution of any legal and constitutional disputes on matters of public interest under article 16 of the Constitution on the right to information. According to the landmark judgment delivered by Justice Haragovinda Singh Pradhan and Justice Keshab Prasad Upadhyaya, the defendants were obliged to provide all Information regarding the Arun III. Through this verdict the Supreme Court has made a new and historic interpretation of legal principles In the context of the lack of necessary laws for the enforcement of the right to information in Nepal and the situation in which several provisions of other existing laws are yet to come into force. It has decided that up to the time when appropriate laws are not enacted, the government agencies should provide information to the Nepail citizens by applying the following guidelines and procedures In all cases, including the Arun m: 1. The applicant should first demand the list of documents: 2. If the list is provided within seven days the applicant should demand an Inspection of the relevant documents. 3. Ifthe demand is made according to clauses 2 of these procedures, the concerned authority should set the time. date. and place and provide information to the applicant within three days. 4. Ifthe applicant wants to make a note or copy of the document after inspection. he or she should request the specified authority for the same. 5. In the absence of any other laws for providing copies, the certified copies of documents should be provided by charging fees, if necessary. 6. If the concerned authority have to deny the right to provide the list, full or part, or inspection or copies. they should indicate the reason and inform the applicant within three days. 7. In conditions under clause 5. where the applicant Is denied the right to information. the applicant, ifnot satisfied with reasons of denial, can file a complaint in the Supreme Court within seven days of such denial. 8. The Rules of the Supreme Court shall be applied as the adjudication procedures In such cases as described above. The Supreme Court has established the right to information for all Nepali citizens regarding the Arun m as well as other matters of public Interest. X~~~~~~~~~~~~~~~~ j::r'.; s '1 :; ' -* *A.9~~~~~~~~~~~~~~~~~~, f! I W- B.flc4 an C~19eq- . .he pleaset.)g thctl - C. fu -1Z. uw s e, , --: Z...... t Sincerehey1maoer Slslce r*1y you:rq, Ann 0. MT)~~ V' ''- _ (ElntX?) laz''ton, Creves ,etF!:? * ~c~~'jqSAt'V; I O'Leer.y (S&iiEI: ¶*t-$.:'- .,-Wae3r,r (i.ST£) *>~~~~~~~ter ~ ~ ~ S l -. tio **.f ,- .t . ~J '**)~( ,,~~ ~ ~ ~ ~ ~ .. >~ ~~~-. - -Z.3 - Tune 17. 1P¢ 3~~~~~~~~~~~~~~~~~~~~~ !: thet69 :-r 4W MAttyAngdt r: r Pro'?!-t, ors under viiich KF.A's wars cect^truictcd' direction. Ltsw4 i-Io -ths 01 of was completed ' the target somplotion w±thin buLg,1Jt and wlr½ ,:allewl d4c. with The Ohe prom.jton Arun Prmj4ct, of private would praJeet, 9 :-eeo=ended foster in yossr the development letter. of loca. c:^Ua tre agroq it i. important for your - t-br public Gooeriuwent andi to give teuexplain interested thIoAr=n Project :t .n purtUew -e(u opportuMnities ,#rot-to me, to express 7c.u met theWr r:>'.f'.L' AVE. iti K IDA ao, r,andu on MAy PFXW staff In. the World b ' 26. * X, Aul' T w focr I understand E:v. * psatticlpatLei that roprewentatives i ddanr.p in the froat et publ t= I 2 -ar lc mtet .^ig or: J with Arun Valley - "' 'qi -!1.^. . Duritag rS ouI v recent ou. ;rnzterr indic.it,d risRIun t7A that an'. - un- * :f U. % e-:..1 the eniv. '.;:Ject d,i:cum1enr9 impact would lhe available - 'bulda piblic to the ciseting public on thn it ?4LA i.'orn Artin tentatively Proj#r:t. Ths :?d ! r ' ech.du;ll for F' r'' . . ar. lete ugu1r.,At'--- -'you agalRi -1'' s'p in K*tlunandu, aiid m.) rte snd yut, miy colleeglies wouldr of coi%::! here should - youjvL±t ; - -*1.''... arid e .;- ir:arit. Psior, tles n i:4 :,eZe ^oncfirIned theut a large .: powor :4-.!lLy 1l.''FtJfPI,t progreas, progre,Y7 pecrticulazly .,i evet±al In hsiUth etudio±qq mnd eC4acr1.2.i I li. f the 'i!t'v pu-'er !a-!)conduiu;ed p:'?w:."a' in pr.A.llel .- r'. ~tA ~'irronzmntal the technict-?: gt lt.u Je R . A As . *t conf iguLet,.In t hiL cQ'' eri:i , .. ,. !j.: l.' -: *',*-^ 1 ' , - t .n *, J,-.i ai rfe(L, . ,:tya .,,t :i;p.--- !-- reement w t , your Go-0 -.r:!.n- -ther higii priority - .... '. ':.apymert of L-:. .ivr f i: , ' ' o ¢ ## ',!: highly *.;.. c:onceaslonAl a*n*': ! , tnrt.:! pt for 40 years, .*..'?e whith ...s e 2. J3.11fer VTe proje' t expecte- beni!'itL ft . al:-believe that tha relatively -il:h Itvq s.--er, scv,l prlruLlo:: 0o electricity f ;: should fu o:i -i .'r=er-al w) o subealtz49 basis. ' 1. 7bls Jlc is wI be 1-.- ed frcm ' : e,'!>'%4l Ii-l ::;erket -our Goverr.n ;-rael -- .:.o ot UZA -Wit? on teo.n t'e benefit. c.;; -- ev*.'*: ere3 9uclh oathe: aqi than I- r' ::r to the . Furtlprmvre, ? tpale6e, -~ple NEA thr- :~ ''4.-.: n^ed! r e 8 to become It! '-*.'!e cirm-erclall) cut' ';.m.tt! fU L't.'-etly .7.. '~tr'plX'i!4u'_ / * , . . I, .~~~~~~~~~~~~~~~~I !.. t'trd.y - 2 - Jun Dt. 19U ; . *.. d at, parr of th' : 4.-Aea appra iI Lea take a proceae. account a of piro) 2V cts . - t^t enerRy out _1t. 1, .a' ;-i' ?Xthe high cog ' xrc.½ i.- ratio of \ * 1'- firm L t r lte In lew odrior.gyg anergy , . Ai tloo pr j; i' F! JSaCr - '. ^tvd !-iA-1e . Thi* rieans . that ' ; . .. oF . the dry ae4FtRon, _).5tir- lined. ' . - In c-nipe: ;:.'irsv .. : p Ity CVATh be * y,w:t.s4tb (. .. nearctar , 'i h p .; C , . ;- - . a!.. greement t. . on your ~. J' ' Vnet-la durilg - -;. i cl-.at.e the tlh.t tAiis !.ergy program', gonsei-vaticon and , .. . , I - . '- , - :.g~ ~!~e *- !;ik Snd Lhe r, *n-i Q;erianent . 8 '2 cLle LmtpvrtaL:..: . :,otS;; .. Ji , f ! ratgulatory I pe frezeiwork I,uwC: to -. =,'.*z;, ericourage ']~ ;4."gt pz: biig -o ) ide:it cvppnrt fE- the set a-tiuns f-ztrther takeii o ,, 4i Li projct ettep. - wouever, the '-, / ¢'}r;"fIs. in Nepal nesarl ro far 4 :i-ioe has a CapaOIt.y !.;is tr., :r 1glit and ' be eijti.. sL Art" IVqt e!z ;, i.*-' the :e; Vcrld '2Ytle 'e;z's Internation,al eJ priv& ote Flnmv- .A-:.ll -- tor *Sits*s affill.ote, a s-.1; tJe. momongo.h%: atdt !tIe ;limited i-spe1cty experience ttJ LvCtt In - ) tlrl.se Ne'- #AiLl.o l6S grLToWirr t1:t? ptritlrte pow.e ne- 4e!cLvr ' '- !n t )i,it" .R potentIol.ly "e 11ApI' a -- ^-::. a POWer e.pp ly r7 . ~, r:efi. ofon,tia IeISdJ1 for private ' # to earn pzojects and the %hs . -- .'.:...! L rcercial .IL ratoa6 i,v'. of IntnL: rEturtia sIgrilfIcar:tly t& 4tl8r..-J - we prc4j ., ; ecrs. inc-reage ;h9.' 7 :-i'n Ou., view , Your is 4. letter therefore at;d thst. the pz.c -.etler t Arun Project ,'A u should .- 'r-:. ianmutus31y be ret,-ait ,-trategy- exC:)uf Jv' eliemente of !lepa! r: . ,on_: IZ:ternttLnnsl Contractors 'hoj'it the Arun ?roJect .(:! . *.!^; '-o wo'lddbe the Conatruf:t' ; la;k by IrrAt ;~ tr of hss local capuicity 'nnl 1 -7 , red nc)|:d and In your tI E.ec: w-n l h1 leer, : i dev.'el(ope-i t' Nut'hor.lty u:nder the tt a:n (NRA). For _I:ect2'Y: t the Ar ut. first -: time ev-!l, ,,,_11 (i !e 0.1!1 ph _!,,_, : (flne ,cAfE.¢ i:' i4tIrr1 :1 V'i.;Jr' s. . Iaef 17 n t-r .,aZ t f. -. pxosnibDl fJnar.eL;AK stipFoort. tne are revisawl.g, :he'*n '-- <- < .- u; ~~~eL-s,.ds piarl of our apptatisel 1;szocers, arid lndevtd w: -^ o;.' .lhyOUt 'hA^hliglit;. I AmspleaOsd -:hat 1 *: t & 9 , r w~~~~~~~he At:P. -DAand F*fU wete ablt 6 nieet , .lepal, N-z; as MIr. Grovts bad 8suggep!. !l . c yt: ........................L' X;tLike to reiterate sofna Or lie po L;;'I-. q~ ~ s ^x*;e o sc,.,mient on .t.e sein -! isew-1 railsed , .' , .- iDse u * ntStrategy -- ir atdditi.nn to tot;rism, hydropow,!r tuit :1A1 .- e,o.:;Le. *iou:- GuviLmlm&nL Ut:etefore ¢[<% .* :', rping thls zestJurcii efficiently t¢] 1jvercL:,1 :'. .- ! ! iluta and t;Il:pport more rapid ez,onoxic e s : : : t eks @ 6iould atlst^ %-vnsfit, fyom exporting V..* t.. * ' _ ;S*r ' twCX necAuse Llie Asuri River is g1fi ie . -n y-ea-cL * 6 tho- -f.;wrivers r"e;te sulbjer;. t)i C-. '..:I cetsct dtve!.j:'- : . Arusl call ':. hve viery J.-' Itill ent:,ES (which) can !!L.t:ly be ouppile.l cni a........................zLet.... iszn-al vrariatlion,s 1ti :; ufqll) tat i.t,Aat l;F The en l - JP' s1t.~~~e hsIen. in:viestic-, jrea _'.111)1,1Y' Lll !' '% ; . ~~~~~~~~~'*Rw tut3I.d 1i NXepal. On.: inv%. * :l Ite1!'. g ;; s { ;~~~~;*rjul,! als-, protvi 5 . 9 l - !nR' Nepal the opr10K ! '.-' lopl\ I,rig ; ; . .rw;>l~~~-IT 'guovusI;* -- :i t^ zulv!~~ r. o.cr: .e1 '- "-=J- J UCtODe -L., .LY3 the Ministry of Water Resources. I was concerned by the implication that the Alliance was not invited since their participation and air transportation to the Tumlingtar meeting was paid for by the Nepalese authorities. I was also concerned by your statement that satisfactory answers were not provided to local participants' serious concerns regarding the project's potential benefits to the residents of the Arun basin, since our staff who attended the meeting, including Nepali speakers, repotted that the local residents expressed support for the project and indicated that they were looking forward to the employment opportunities it would provide for them. To clarify the situation, we would be pleased to review with you the video recording that NEA made of the meeting. Once again I would like to thank you for communicating your views on these important topics to us at the World Bank. Because of their interest in these matters, I am sharing this letter with the officials of the Nepalese government and the donors listed below. Sincerely yours. .~~~~~~~~~~~~ Ann 0. Hamilton Director Country Department 1 South Asia Region cc: Dr. T.N. Pant, Ministry of Finance, Kathmandu Dr. B. Bhadra, Member, National Planning Commission, Kathmandu Mr. S.N. Upadhyay, Secretary, Ministry of Water Resources, Kathmandu Mr. A.J.S. Thapa, Dr. J.L. Karmacharya, Nepal Electricity Authority, Kathmandu Messrs. Kinnemann, Brinkmann, KfW, Frankfurt Mr. Offermann, BMZ, Bann Hessrs./Mmes. Morita, Bohun, Addison, ADB, Manila .j.. . 2lueyz October 13. 1993 capabilities. As I have indicatedto ITDG and my colleagues reiteratedto you, we would be pleasedto work with concerned parties to undertakea diagnosticstudy of local capabilitiesfor preparingand implementinghydroelectricprojectsand to support developmentof the local industry. I am pleasedto note that we seem to agree that the privateand public sectorscan play complementaryroles in developingNepal'shydroelectric resources. However,as I mentionedin my previousletter to you, the largest non-governmentalscheme commissionedto date is the 5.1MW Andi Khola hydroelectricproject,while the largestnon-governmentalschemeunder constructionis the 12 MW Jhimrukhydroelectricproject. The Butwal Power Companydevelopedboth of these schemesand is also preparingthe larger 60 MW Khimti Khola hydroelectricprojectwith extensiveforeigninvolvement. The Butwal Power Companyhas estimatedthe KhimtiKhola project'sfirm capacityto be approximatelv22 M?: bared on detailed ys;temnplanning ':cr':,NEA h..s estimatedthat by the time it is commissioned,it will meet the system's incrementalpower and energy demandsfor only one year. With respectto the Arun projectitself,you suggestthat it would create a *drought-floodresponse'to electricityshortages. In fact one of the advantagesof implementingprojectssuch as Arun is to get out of this syndrome. Experiencein mobilizingresourcesand undertakingthe Kulekhani and Marsyangdihydroelectricprojectspointedto the need to undertake projectswhich could satisfyNepal'spower demand for a number of years rather than undertakingsmallerprojectswhich could be absorbedvery quicklyinto the grid. You also suggestthat the environmentalimpactof the Arun project has not been adequatelyaddressed. As the EnvironmentalExecutiveSummary provided to the Alliancefor Energy indicates,the direct socioeconomic impactsof the hydroelectricprojectcomponentare low (no familiesto be resettled)and modest for the accessroad (about112 familiesto be resettled). Direct effectson naturalresourcesand ecologyare also relativelylow. The level of planningof mitigationmeasures for the project has been unprecedented. The RegionalAction Plan to addressthe project's inducedeffects is based on the recommendationsof a study commissionedby the World Bank and conductedby the King MahendraTrust for Nature Conservation -:4thUN!DPsupport. 'e lo0: fcrw-rdtc clc::azccpcrat,cnand involve2nt with the Trust and the Makalu Barun ConservationProjectduringexecutionof the Arun project. I would also like to assureyou thatwe regard the Regional Action Plan as an integralpart of the Arun project;we will not supportthe projectunless adequatearrangementshave been made for the plan's implementationand funding. I am pleased tonote that the Alliancefor Energy has participatedin severaldiscussionswith HMG/NEA, the donors,local representativesand other NGOs on the Arun project. While a good start has been made, we believethat public participationand consultationshouldcontinueon a regularbasis during project implementation. I was, however,surprisedat your characterizationof the publicmeeting in Tumlingtarin the Arun valley,which was attendedby representativesof the Alliance for Energy and which was chairedby Hr. S.N. Upadhyay,Secretaryof tNit.:Nt'AliONAL bANK FOHHiCONSIHULIIUN ANU UtVtLUI-t'LNI Ivasjiingtori, INTERNATIlONALDEVELOPMENTASSOCIATION U.%-. m-.J'eJ , - U.S.A. Cable Address:INDEVAS October13, 1993 Mr. Bikash Pandey Alliancefor Energy P. 0. Box 2772 Baluwatar Kathmandu,Nepal Dear Mr. Pandey: Thank you for vour letterof August 29, 1993,which reiteratesvour concernsabout the developmentof Nepal'spower sectorand particular. the Arun projectin I am pleasedthat you and Mr. Almond of ITDG had an opportunity to meet Donal O'Leary,Fred Templeand their colleaguesfrom the ADB and during their KfW currentvisit to Kathmandu. I am writingto commentfurtheron some of the issuesyou discussedwith them, as well as on some points in your letterwhich were apparentlynot coveredin your discussions. You cite severalpossibleadvantagesof undertakingschemesof less than 100 MW. I understandthat there is currentlyone small schemeunder implementation(the 12 MW Jhimrukproject)and two under active preparation (the 60 MW Khimti Khola and the 10-15MW Modi Khola projects). Thus, some schemeswith short gestationperiodsare likelyto come on line prior to Arun. In consideringthese and other possiblesmall schemes,the followingfactors need to be taken into account: * In terms of firm energy production,up to nine schemescomparable to KhimtiKhola would be neededto approximatethe energy productionof the Arun project'sfirst phase. * We agree that, all thingsbeing equal, the reliabilityof power supply is enhancedby buildingpower plantsclose to the load centers. The Arun project,in the EasternRegion,is locatedabout 14201= by trinnnmiton line from Eiratn-aar.the second largest load center in the country;other projectsunder considerationby HMG/NEA in the Centraland WesternRegions,includingKali Gandaki and Khimti Khola, are locatedsimilardistancesfrommajor load centersin the KathmanduValley. If these projectscome to fruition,a reasonableregionalbalancein new hydropower productionwould be maintained. However,the main factorsthat should be consideredin projectselectionare site characteristics (hydrology,geology,etc.) and economicbenefitsin comparisonwith other projects. * We agree that it would be desirableto developa hydropower industrywith multiple economiclinkagesin Nepal. As my colleaguesnoted when theymet you, there are already several projectsunderwaywhich supportthe domesticindustry's development. However,given the currentindigenouscapabilitiesin Nepal, it is likely to take some time to expand the industry's ACA245423* WU 64145* FAX(202)477-8391 Mr. B. Pandey - 2 - February 22,1994 Because of their this interest letter to I am the taking persons the liberty listed below. of sending a copyof Sincerely yours, Ann 0. Hamilton Director Country Department 1 South Asia Region cc: Dr. T. N. Pant, Secretary, Mr. A. Ministry J. S. Thapa, of Finance Managing Mr. R. Director, B. Addison, Nepal Asian Electricity Mr. Development P. Authority Brinkmann, Bank KfW Mr. J. Hanickavasagam, Mr. Resident D. Joseph Mission, Wood, Nepal Vice Mr. President, A. Othman, World Executive Bank, Director, Washington, World D.C. Bank, Washington, D.C. tilt vU**OIN lh 0 0 Or. ... - - INTERNATIONAIBANK .'-. -, - FOR RECONSTRUCrbON AND DEVELOPMENT Washington, D.C. 20433 INTERPNATIONAIDEVELOPMENTASSOCIATION Cable Address: INTBAFRAD U.S.A. Cable Address: INDEVAS February 22, 1994 Mr. Bikash Pandey Alliance for Energy P 0 Box 3934 Baluwater Kathmandu, Nepal Dear Mr. Pandey: RE: NEPAL: Arun Hydroelectric Proiect Thank you for your letter of December 30, 1993 to Mr. Lewis Preston and other senior Bank officials concerning the Arun Hydroelectric Project, for which the Government of Nepal has requested financing from the World Bank Group. We welcome the views of parties such as the Alliance. Your letter raises similar concerns to your letters of May and August 1993,to which I responded in June and October 1993. Copies of these responses are attached. I would also encourage you to take up this matter with the responsible government officials in Nepal as well, if you have not already done so, as the Government is the ultimate sponsor of the investment. The issues you raise have been the subject of much study and discussion in Nepal and in the Bank during the six years of project preparation. They are complex issues over which reasonable, well-intended people can and do disagree. There are risks to carrying out the project, as well as important benefits to Nepal. Quantitative assessment of costs and benefits does not definitely favor one option over another. In the final analysis, Bank management has concluded that the project's readiness, the availability of concessional financing to go forward and of programs to safeguard the environment through the period of project implementation to ensure that disadvantages are minimized and the advantages are maximized, and the interests of the affected population tip the balance in favor of the project. I would like to reiterate that we welcome your views and any constructive suggestions you may care to make. RCA248423 0 WU164145 * FAX(202) 477-6391 Given the extensive 1579 public 05 interest goinighack in the Arun at least project, four years, indicated we are by correspondetce taking inatcrialsand the somewhat lholdingseminarsfor unusualstepof distributing interestedNGOs. comnimitte(l to broaddisclosufeunderthe I hopeyourealizethat we art Bank's sharingof relevantinfonnationcan ncw policy, sincewe the intcresteidpublic. be beneficialto recognizethat the the Bankand its It is forthis reasonthat borrowers,as well as to withinterestedpartiesoutsidethe Bank, in we have had a largenumberof consultations Nepal, prepareda bookleton .superviscdthe preparation,bythe the mostfrequentlyasked questionsaboutthe project,and wc UK, Switzerlandand USA. Wehave also 'SustainableDevelopmentin AnthropologjDepartmentof UCLA,of the ArunBasin." a videoentitlcd Of course, the oftices of several ExecutiveDirecitors,and wehavealso met frequentlywith agenciesin witli the Kathniandu,to staff of respondto many embassiesand haveengagedin questionsraised tlhciraid extensivecorrespondenceon indirectlybyvariousNGOs. and we countries. the projectwithNGOsand individualsin malny You are invitedto attenda which will day-longconsultationon start at 10:00a.m. Street, N.W.). This meetingwilldiscussthe in the WorldBank, room D13-605(streetaddress: this projectonTuesday28thJlne i 1809G variousalternativesfor rationalefor the ArunIII madeboth meetingNepal'selectricityneeds. projectand the by World mcictionedabove Bankstaffand NGOs.and Openingpresentationswill hc willprovidefurtherbackgroundfor the Argonnereportand staff papcr the meeting. Pleasedo not hesitateto letme know if wc can be of any furtherassistance. Sincerely yours, Ann 0. Hamilton Director CountryDepartmentI South Asia Region ' .: e -. Ra, a *'.1.c.,.---.. The World Bank INTERNArIONAL INTERNAriONAL BANK FORRECONSTRUCTIONAND t818 DEVELOPMENTASSOCIATION DEVELOPMENT H Street,N.W. Washington, 1202) O.C. 477 1234 20433 U.S.A. CableAddross:INTRAFRAO CableAddress INDEVAS June 15, 1994 Fax: 977-1-312-538 1 579 04 Mr. GopalShivakoti ArunConccrmedGroup - P.O. Box2125 Putalisadak Kathmandu,Nepal Dear Mr. Gopal: I am writingaboutthe -subjectof considerableNGOinterest,particularlyin proposedArunIII HydroelectricProject in of variouspowerexpansionscenariosfor Nepal,whichis the "PlanB." Nepal,includingwhathas requestinginformationonthc atnalysis cometo bc knlownas *I'hlvarious concerns regarding instilutional risks, the Arun uncertainty project -- including so dominatethe regarding macroeconomic theload futurepowerinvestmentprogramin forecast, and and the possibility out -- whichNepaliengineersand contractorscouldplaya that Arin would lcd us moreprominent-rolewouldbecrowded Nepalthatother smallerprojectsin colUflissioningof (fhe30-80MW range. to consideralternativegenerationexpansionplans, includingsonicdeferringthe Arun toa laterdateand versionof Althoughwe introducingfirst a seriesof "PlanB," smaller-investmentsin rclcasethe making process. internalassessmentsandargumentationthatweredisclosurepolicy, wedecliniedto consistentwiththe Bank's information receivedmanyrequestsfordocumentsdescribingthis Wc did,however, part assumptionsand the offer of our analysisunderlyingourto provide a interm;ildecisionl- technical report providing in detail - soon as it wasavailable. viewof the alternativeinvestmentprogranis,as lie flicdraft receivedby finaltechnicalreport, thieBanksomedays preparedby it availablein ago. evaluation,but the our PublicInformationCenter. Althoughit is stillsubjectto the ArgonneNationalLaboratorics.was revision,wehave niadc and Argonnereport Itsconclusionsare containsa in linewithour carlier richer Center is a set ot-sensitivityanalyses. is more transparentin the specificationof the assumptions staffpaper, explainingwhywe "Justificationfor Alsoavailablein Selectionof the PublicInformlation *. draws decidedto to providcmaximumtransparencyregardingthetechnicalbasisfor uponthe technicalworkdoneby supportthe Arunproject,and todo ArunHydroelectricProject by Nepal," Argonne. so at this time, Thepurposeof which Arunprojectdoes indeedform this advancedistributionis Nepal. I am partof anidthe sendingyou via our Kathnmandu the LeastCost PowerGeneraiionExpansionthat thc the conclusion staffpaper, ResidentMissionicopiesof Planftor preparedby togetherwith the Projet Informnation the Argonnerepot : rclatedto Arun IIl the large numberof - aailable the projectand availablein the NationalElectricityAutherityof Nepal,ofDocumenton and a list. reports in Washington. Kathniandu. Many,but not all of them, are also Mr. Alex Bush, IT UK - - August 26, 1994 candidates - do not make a prima facie case that the smaller projects will be less costly than Arun III, and even if further work does uncover some that are relatively attractive, they can easily be accommodated into the overall sectoral investment plan. You suggest that, mince the cost difference between Plan A and Plan B is modest, an appropriate allowance for risk and for the capacity building consequences of the different strategies would demonstrate the superiority of Plan B. We have looked at this issue in soma detail. While Plan B does offer some advantages in terms of flexibility and protection against natural disasters, the Government's proposed investment progrsm is more likely to solve Nepal's underlying power problem in a timely manner. It is also more in line with the Bank's Operational Directive on the management of environmental risk and has better prospects for effective response if and when envirohmental or social probleme arise during the course of implementation. The consequences of the different strategies for the development of domestic capacityare not all that great, since under either approach there should be continued - indeed intensified - efforts to encourage private involvement in small hydro projects. Your letter concludes with some comments on the processof future debate. Theae are, I believe, best left to others such as yourself to consider. Sincerely yours, Marie Garcia-Zamor Chief Energy & Infrastructure Country Department 1 cc: Meeure./Mmes. John Clark, OPD Geoffrey Lamb, World Bank Resident Representative, London Huw Evans/Anna Wechsberg, EDSo3 Helga Jonsdottir/Rune Lindholm, EDS20 Maria Noel Vaeza, EDSOS Pietro Veglio, EDS24 Gerard Steeghs, EDS19 Bikash Pandey, ITDG, Nepal Lori Udall, IRN Maike Rademaker, Urgewald Mr. Alex Bush, IT UK -2 - August 26, 1994 - it still would not follow that the "unselected" small projects are likely to have lower costs. Accordingly, we do not accept the conclusion that the least cost analysis ie fatally flawed because of inadequate consideration of smaller hydro projects. We understand thefrustration that has been expressed about the amount of feasibility and pre-feasibility work that has been done in Nepal in recent years on small hydro projects. It is always useful to have more data on investment posuiiilities. Nevertheless, our appraisal of Nepal's record in developing an inventory of potential hydropower investments doeo not support the conclusion that its efforts have bQen seriously inadequate or systematically biased against smaller projects. Indeed, compared to other small poor countries, Nepal has done a quite respectable job in developing an inventory of alternative hydropower investment proposals. Each of the major basins has been surveyed. A total of 107 different mites has been examined, of which 18 have had work done beyond the reconnaissance stage. Almost half of these are less than 100 MW. This judgement does not imply complacency. Our last power project in Nepal includes funds for further feasibility work. Moreover, as Government representatives have stated on numerous occasions, support for smaller hydro project. is seen as being complementary to, and not competitive with, the Arun III project. As evidence that this is not merely a rhetorical position, I would call your attention to the fact that Government hag decided to astabligh a special Hydro Fund as part of the Arun III project. This Pund will help finance feasibility work and actual implementation of smaller hydro projects. In addition, as you know, a power purchase agreement for the Khimti Khola project has been reached. We hope that this will be the first of a series of smaller hydro projects to be financed by the private sector. We understand that US ATD is already engaged In constructive discussions with the relevant Government agencies regarding assistance to strengthen Nepal's capacity to negotiate future power purchase agreements. If and when attractive smaller projects emerge, they can readily be accommodated in the investment planning for the sector. The Argonne Report should not be read as determining an immutable least cost sequence. As in the past, the analysis will have to be updated regularly to take account of new information about load growth and the costs of alternative investments. What is, in our view, robust about the Argonne Report is the conclusion that Arun III is part of the least cost generation expansion plan under most plausible assumptions about the future. Availability of additional, uncommitted and attractive small hydro projects that could realistically be completed over the next several years might - under what we think are relatively optimistic assumptions - add enough firm energy to meet perhaps a year's growth in demand in the middle of the next decade, thereby delaying the optimal commissioning date for Arun by a year or so. The additional costs to Nepal of commissioning Arun a year "prematurely" are very modest in comparison to the costs and risks Nepal would incur through delay. Bence, we do not believe it would be in Nepal's best interest to delay the long gestation (and much studied) Arun III project while more data is being gathered an the costs of smaller hydro projects. Rough comparisons - of the mort done in the Argonne Report on the Plan B The World Bank DIERNAInONAMBANKFOR 1313HScEct, RECONSTRUC1ON N.W. INItNATIONAIDEVELOFMENTASSOCLTn1ON AND DEVELOPMENT (202) 477-2l4 Washligwt, D.C. 20433 Cablc Addre,s: U.S.A, INTDAEAAD Cable Address: DNDEVAS August 26, 1994 Mr. Alex Bush Policy Researcher Intermediate Technology Development Group Myson House, Railway Terrace Rugby, CV21 3HT United.Kingdom Dear Mr. Bush; Ra: NEPAL: Arun III Hydroelectric Prolect Thank you for your letter I am of August responding 8th concerning on Ann Hamilton's the Arun 2II project. behalf. Her letter to you war copied Joe ganickavasagam, to Joe Wood, John Resant-Jones our resident and representative in Kathmandu. It is helpful to have your clarification not intended that as a the April "detailed ITDG analysis study decision of economic wag could coste be made" on which but rather an investment examination "a prima facie and study case for more of some detailed of the smalLer of the hydro least schemes cost analysis." within the context the costs The foundation of total of the prima and firm facie energy case information for those is that smaller in available projects are lower for which good than the costo for Arun. Ann Hamilton's letter to you challenges on two grounds: this fundamental first, that cost interest comparison during included construction in the project hao been capital incorrectly cost and, to include second, that the coats ITDG's of complementary analysis fails season thermal when power hydropower needed output in the winter is lowest during due to construction low river flows. is excluded, If interest then (Phase it ts 1) is no longer more correct costly in the that Arun generation III projects of firm included energy in the than ITDG report. the other Bence developed the premise in the April of the report argument is faulty. letter Similarly, of May 6, 1994, as you 1 discussed will recall, in my cost the procedures of power. for calculating on this basis, the cost the economic Arun III project of firm energy is approximatly from Phase 1 of Us14.46/kWh the considerably in 1993 dollars. from the VSO8.97/kWhcalculated This differ. by you. Finally, the projects examined selected in the ITDC report for feasibility are those work that because were they the reconnaissance were relatively data attractive. suggested that Even smallprojects Lf it were true had that lower theme costs "selected" than Arun III (Phase 1) - which is not tho case RCA 2484230 WU164145 * FAX(202) 47746391 Headquarters; Washington, D.C. 20433 U.S.A. Tel. No. (202) 477-1234 * Fax (202) 477-6391 * Telex No. RCA 248423 FACSIMILE COVERSHEETAND MESSAGE DATE: August 26, 1994 NO. OF.PAGES- 4 MESSAGE NO.: S t-&;/3Xlo- (Includrng this sheet) TO: Mr. Alex Bush FAXTEL. NO.: 011-44-78e-5402-70 Title: Policy Coordinator Organization: Intermediate Technology Development Group City/Country: Rugby, United Kingdom FROM: Marie Garcia-zamor DIVISION'S FAX TEL. NO.: (202) 477-5520 Title: Chief Dept./Div. No.: 242-30 Division: Energy & infrastructure Room No.: D 11-007 Telephone: (202) 473-8694 SUBJECT/ REFERENCE: NEPAL: Arun Hydroelectric Prolect MESSAGE: Mr. Bush: Following Mr. O'Leary's fax to you of Auguat 12, 1994, please find attached our detailed response to your letter of August a, 1994 to Mrs. Ann Hamilton. We will be sending copies of our response to those who were sent copies of your original letter. However, we do not have a fax number for Ms. Maike Rademaker, Urgewald. We would be most appreciative if you would provide us with this at your earliest convenience. Sincerely yours, Marie Garcia-Zamor Chief Energy and Infrastructure Diviaion Country Department 1 South Asia Region cc: Messrs./Mmes. John Clark (OPRPG): Geoffrey Lamb (EXTLD); Buw Evans (EDS03); Anna Wechsberg (EDS03); Helga Jonedottir (EDS20)1 Rune Lindholm (EDS20)1 John Cosgrove (EDS09); Struan Little (EDSO9); Maria Noel vaeza (EDS08); Pietro Veglio (EDS24); Oerard Steeghs (EDSl9): Eikaeh Pandey (ITDG-Nepal)l Barry Hudson (ODA); Harald Rehm (EDS05); Lori Udall (International Rivers Network); Maike Rademaker (Urgewald) TRANSMISSION AUTHORIZEDBY: Marie Garcia-Zkmnor, Chief, SAlEI If you experience any probleminreceivingthis transmission,informthesenderat thetelephoneor iax no.listedabove. The World Bank Resident Office in Nepal Facsimile: 225112 INTERNATIONAL BANK FORRECONSTRUCTIONAND DEVELOPMENT Jyoti Bhawan, Kantipath Telex: 2228 INDEVA NP INTERNATIONAL DEVELOPMENTASSOCIATION Kathmandu Telephone: 226792/3 Cable Address: INTBAFRAD KAIHvWMDJ Postal Address: P.OfK 79 October 7, 1994 Mr. Gopal Siwakoti Arun Concerned Group Putali Sadak Kathmandu Dear Mr. Siwakoti: This is in response to your letter of October 7, 1994 requesting for a list of documents on Arun 3 Project. Attached is a list of documents that is available at the Bank's Resident Mission. We also attach a list of documents that are available at the Arun 3 Information Center (managed by NEA) at the Arun Project Office. You should also be aware that the Bank has a Public Infornation Center at its headquarters in Washington D.C. The address of the Public Information Center is: Public Infornation Center The World Bank 1776 G Street, N. W. Washington D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 If we can be of further assistance, please do not hesitate to contact us. J Sincerel Jan Sharma Public Affairs Consultant JSherma:js ATrACHMENT-IX Under 8: Response on the Previous Complaints In addition, the members of the Arun Concerned Group. one of the main claimants. have held series of meetings with the Bank's staff at the relevant country departments, the environmental unit, and the Bank's Executive Directors of the Bank. However, their responses during these bi-lateral meetings have neither been adequate nor convincing and satisfactory. (Copies of some of the relevantcorrespondence by the Bank to members of the Arun Concerned Group enclosed.) ATTACHMENT-DC *T:~t 41t1VJ 9, ARUN CONCERNED GROUP TM -Xr1 R. RlRY P.O. Box2125 9so q:1v5olii, rlgTT Putallsadak. Kathmandu, Nepal 'iT R.b4707o. 7VfV/ T:Z-V4yQ Tel: (0977-1) 419610, Fax: (0977-1) 412538 May 23, 1994 Aris Othman Executive Director Nepal Section The World Bank 1818 H Street Washington, D.C. 20433 United Satates of America Fhe4 74,,6 Dear respectable sir/madam The Arun Concern Group (ACG).an association of a number of non-governmental organizations, and concerned citizens of Nepal formed to raise the issues of concerns and national interest directly related to and generated by the Arun I1 Hydroelectricity Project to be constructed in Nepal. would like to bring to your kind notice the following issues and concerns with respect to Arun III project. ACG believes that you would give a due consideration to the concems expressed in the attached document while making decision about Arun III Project. ACG also requests you to kindly defer and withhold your valuable vote until the issues and concems raised here are resolved. Thank you very much. Looking forward to hearing from you soonI. Sincerely yours, Gopi Upreti Spokesperson 3rT'7r*ttiT cmvr;-~ ^, #. RtR9 ARUN I'ZP.O. CONCERNED GROUP gaws, fovloi- h4qy Box2125 Putallsadak. 1x #70 7o, Kathmandu. wv, #7 gYr Nepal Tel: 10977-1) 419610. Fax: 10977-1) X4'2538 Huw Evans May 23. 1994 Executive Director U, K.Section The Wold Bank 1818 H Street Washington. D. C. 20433 Fax:: 6234965 Dear respectable sir/madam The Arun Concern Group organizations, (ACG).an association and concerned of a number citizens of non-governmental and national of Nepal formed interest directly to raise related the issues Project to and of concerns to be constructed generated by the in Nepal. Arun IIl Hydroelectricity would Issues and concerns like to bring to with respect your kind a due consideration to Arun notice the following III project. to the ACG believes concerns that you expressed would decision about in the give Arun III attached Project. document while making your valuable ACG also requests vote until you to kindly the issues and concerns defer and withhold raised here are resolved. Thank you verv much. Looking forward to hearing from you soon. Sincerely yours, Gopi Upreti Spokespersoni (ACG) '3TTZU -kibR V -L°" ARUN CONCERNED . R1Y GROUP tilAws w5Tc>1dil *r-w P.O.Box 2125 Putalisadak. V#;rw: Kathmandu. v'!4 o, Nepal vrwrer :T oi?i.r Tel: (0977-1l419610. Fax: (0977-1) 412538 Yasuyukli Kawahara May 23, 1994 Executive Director Japan Section The Wold Bank 1818 H Street Washington. D. C. 20433 Fax:: 5221581 Dear respectable sir/madam The Arun Concern Group (ACG),an association organizations, of a number and concerned of non-governmental citizens of Nepal formed and national interest directly to raise the issues of concerns related to and generated Project to be constructed by the Arun III Hydroelectrlicity in Nepal. would like to bring issues and concerns to your kind with respect notice the following to Arun III project. a due consideration ACG believes to the concerns that you would give expressed decision in the attached about Arun document III Project. while making ACG also requests your valuable you to kindly vote until defer and the issues withhold and concerns raised here are resolved. Thank you very much. Looking forward to hearing from you soon. Sincerely yours. Gopi Upreti Spokespersoii (ACG) *31~T tt19 ~T7 ARUN CONCERNED GROUP -cm v-L #. Rt v g A fs vlo"Iiri; *iMr i P.O.Box2125 Putalisadak. Kathmandu. Nepal vk7 x &'7S410. wVI'E t hoR@r Tel: (0977-1) 419610. Fax: (0977-1)412538 May 23, 1994 Executive Director US Section The Wold Bank 1818 H Street Washington, D. C. 20433 Fax:: 4772967 Dear respectable sir/madam The Arun Concern Group (ACG),an association of a number organizations. of non-govemmental and concerned citizens of Nepal formed to raise and national the issues of interest directly concerns related to and generated by Project to be the Arun 111Hydroelectricity constructed in Nepal. would like to bring to your kind issues and concerns notice the following with respect to Arun III project. ACG believes a due consideration that you would give to the concerns expressed in the attached decision about document while Arun III Project. makdng ACG also requests you to kindly your valuable defer and withhold vote until the issues and concerns raised here are resolved. Thank you very much. Looking forward to hearing from you soon. Sincerely yours, Gopi Upreti Spokesperson (ACG) 31T:7I +Ti I1i ARUN CONCERNED GROUP -c-Xr .R P.O. Box 2125 SV, qPTD1iii, r Putalisadak, Kathmandu. Nepal 7: V1d4170 WV';9r T. Y Tel: (0977-) l419610. Fax: (0977-l. 412538 May 23, 1994 Fritz Fischer Executive Director German Section The Wold Bank 1818 H Street Washington. D. C. 20433 Fax:: 4777849 Dear respectable sir/madam The Arun Concem Group (ACG),an association of a number of non-govemmental organizations, and concerned citizens of Nepal formed to raise the issues of concerns and national interest directly related to and generated by the Arun III Hydroelectricity Project to be constructed in Nepal. would like to bring to your kind notice the following issues and concerns with respect to Arun III project. ACG believes that you would give a due consideration to the concerns expressed in the attached document while making decision about Arun III Project. ACG also requests you to kindly defer and withhold your valuable vote until the issues and concerns raised here are resolved. Thank you very much. Looking forward to hearing from you soon. Sincerely yours, Gopi Upreti Spokesperson (ACG) INHURED INTERNATIONAL INTERNATIONALINSTITUTEFOR HUMVAN RIGHTS. ElVIRONMIEN7T AND DEVELOPM1ENT PG Bcx'2'25. Plutalisadak. Katrrmanou.NeDalD Tel: 0977. - -E Fax: 0977. i 2538. Fax: (202) 477-2967 May 27, 1994 Executive Director Nepal Section. The World Bank 1818 H St. Washington. DC 20433 Dear Sir or Madam: INHURED International. a Kathmandu-based international non-governmetnal organization. would like to express its deep concerns about the way that the controversial Arun 1II Hydorelectric Project is desinged and inappropriate conditionalities have been imposed in the process of loan negotiation. It believes that funding of such huge mega-projects in a country like Nepal will only invite further economic and environmental disasters in the name of development as in other countries. INHURED International is quite familiar with the adverse imp acts of the policies of the World bank and its sister organizations orncivil. political. economic, social and cultural rigths. particularly in the Third World countries. and Nepal Is not an exception. In this regard. INHURED International would like to sincerely draw vour utmost attention to the denial of the right to Information regarding Arun Ill Project. This right has been guaranteed under artice 16 of the Constitution of the Kingdom of Nepal as well as article 19 of the International Covenant on Civil and Political Rights which Nepal is a State Party. As you may knou. a writ petition has been flled in the Supreme Court of Nepal against the Nepall government authorities for the denial of Information about the Project. Including the Memorandum of Understanding reached between the Government of Nepal and the donor communities. In a hiisoric decision, the Court has ordered the defendants (the concerned government ministries and the Nepal Electricitv Authoritv) for the disclosure of all information regarding the Project. However. the government authorities have still been denying such disclosure and violating further the human rJghts to know of the Nepall people. It may also be important to mention you that some concerned citizens and pubilc Interest groups are preparing for another round of legal battles in the Supreme Court on grounds of contempt court and the denial of information in accordance with the Court's verdict. This situation may cause further delay in finalizing the status of the Project. Flnally. INHUREDInternational would Ilie to refer to various declarations and conventions of the United Nations that guarantee Nepai peoples' sovereigntv over thielrnatural resources and development modules. It also would like to request that no further action should be taken on the part of the Bank and donor communities until all Information relating to Arun Ill Project are disclosed for the publIc arid their participation In decision-making is ensured. Lack of attention to such issues of public concerns at natlonal and International levels mav Interept the consturctJon of the Project at any stage. Thanking you for your prompt attention to this matter. Sincyrely yours. Gopal Slwakoti Executive Director cc: Executive Directors. German Section. Japan Section. UK Section. and US Section wil-it. :mres- irr.rif'..-ittfi It %,,irks Inr rhe- prnm,rhion wthIiirnt;ri indlpt'e.riit n fii, -i ii' i,'..l.. ri,.-: . :ffrutruf t e- n.rn .. i... i r -i.)ia.ii.ii 1*ftrir-u ri-r it.) - ..... .l.rriCti .frnr,infZt ihiiifiin'r:. h tr;.i... .vr.'i,''.:--Ii F . rm-' l,.-'v. fir' 3) Comprehensively answer all questions beingraised about Arun III at local, national and international levels. 4) Ensure that the project is in compliance with all World Bank policies including energy, information disclosure, resettlement, andenvironmental policies. 5) Ensure that alternatives to the project have been adequatelyinvestigated. 5 to It is useless to talk,about public participationsince there is nothing "participate"as a result of the absenceof relevantinformation,particularly in local languages.The governmenthas never genuinelyheld any public hearings or distributed informationabout Arun III. The series of public meetingsthatwereheldin differentparts ofthe ArunValleyand otherareas were nothingbut distributionof a leaflettellingpeopleaboutproceduresfor compensation.No importantissueswereraisedor debatedaboutthe Project itself. SomeNGOswereinvitedto attend,but wereprohibitedfromraising'. any issues other than compensation, and in some cases they were systematicallythreatenedas a result oftheir activitiesinencouraginglocal people to participate in debate on issues of local and national concern relatingto ArunILl.Furthermore,creationof so calledpro-Arungroupsonly underminedthe image and sincerityof the governmentand donors. It is difficultfor peopleto understandinformationdistributedby government to local NGOs and the people in a so called consultationwith the local NGOs and the peoplein the ArunValleyin preparingthe RegionalAction Plan. Can the governmentor the Bankprovideany informationabout what weretheproceduresand methodsof suchconsultationsandlist of NGOsthat were part of it ? If so, whydid the governmentor the Bank did not bother to invitethe ArunConcernedGroupor theAlliancefor Energy.Involvement of a few vestedinterestgrouporindividualswithoutopportunityfor broader participationcan only be regardedas a manipulationto legitimizethe Arun M Project. Beforethereare furthernegotiationsbetweentheWorldBankand theNepali governmentand beforeBank managementsendsthe ArunIII project to the Board of ExecutiveDirectors,werequesttheWorldBank to ensurethat the following has taken place: 1) Provideall basicprojectdocumentsto NGOsand thepublic,includingan update of recent negotiationswiththe Nepaligovernmentofficialsand new conditionalities,if any. 2) Ensure that Bank actions inrelation to the projectdo not undermine democraticprocessesinsideNepal,includingrespectingthe recentNepalese SupremeCourt decisions. 4 After the local groups were denied basic information by the Nepali government, the groups filed public interest litigation in the Supreme Court of Nepal demanding the disclosure of all information related to the Arun III project. This culminated in a legal review of the Arun III project and the donor conditionalities. The Court has decided that all information and conditionalities relating to Arun III are subject to the Court's extra-ordinary jurisdiction and review, as specified by Article 16 of the new Constitution of Nepal. The Supreme Court has ordered the Nepal Electricity Authority, and concerned ministries.to disclose all information on the Arun III Project to the petitioners and the public. Nonetheless, the Government has repeatedly ignored provisions for the release of basic documents on Arun III: e.g. the Memorandum of Understanding of October 19, 1993; Since further litigation is to be filed very soon to addressthis violation, any acts which the Government of Nepal may be involved with may soon be declared unconstitutional and in violation of the Supreme Courtjudgement. It should be understood by the World Bank that the Nepali government must abide by the mandate of the Nepali people, particularly as stated by the Constitution and the judgements of the Supreme Court. Ultimately, these mandates of national sovereignty supersede illegal agreements withoutside agents. In this situation, the World Bank must pay full respect the Nepali Constitution and decisions of the Nepali Supreme Court. It is also important to note that the government has lost in all public interest litigationsin recent years, including Arun III and the World Bank must not contravene decisions of Nepalese courts. There is some confusion about the role of the democratically elected Nepali Parliament. So far, the Parliament has never been provided any information about Arun III by the government other than general statements by the ministers. A report on Arun Ellis expected to be submitted by the Opposition Party in the upcoming session of the Parliament starting from next week. A report and findings of a Public Commission on Arun III is also expected before the vote on Arun III on July 26. If the Bank approves the project on July 26th, this will jeopardize the internal negotiations, voting and democratic processes and will lead to mistrust of the Bank and donors by political parties and the public in Nepal. Public Participation: 3 Keepingin mindthe aboveconcerns,we wouldrespect liketo highlighta fewpoints World Bank has raised with to the the Arun policies of informationdisclosureand requirementsfor Concerned Group public participation and beneficiaryconsultations. Access to Information to adequatelyinform the Nepali people, and The World Bank has failed International, Arun Concerned Group, INHURED Nepali NGOs, (e.g. regards to the A+un Alliancefor Energy,Rural Reconstructionin Nepal)with Bank office Kathmandu and the Nepali M1project. The World Govermmentconsistentlyfailedto providebasicprojectdocuments. anyinformationor documentation Eventhe to groupswhoissuedwrittenrequestsfor in ProjectInformationDocumentfor ArunIII whichis easilyavailablehere informationwas producedon Washingtonwas request,it goeswithoutsayingthat the localpeoplewerenot informedof the not offered. Given that no however, III project. Nepali Governmenthas, realitiesof the Arun The mounted a campaignof misinformationregardingthe alleged benefits that the Arun The Governmentof local people will receive from III project. Nepaldidnotpromptlymakeprovided in availablein locallanguagesa projectsummary. the local language was a leaflet The only material initially explainingthe procedurefor receivingcompensationfor lands requiredby the ArunIII project. In our understandingthat the WorldBank'sinformation".This would new informationpolicy and the imply EA policy requires meaningful"accessto be public Arun III will informing the Nepali that more than simply project understood as an constructed. Meaningfuldisclosureof detailsis critical a mandate for public knowledge, When invitation to participation, discussion,and finally--ifthe projectis a good one--publicsupport. participation from project public "information policies" act to exclude and implementation, the decision-making, formulation, designing, legitimatingbenefitsof democraticparticipationthroughinformeddecision, "access to making are invariably lost. In these information"onlynotifiesthelackpublicoftheimpositionofprojects unfortunate situations,throughthe governmentchannelswhich democraticaccountabilityand procedural transparency. 2 ISSUES REGARDING ACCESS TO INFORMATION AND PUBLIC PARTICIPATION ON ARUN III June 28, 1994 First of all, we would like to thank the World Bank for inviting NGOs concerned with the proposed Arun III HydroelectricProject in Nepal to attend this consultationand to presentissuesof local and national concern pertaining to long term repercussionsof the proposed Arun III project. However,we are seriouslyconcernedabouttheutilityand usefulnessof this meeting,particularlyon the followingmatters: - Is the Bank prepared to review the project negotiationprocess and modality before final agreement,and before the submissionof the Project before the Board on July 26? If not, whyis this consultationbeingheld at the final hour of negotiations? - We understandthat the scopeof this consultationis limited to issues directlyrelatedto the WorldBank, and is not intendedto addressdomestic issues and concerns. If this is true, we do not understandthe purpose of invitingNepali governmentrepresentativesto participatein thisconsultation. We welcomethe opportunityto discussthe broaderinternationaland legal' issuesraised by the ArunIII projectproposal.Unfortunately,we regret that we may have had to travelhere to Washingtonto hearargumentsfrom the representatives of the Nepali government,a government which totally ignoredand underminedall effortsto promotethis sort of discussionof the Arun m project in Nepal. - We are concernedthat the value of this consultationwill bedirectly compromisedif thesituationbetweentheNepaliNGOsandtheir government representativesbecomesconlfrontational. Weare equallyconcernedthat this consultationbe respectedwith regardto the WorldBank's decisionmaking for. the Arun m project: we anticipate that the final report of this consultationwillbe publiclyreleasedandusedduringfuturenegotiationsand also submnittedto the Board of ExecutiveDirectors. 1 Action Required Arun shouldnot go beforethe boarduntil the followingissueshave been adequately discussed: * The issuesraisedin ITDG'spaperon relativecosts * The riparianissuewithChina * Powersalesto India * The impactof the projecton the peoplein the Arunvalley Alliancefor Energy ITDG June 1994 and the Geographicalbalanceof hydropowerdevelopment.Hydropowerinvestment associatedbenefitsneedto the country. be distributedmore equitablyacross Risk associatedwith a singlelarae outburst floods scheme.Seismic risks, etc are glacial not specificto lake schemes (particularlyif any particular project there are but larger several country'spowersupplyundulysusceptibleto in a single valley) make the, concessionaryfinancingavailableto these risks.Puttingall of the designedto the country into come on one large scheme line in eightyears time puts-the terms of unscheduleddelaysand cost overruns. country at risk in Additionally,there are project- unsettledissueswhichwill in particularthe be criticalto powerexportsto riparianissuewithChinaandthe the successof the Arun India. lackof agreementon further Future Development We recognisethat, in the long increasingdemandson thegridif reasonableeconomicgrowthisto run, largerschemeswill be neededto meet the ever is alsono disagreementthat the whetherthe implementationof Arunat roleof theprivatesector-willbe critical.Thequestionis be sustained.There visionof this point sustainablehydropowerdevelopment. intime is consistentwith a long term TheAllianceis thanfor individualprojects.Moneyavailablefromthedonorcommunitymust arguingfortheuseof concessionaryfinancingfor sectoralsupportrather term. on longtermstrengtheningof thesectorratherthanonproducingmegawattsbe focused intheshort The Bank has said that it corporatizationof, andprivatesectorparticipationin, developingcountrypowersectors'. will 'aggressivelypursue the commercialisationand This privatisationwillnot 3 willfirstwantto occurspontaneouslyand it is investin the commercial sector smallerschemes(say10-20MW).Thereis mostlikelythat theprivatesector with no significantmoneyin development.A mechanismsin place to Banking regulations will packageof institutionalreformswillbeneededto utilise this for hydro sector need to ,institutionswill be changed to sparkoff thisprocess. allow for needto be put longer term in placeto loans; legal coveredby insuranceand regulatebuy-back;schemeswill guarantees. needto be There is no moneynowavailableineitherthe evenstudythese schemes.To govemmentbudgetor the preventthe donorloansto that hasarisenwithArun,suchstudyworkmustbe initiatednowinorderthat thecountry long-termrecurrenceof the 'no-optionstrap' has a wide rangeof potentialhydropowerschemesavailableto it in a few yearstime. rThe WorldBeak'srol in theelectricpowersector;WorldBank;1993 PlanB and Sectoral Issues The Bank's 'Plan B' The debateoverthe overa yearandthe relativemeritsof Arunandthe to table7.9 inthe recentArgonneLaboratoriesreport).NGOshave,however,only seen Bankhashadan analysisof 'planB' alternativeshasbeengoing on for sinceJuly anyrelevantdocumentsinthelasttwoweeksandhavenotbeengivensufficienttimefor 1993(seefootnote detailedcomment. Nevertheless,it is clear that inconclusive.The the results of the of the 3-4%differencein comparisonof assumptions.In thetwomodelsis plans A and B are that Aprilof all of the small hydro schemesfor this year,ITDGpresentedits easilywithinthe marginof error own hasmadeno responseat significantlycheaperthanArunintermsofthecostsitofcould which analysis',suggesting gather firmdata were all to that paper. generatedpower.Asyetthe very Bank The Bank'sexaminationof fromarangeof over20 possibilities.Nojustificationofan plan B appearsto make arbitrarychoiceof In addition,the six projects comparedbecausethe Bank claimsthat the schemesin theselectionhasbeenpresented. plan B plan A proposalto studythese schemeshavenot and plan B cannotbe directly takennoaction.In orderto makeaclearcomparisonofBank sinceJuly schemeshasbeenwith beenstudiedto the the sameextent.A 19932,yet be carriedout beforeArunis presentedto the boardas the plansA and B,suchstudiesmust it has leastcostoption. BeyondLeast Cost Giventhat the resultsof imperativethat the Bank looks the plan ANBcomparisonwere consideredby at the a leastcost methodology. widerdevelopmentalparameterswhich inconclusive,itis even more are not The key issuesin the contextof this particularprojectare: CaDabilitvbuilding.The indigenousinstitutionsare adoptionof such a man weakdoes largeschemeas hoursto such nobodyany Arun when planneddevelopmentof a projectis favours.Adding local the countrycanimplementcompleteschemesinthe wholeinstitutionsaroundsmallerschemesso that not 'institutionbuilding'.The need is for future. ArunIII-CheaperenergyforNepal?;ITDG;April1994 2HydropowerDevelopment in Nepal:takingasectorwideview;ITDG;July1993 take placein the days of the ArunEI project, more wide-reaching campaigns are bound to to come. We demand that the Arun III project be delayed until: done (including the King 1) The appropriate groundwork for the RAP has been adequate funding has Mahendra Trust follow-up study for the new road alignment), RAP been secured, and the construction schedule is modified to allow for implementation to proceed in advance of project construction. maximize the use of local 2) The construction schedule for the road is extended to work to commence from a labour, minimize impact on the environment and allow single roadhead. are given a "land for land" 3) The ACRP programme is overhauled, so that people option and are offered a fair pricefor their land. and modify the EIA. 4) A panel of experts is appointed to evaluate the KingMahendraTrustStudyof the Managementof BasinwideEnvironmentalImpacts- consultationwas limitedto discussionsof howbest to deal withafait accompli. * The Bank's OD 4.01: EnvironmentalAssessmentrequiresthat "the borrowerprovide relevant information prior to consultations ... in a timely manner and in a form that is meaningfulfor, and accessibleto, the groupsbeing consulted"(Art. 21). Let alone the timelymanner,mostof the relevantinformationwasnever disclosedto interestedparties. OurGovernmentwasfoundtobenegligentinthisrespectbythe SupremeCourtearlierthis year. * OD 4.20: IndigenousPeoplestates that "Successfulplanningfor indigenouspeoples frequentlyrequireslonglead times,as well as arrangementsforextendedfollow-up"(Art. 14g). This is one of the universal truths of development,yet the Bank and the Govemment's greed for Arun's powerhasbulldozedthis concemaside. Forthe RAP to be effective,it must be startedway in advanceof the project. Buildingthe road at such highspeedwillexacerbatethedifficultiesin overcomingthealreadyalmostinsurmountable challengeof tryingtoimplementsuchanambitiousmitigationprogrammealongsideproject construction,ratherthanin advanceof it. I would like to remindyou, at this point, the fateof the SardarSarovarProject (Narmada Dam) in India which had much to do with the non-compliancewith the Bank's own requirements. 4. Many of the mitigationmeasuresfor direct and immediateadverse environmental impactsare notjust practical. For example,the lossof fertiletop soil is supposedlyto be preventedby takinga layer off in selectedsitespriorto the projectactivityand storingit until it can be returnedto its originalplace. Villagersin the Arun valley wouldlaugh at such an absurdsuggestion. 5. The RAPis supposedtotakecareof the long-term,indirectandbroadersocio-economic, culturaland environmentalimpactsof theprojectinthe wholevalley. However,the RAP appearsto be little more thana wonderfulshoppinglist of goodintentions. Wereit to be takenseriously,the resourcesrequiredwouldstretchway beyondthe budgetset aside for it ($17 million). But moneyis only partof the problem. Much more concerningis the capabilityin the executingagenciestoexecutesuchan ambitiousand far-reachingplan. A $14 milliongrant is sittingin Kathmandu,setaside fora clean-upprogramfor the capital, yet bureaucraticinertia has preventedany work from going ahead. If such a straight- forwardprojectlike this cannotbe managed,howcan we beexpectedto haveconfidence in implementationof the RAP? We stronglydifferwiththe Bank's assertionthatthereis littleoppositionto the projectin Nepal. Withinthe last sixmonthsalone,oppositionto this projectfromamongthe people at large, intellectuals,professionals,politicians,NGOs,and politicalparties in Nepalhas growntremendously.Andoppositionwillrisedramaticallyoncelocalpeoplestartrealizing the impactson their lives onceconstructionworkbegins. Unlesssatisfactoryanswersare givenand the issuesraisedare resolvedwithregardto thecontroversiesof the presentform of the the projectrelieson the assumptionthat the high cost economic justificationfor openingup of the projectwill be offsetby the Upperand LowerAriinschemes,same time, the since the cumulative at the developingthese schemes. But, are given only a valley facilitates environmentaland social implicationsof openingup the whole valley and other environmental high cursory mentionin the EnvironmentalImpactto Assessment(EIA)tojustify otherschemesare beaccountedfor Arun III's studies. If ti'ebenefitsof buildingthese schemes. cost,then the muchmore seriousenvironmentalconsequencesof considerationat the sametime. alsomustbe takeninto more serious of construction,particularlyof road, has much 2. The environmentalimplicationsthanpresentedinthewiththe singleobjectiveof commissioning rapid pace projectdocuments.Theroadroute,timing the and methodsof constructionhave beenchosenThis plannedto be built in the powerfrom Arun Quiteapart fromthe mIas soonas possible.coststhiswill incur(includingextensiveair 120kmroadis huge only three years. support),managingthe constructionincompliancewiththe proposedmitigationmeasures camps of up to not impossible. To meet the deadline,6-7 willbe extremelydifficult,if the way upthe valley. 1,500workerswillneedof to be Thiswillmakepolicing the contractor'scompliancetothe mitigationplanimpossiblein set upat 10km intervalsspreadall practice. policies. 3. Preparationsfor the projecthave failed to complywith severalWorldBank bank. For example: We trustthat that theseviolationswill betakenseriouslybythe on Involuntary Bank's a has been a violationof the OperationalDirective4.30 Resettlementwhich outlinesone of There its primaryaims as "providingpeople displacedby peoplein projectwiththe meansto improve,or at leastrestore,theirformerlivingstandards,earning capacity,and productionlevels"(Art.2). Quitethe oppositeis happening. The Tumlingtar,forexample,are beingcompensatedat"land ratesfar belowthe marketpricewhich of their is for land" compensation, the cash land. Similarly, the Bank stronolyadvocates where people are not linked in to particularly importantin the Arun valley highlighted from cash have already been But the economy and where serious problems route alignment. compensationmeasures implementedfor the original ridge single Acquisition,Compensationanddespitethe fact that muchof RehabilitationProgram(ACRP)has not identifieda the compensationhas already piece of land for this purpose, beenpaid. OperationalDirective(OD)4.01 onEnvironmentalAssessmentstatesthatfor serious and multi-dimensional * TheBank's projects with be engagedin "major, highly risky, or contentious environmentalconcerns"No suchpanelhas beenappointedfor (Art. 13),an EnvironmentalAdvisoryPanel mustproject,despite the ArunIII preparationof the EIA. its classificationas a CategoryA project. affectedgroupsand * The sameDirectivealso expects"theborrowertoimplementation,and inparticularinthe takethe viewsof localNGOsfullyintoaccountin preparationofEAs"(Arts. 19,20).Therewasnopublicconsultationat projectdesignand allinthe preparation there any openconsultationon of the EIA for thevalleyroute for the road. Neitherwas ENVIRONMENTAL AND SOCIAL ISSUES RELATING TO ARUN III PROJECIT GANESH GHIMIRE, ARUN CONCERNED GROUP June 28, 1994 Washington,DC The ArunConcemedGroupis anopenplatformof NGOs,professionalgroups,and individualsconcernedwith variousissuesrelating to the Arun III hydroelectricproject. Some of us, includingmyself,are fromthe Arunvalley,wherethe projectis to be located. Like lifeitself,Arun The name of the river,"Arun",meansthe sunandit representslife. Within 100km, the valley basin is full rises from onlya few metersabovethe sea leveltoabout 8500meters,whichgivesrise of diversity,bothenvironmentallyand culturally. to its uniqueand rich environmentand culture. TheWorldBankhasrecognizedthe Arunvalleyas a biodiversityhotspotof global importance. But at the sametime,it is allowingthe intricateand dynamicbalancebetween the naturalprocessesand humanactivitiestobeseriouslythreatenedbythe Arunhowever,in III project. The area is very remote,and its peopleare vulnerableand naive,They live, peace, socialharmonyand tranquility. TheArun III projectdocumentsacknowledgethat irreversiblechanges to the project, especially the road,will bring many negativeand communitiesand theenvironment.Thesedocumentsbe furtheracknowledgethatmanyof the rapid indirect environmentaland social impacts cannot predictednow. Given the constructionplan andthe sizeof theproject,a vastpackageof measureshas beenproposed to mitigateagainstits likelydirectandimmediateimpacts. ln addition,aRegionalAction Plan (RAP)hasbeen designedto takecareof theindirectandlong-term.environmentaland social impacts. Despite the impressiveamountof paperworkproduced,we do not believethat the the negative measures proposed will protect the people and the environment from irreversiblechangesexpected. Themitigationmeasuresare inadequate,misleading,often is unrealistic,and also exhibitnon-complianceto the WorldBank's own requirements.It irresponsiblefor the Bank to allow the projectto proceeduntil these issues are resolved. this I would like to give you some examplesto demonstratehow we have arrived at conclusion. 1. Someserious environmentaland socialimpactshave beenignored,underplayedof or in For example,part the some cases, removed from early drafts ofprojectdocuments. ARUN CONCERNED GROUP Address in Nepal: Secretariat, P.O. Box 2125, Kathmandu, Nepal Tel: (977-1) 419610, fax: 412538 Address in United States: 1025 Vermont Avenue #300, NW Washington, DC 20005 Tel: (202) 879-3186, Fax: (202) 879-4293 July 7, 1994 Ann Hamilton Country Department I "SA/ 1" The World Bank 1818 H Street, NW Washington, DC 20005 Dear Ms. Hamilton: I am writing to request you the complete set of documents on Arun III Hydroelectric Project in Nepal based on the attached list which was made available by the Bank. The documents with the following "Report No." are either already available or not needed at the moment. Report No. Page 27to51 2 218to242 8 265 to 298 9-10 (Video and Audio documents) I appreciate very much if you provide the rest of the documents upon your earliest. Thank you very much for your cooperation. S,ncerely yours, Gopal Siwakoti Secretariat If these concernsare not addressedadequately by the Bank, we may be forced to submitan appeal to the Bank's Inspection Panel. Thank you for yourattention to these matters. Sincerely, Bikash Pandey/ Alex Bush Alliance for Energy Intermediate Technology Nepal England Arj Ctai Gopal Siwakoti Arun Conerned Group Arun Concerned Group Nepal Nepal P/'Ravi Pradma' Alliance for Energy Alliance for Energy Nepal Nepal Pitamber B. Chetffri Ganesb K. Ghimire Alliance for Energy Arun Concerned Group Nepal Nepal Gopi Upreti Arun Concerned Group PAT Nepal K Japan Herman Warth Brent Blackwelder Urgewald Friends of the earth Germany USA Lori Udall Chad Dobson International Rivers Network Bank Information Center USA USA cc: Lewis T. Preston, The World Bank D. Joseph Wood, The World Bank Ismail Serageldin, The World Bank Ann Hamilton, The World Bank 7 TOTALP.06 compensation, which where is particularly people are iwnport-.rnL: not in Lthe Arun were linked valley highlighted to the cash in the econnrey. of cash project Serious compensatiorn doc'mieerits problems aft.er the ea.rlier route ineasures alignment implemented round . Despite for the original offer tlhis, ridge the option nc.) land of land h is ye, for been larnd ideintifiied co.1penrsation. tc, D) Agreements with Neighboring Countri es 1) Power Sale Agreement Must be Reached witli India Since phase II of the the Arun valley project have and been futuire rrecdicated power .3eveloprnent. project i.n must not on thie be aoproved sale of power to india. reached. un-il the India currenrly a bilatei:al agrneeent at prices buys has been significantly power from the ClIuktha damn ir power below Bhutan means cost price. it is highly T-he hiqh c07st India unlikely of Arun's will make that econordc- any powrer sense. sale deal vith 2) The Riparian Issue Must be Resolved with China. In the Nepali Parliament announced recent.ly, that the China held WVat.r Resourcos Minister Arun !II. 'nc, objection" However, this to Ne Il's p' ans Arun's does not to b^ui ld water constitute supply for a proni se to q-guarantee proposal the is ifetime pending of thceproject. Even project in China now, a on the for the Artin Chatigsuo (Phuing Basin irra1 large ation number Chu) river. of glacier In addit:ion, there Lake lakes are Outburst in Tibet a Floods which to could produce Glacier manaae whic. premature Lt1epal htas drainage. no access, iri order commitment Approving t.c from China Aruin markecily III witLhout increaSe's a fitLm the risk of che project. E) Conclusion The Bank's failure to ensure assessrnent thatt and .iLS information Z'o.L.iCJ-5s Onr environmeental undermining disclosurce democratic are being follrws?ad unresolved processes is issues in surrounding P;epal. Wet br-lieve consultation this the and project, access and for to the lack of publi.c Board information consideration makes .t highly unsuitable project at this of this time. magnitude W;e also auest.ion whether of IDA and a funds, adverse particularly impacts i- a reasonable If the wlen Bank viable use is to take alternitives are available. sustainable seriously its development, publicly stated conunitme!nt of then alternatives there shoul t.o which i be a full investigation energy are more needs. .-uitable f£r Nepal's long-term b 2) A Realistic Implement.iLioui Programme and TimCni_able for The Regional Action Plan and Road Construc-tion muot.be Established. Construction of the 122 kiin road is cur-i-ent.1y ple.i ar ea -.pi i rate of just over three years. The -road wil] 1 .. 'iVeLy imp act on the people living in the valley, thlroughi an influxu.,f up to i0,000 construlction workers and their famnilies, whilu w: pt. , przesslire Oi' precious food, forest and water resources. Many of the people of the Arun Valley fit the Bank' cdefinitio,n of "in.-iaen.cus pe-p1e in its operational directive OD 4.20 whlich stat es that "suiccessful planning for indigenous peoples frequ(ently requ." res lorng le,ad times, as well as arrangement:s for extende:l follow-up". For the Regional Action Pllan to be effective, it mnust: be started welL in advance of the project. The rapid speed of road constituctiorn will further undermine the Pegional tit.t.ri Plan's ability to cush:Fin this sensitive region fro,m the long-term and in,direct i.rnlpaOts On the valley. The ronstruccion schedule fr.,: the road miust be extended to minimize to loAa] .isruItion coinrniiritiea and the environment, Moreover, we question wlhetlher zlhe Nepaal E,octricity Author-ity which has its primary interest in promoting the project has the capability or the will to proi,erly irmplenmernt the Regional Action Plan. 3) Long-Term Cumulative Environmental Impacts of Arun III and Subsecuent Projects Must be Studied The Worid Bank's Environmental Assessmient Policy recommends that regional environmental assessments be used in cases wrhere significant developmernt activities with potenit.ial.ty cumulative impacts are planned for a localized area. Arun III is only first phase in a plan to build j total of three dains in the Arun lVallev. Despite this, environmental studies have only covered the potential adverse impacts of Arun III. Before the project is approved, there should be a comprehensive studv of the loing-termT Cnniulativeimpacts of dam building and road construction in the Tnt:.ire Arun Valley. 4) The Acquisition, Compensation and Rehabilitation Program Should be Revised to Ensure that Families Receive Equitable Compensat.ion and that the Program is in Compliance with fiank Policy. Families whose land will be te.ken fo-r the- project ate being compensated at a rate that is well-t%elowtne nmc:rket rate for their land. In this respect the project is failing to comply with! the Banks Operational Directive on Trivoluntary Reesertlement (OD)4.30, para 2) . In addition, Bank policy advocal:es Ilancl for lAned" 5 Requests for th-e greer. cover st.-ft a pris> r*} ort:, a I', CoLher teclhnical in forniation S'l(IcL as hy dro-q ir-,i;.l st udicy.; ,ini the cost/benefit arnalysis have been dCeTlied. Tht! Bank h) xeleaFd a list of documents on the ptoject which was cortipiled by, thle NoeEPali governmenlt, but it is not clear what docwrients the Eiank is prepared to publicly release. The staEf apprai.saL riE;;rL is crit-ical for local groups because it is the basic tec.i.-ical prcdject docu.nt which contains the project justification arid rationale for the Bank's involvement in the project. It is critical thatt tr.is document be released, before it becomes firnal. W4hile we realize there may be a small portion of confidentrial informa.tion within, we believe these sections sh-ould be excised, arnd the re3t.: of t:he document should be released. The Projev2t Informat;Lorn Document has never been updated anrld it conltains SO little i1tc,!5.J tioln that it is useless for NGOs who are questioni.ngj Lhe b}.sic assurnptions and objectives of the project. C) Environmental And Social Issues The Arun Valley is a remote area of vast bioloqic&1 d.iversity and ecological fragility. The Va'lley is inhabited by 450,000 people, comprising 10 ethnic groups. These people will he extremely vulnerable during read and project construct.ion. Abour 1,760 families will be affected by the loss of thieir homes, lands and livelihoods. Ot:her families will be adversely affected by the laerge influx of workers and the pressure put.ton 1-o-etl food, forest and water resources. It is estinmated -hat subsistence farmers adversely affected by the roead will lose 20% of treir incorre. The Arun III project, alorrgwith the upper and lowez.A-runproject will cause irreversible, long terni cumulative imnpacts to the environment and the people. many of thiese cumul.ative impacts have not yet been assessed. Because there vave already beein violations of the World Bank's environmental and social policies, we question the conunitment of Bank manraement. and Ntepal Electricity Authority to implement the project. with proper environmental znd social safeguards. 1) The Regional Action Plan must Be Completed The King mahendra Trust follow-up study to tLhe tMkakalu-rarun Environmental Inpact Study, which is essential gr< oundwor'( for the Regional Action Plan, will not be compited for at least six months. The World Bank Bo.rtd date and road constructlon must be postponed until all portions of the Regionail Action Plarn are completed and are in place. Previous Bank experience with projects such as Sardar Sarovar in India where prnject construction was 3implir1 start.ed before environmental studies were comr Ilet ed anr nerited have failed. T'his lack of cors u1. t..itc-*l ion V. t . f t bh' W:z5k' z Operaticnal Li rectlve onrit rl±ror,m-?e: r1 :s.r1E?rt n i. r that t4e tic- goverrernt. take, into i-3r,-!".-Ct t he V.r oft LC':Lt:1 n anc] rl,Os *Us in t-he prer:e;a tl'n of- pvtiE'o: 'I1i;:.i pr))lI'!I p t -. (OD 4.01, para 19). 2) Failure to Release Information Despite repeated roque8t-s over sev?l.1i y a- ., nl iTI Iie;t_, 1-a\s/ months have any project dcOCu.Ihern:sbren ia.rl-Ie r'.vnE i. II to t h- Np=iti public. Their release only ca:me -hout. fololirn;1 aTcort . ase.tf i 'efd by NGCs which led to a SipreTrP-Court d'le is i'Zn d.-nvinr trneir disclosure. Despite the ruling, w:hir-h doatrzndiIt3 h:- re.!e^se rQf a'1 documents related to thel Ar n I T T p!6ject, many^ o-fC thD key documents a re still beinr wirl!ield by the :n2a i i a0v.:Lri'innt.., precluding any meaningfuli kkeb.nte. The library w1hich was estab] Ia1)I ?!d r ti Neo,-,al E ectt i.CIt.y Authority after the caze wis filedlir t.Llhe ;trreme Court doer, not contain many kpy -documents si.:ch as tlle ernorSL&h' of Ulnrl?rstanciing between the Government of Nep;tl arn!c tho Vorld R.-rnk ',O:L-ober 1993) or the draft project a:ppraisal docu-erntr.. In a pr2oject of t:his si- and cost which will affeCt thlt wiole rtal:i.n of Nelp7, the public should be able to get access to ir,form.tic-n on exist,ing zagieements between the Governme-nt afid the World Bank, and brsiic project docuarments. Additional .y,, thje fi 1 env.ironment-9.2 impnp-t a*tnr,l-fmnt. has not been made availab2e in th. loca' l>ngquge, which is a requirement of Bank policy (0D 4.01, p3ra 211. 3) Failure to Releane World Bankl Documents Both the Bank's Enviromrlental Asses.nMent Policy (or: 4.01) arnd Infonration Procedures (BP 17.50) r-quire tChe 1-.irml1v release of information about projects'ain prelparat ion, esrpecicllly before public consultations take place. This h.s been violated consistently throughout all project platinirmig and detsgrg. Th' EBan,k's nfow information policy requires thle reel;ase of thf Firo:Lct Informatior Dociument and tne release of all far-tuaj tec-hnical iflTtfrmtiosn fnh':Ft the project . While the prclect: inforeatic,n do2um:nt wa) read1i]y available in Washington, it hlas nlot been arni 1 h1 in Nepeal . P.equests for factual techn i cai irformat io,rn on tlie prCj ect, including studies on alternativf-s tc th-iprje'-t *.were dellied until June 9th, when the Bank released ornly a sti.vidy 0n alternatives by Argonne National. Laboratories. 11GOshave not. hlcad sUfficient time tD analyze this docux!nent and mT3r.y of thlfeussurmrt iorns used in the document are riot explained. 3 In the interes3t.s of goerneating . Lrgy aor ;.b; :a1 at le.-s; c',t, it is imperative that the stl.a.y of the .t.rPa^.ives he t.okerr :(o at least t:he feasibility level T-.c allow -ipjrcp.pr carnir :s.Sn with th'ne Arun project before the prc'j-c: is tal:ern to t E Ronr drd f.:r a vote. Unless t.his is done the RPnik will nO t hav+* ful-il l.ed i r pItr.icy requirement to compute th; Lieast Cost. an.alysi:- For a5:Il.litiornal power gener ation for Nepal. B) Public Participation and ACCeSS to Information 1) Public participation and ConsultaLion Public Participation in cri'eproject has rn-ot;eri ad:t:e. The project is being port.rayv.:d by the Gov;.-rrm;Xent of N.upa3-l as ha'v-incg been chosen through a tranlsparent and open dientoc.ticiC proces$s. However, only in the laest six monthls (withl- proje-t prep krataon almost at completion) has there 'been an- seriou, dizc.ission in Parliament or with the public with the bIenef it of arcr-urate informatiori. Prior to that, Artin III was consistently presenterl to the public as a fait accon.pii. The discus¢.sions th.at have taken place have been forced by concerned groups; rathe.u than 9t. the instigation of the Goverr.rerit of Nepal or t he Rank. Banr:i For example, NGOs organized a pub-lic hearing in Febru.ry 11993 whiich wars attended by Nepal Electricity Authority bi.it boycotted by the Ministries of Water Resou-rcs and Finance and by the National Planning Coxrnission. As a result, there was nro opportunity to challenge key governmTent ministriers about the pr.ject. The alternatives to the project (along Ihe 1Lines of [Ilan B) th.at are available tio Neval have never b}.een presented to the people or the Parliament. The NJlepali government &claims i.o havde htel(d 23 public meetings, 11 of which were in the Arun Va1ley. tWhile it is truie that there was one public' bearing ir Tumlingtir, mimr.; of the othler meetings being classified as pub'ic hearings were i.-.t- inq stzictly to inform peopl.e about compnr.saton procedures for thteir Land. NGOs who tried to raise issues III the meeting.; about the project anrd its adverse environmental and social inipact.s were prevent.edfrom d.Jing so. The Government has alsc- misinformed peop1r; in the Arln Valley abotut the project, leading them to belir;v, they will receive jobs and electricity. In reality, there has heei nrc concrete cc;mmitment to supply electricity to the poeople in the ArulTn VAlley and only a small number of lobs will be created for loca.l people, because outside workers will he broughr in. Because of tlhe ;nagniti.1(3e, cost and adverse impacts of t':ee project jindl t`-i impli:etions for the national budget of Nepa'L, we b(:elievre thi.s proje- t is a national issue and we have a>Eo requested that therLe be pulbliiv hearincgs in Kathmandu. FOR ~LI \7 FOR LDIJUn ~ ARUNC-ONCERNED @ U GROUP P.O. Box . 2125 I-athmandu, Nepal P.O.Box2772,Baluwatar. Kathmandu, Fax:+9771 Nepal ;.72oI6tFa:(97- Fe: (977-1) 416538 123 Executive Directors The World Bank 1818 H Street Washington, D.C. 20433 July 6, 1994 BY FA X Dear Executiv.e Director, We wotuld like to thank you f)r meUiLLng June with 27th, and us diuring hearing the our concerns week of electric project abouIt the in Arun: Nepal. IT] We hope -yrdro- you have that through come to these understand meertings, implications the risks, of Board drawl.icks and wider offpproval designed. the Atrun We remnain ITT project. unconvinced as clurrently seriously that our by concerns Barik nanagemernt. are being taken questions Becausn and unresolved of tlhe rnsr:y issues unanswRred it woluld rolatirng be irresponsible to tho project, we helieve the of the Board Bank to on July allow 26th. Aruri IIT to coiiie tc the We urge following you to delay issues the Board have dat:e been until ade-quaLely addr-s>se&: A) Adequate Analysis of Alternatives% The very high unit cost oL construction tariff that consumers and the cvres;pondirig of the energy high remain a serious fromn AZun III concern. will Lack.of lIaveto pay study the eight years of the alt.enaJives of preparation durini major of this criticism project of t.his cont inues project. to be a Generation Plan Tlhe Least' exercise Cost that Expa rtsi on to has been date used has to justily. been admitted the project conclusively by Dank MhnagncerPenL the superiority not te, show as currently of thiQPlan designed) A opt: ion (the over Arun project rlan project B (which- come proposes on line in t.he to h,ave year the number 2,009aftLr of the small construction and mneclium of-a national hydropower grid. schlenfes) The cost to of sup-ply the the Plan P.an A cption B prrjects are extremrely cnmpared with prel.miniary. the Cheaper E8nergy 1T'lcs for study Nepal, 'Arin sent ITT - indicates that t.o Branr;kmacfnageTnent hydropower in sctiem;s Apr- I 1.994 have been under studied the in greater 100KATrange that d-rai.l up with in the energy costs lest.year have lower all come response than Arun to III. this study There from has be-en the no Banik. . .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~* Based on 1hi' 'uoe n!trumber()fcliuf;ems ic'.amdillui Ai tiAI) Pl, Wt' `c 111,ul HL urt' yOLrt2ge?TCY Loconsider vitilizin your fum;1- f&,,supporiing srnial fuld mawj'iwrhvyl.oq,v sChenies of less than IOU11Wc.apacily which ali: myor eocoimitically,ctlv;ir.lfldeL.n!) mm lly simJld frO Nepal's currentsiLuation: Thank you fmty'our iuendiov to sthe uxgent mrauers. mg Sincerely, Bikash Pande) Alliance for Encrgy Nepal Gopal Siwakoti Arull Concernedl] Goup Nepal Lori Udall Iniernatio)nal Ri;eis N-,twvork USA Chad Dohsiii Bank InformationCcnter USA Friends(of the Farmh USA Yukio Tainaka CEPAT Japan 6 * The engineering and management capability to build a largeproject like Arun does not exist in the country, which means that the entire scheme will be built by international contractors. PreviousexperiencewithlargehydroprojectsinNepalmanagedin thisway (theMarsyangdiand Kulekhanischemes)demonstrategthat such dependenceon externaltechnologiesand expertise does nothingto helplocal capabilitygrow and mature- in fact, the reverseis often the reality.; Whilethere weretoken provisionsmadefor localcapabilitybuildingin the two projectsnamed above, they never developedinto genuinecapabilitybuilding. It is hard to see how Arun will enhance the hydropowercapabilityof Nepal. The shortcomingsof this approachare alreadyclear.Japaneseexpertshad to be broughtin to assess thedamageonthe Kulekhanipenstock(washedawayinthe floodsof 1993)and fouryears after the completionof the plant, German techniciansare still needed long term to run the Marsyangdipowerplant.TheJapaneseexpertshavepointedout the lack of routinemaintenance on the Kulekhaniprojectand almostnorecordkeepingof the maintenancethat was done. Local capabilityin hydropowerhas been growingand maturingrapidly over the last 10years, particularlyinthe privatesector. Localcompaniesare nowtakingon50-60MWschemes,which are plentybigenoughtomeetNepal'srelativelymodestenergyneeds. However,localinitiatives require supportrather thancompetitionfromschemeslikeArun. - Given Nepal's current development statusandpriorities, Arun could do more to damage than enhance the country's overall development prospects Nepal is one of the 10poorestcountriesin the world. Its mosturgentneedsare for the basic servicesof clean water,sanitation,healthand education. Whileelectricityis highon the list of prioritiesforNepal's ruralcommunities(whichrepresent90%of thepopulation),theystandlittle chanceof gainingaccessto Gridelectricityevenin the longterm. Stand-alonemini-and micro- hydroschemesoffertheonlyrealisticoptionformanyof thesecommunitiesever tobenefitfrom electricity. Given the Bank's emphasison 'povertyalleviation'strategiesfor developmentand the recent concernsraised in the WapenhansReportabout the 'sustainabledevelopmentimpact' of its projects,it is difficulttosee howitjustifiesthe constructionof Arun,whichwillbenefitso few, generateno incomeforthe countryand increaseits burdenof debt. 4 Arunschemeand is doublyunpopularbecausetogetherwiththe tariffincreasepeoplecanexpect more load-sheddingfor the foreseeablefuture.The further50% tariffincrease that isexpected to be needed to pay for the energy producedfrom Arun will meanthat Nepal will have the highestenergypricesin SouthAsia and threatensto destabilizethe countrypolitically. * There has not been enough preparationfor detailed planning of the mitigation measuresneededlo counterthe seriousadverseenvironmentalimpactsof the access roadto the ArunProject. TheArunValleyis a remotearea of vastbiologicaldiversityandecologicalfragility.Thevalley is inhabitedby 450,000people comprising10ethnic groups.These peoplewill be extremely vulnerableduringroad andprojectconstruction.Over 1000familieswill be affectedby the loss oftheirhomes,landsandlivelihoods.Pre-projectmitigationactivitiestopreparethelocalpeople for the effects of the constructionof the road has not even begun and there are only a few monthsleft beforetheproposedbeginningofconstruction.TheNepalElectricityAuthoritywhich is in charge of co-ordinatingthe mitigation activitiesand has full responsibility over environmentalmanagementduring constructionand after commissioninghas no capabilityor experiencein thisarea.ThereareseriousdoubtsthatNEAcanexecutethesefunctionseffectively in spite of the "unprecedentedlevel of planningof mitigationfor this project". a Publicparticipationbothat a locallevelin theaffecteddistrictandat a nationallevel has been insufficientin the developmentof the Arunproject. Seriousquestionsthat thepeopleof SankhuwaSawa(thedistrictwherethe projectis to besited) have regardingthe alignmentof the road, and benefitsto the localpopulationof jobs, training and access to electricityhave not been adequatelyanswered.The one PublicHearing that was held in the'district was not publiclyannounced.Whensatisfactoryanswers to their questions couldnot beprovidedduringthe Hearing,localleadersaskedthe organizers,morethanonce, to terminatethe meetingandgobacktoKathmandu.No documentsregardingthe project(including the EnvironmentalImpactAssessmentin thelocallanguage)wereavailabletolocalpeoplebefore the Hearing. The projectaffects all the peopleof Nepalin differentways- as consumersof the produced electricityor as thosecarryingthe burdenof theloan. Governmentofficialsboycotteda Public Hearingin Kathmanduon the projectorganizedbyNGO's onFebruary11th,1993and havenot organizedoneof their own.A PublicHearingneedstobeheldin Kathmanduto discussthe risks of the projectto the nationaleconomyand the altemativesto Arunthat are available toNepal. 3 few. Large, centralizedpower schemes like Arun will not help the remaining 90% of the populationgain accessto electricity. Even to those who will benefitfrom Arun, the cost will be very high. Despiteconcessional terms on the loans from the World Bank and Asian DevelopmentBank to His Majesty's Governmentof Nepal (HMG/N),the Nepal ElectricityAuthoritywill be required to make payments to HMG/Nfor the loan at an interestrate of 10.25%. This cost will ultimately be borne by the consumer,who willpay veryhighelectricitytariffs. * The scheme willcost$3,800per installedkW. Privatecompaniesin Nepalcan and are buildingsmall and medium hydroschemes (upto 60MW)at halfthat rate. In the light of the highcost of powerproduction,it is surprisingthatAruncame out as the best optionfor Nepalto pursuein the LeastCostGenerationExpansionPlan(LCGEP).The LCGEP did not considerall the possibleoptionsfor hydropowerdevelopmentin Nepal, and largely ignoredthe small/mediumscale sector. Local private sectorinitiativesare consistentlybuildingschemesfor less than $2,000 per kW installedin the small(1-15MW)andmedium(15-1OOMW) hydroranges,and $1,500perkW in the mini/micro-hydrorange.The20 to25MWof annualincrementalpowerneedsof the national grid caneasily be met with a basketof l-1OOMWschemescomingon line one after the other. This * Investing in Arun means putting all Nepal's hydropowereggs in one basket. makes it a high-risk option and provides no answer to the current load shedding problem. Investingin more, smallerschemeswouldspreadtherisks of investmentand energyprovision. If anythinggoes wrongwith Arun, the countrywill haveno alternativesto fall back on. The startdateforthe constructionof Arunhasalreadybeenshiftedand is likelyto befurtherdelayed. Shorter-gestationprojectswillrelieve loadsheddingmuch sooner. Politicalstabilityin the country willbethreatenedif tariff has to be raisedto the level being insisted on by the WorldBankfor this project to go ahead. Sincethe newlyelecteddemocraticgovernmentcametopower,electricitytariffwasraised61% in November 1991and again40% in February 1992.This has beenfollowedwith an increase of 38% in early 1994.This increaseof over 200%in the electricitytariff has led to political protests in all the major cities in Nepaland petitionsfrom the businesscommunityfor tariff reductions. The high tariff is seen to be a directconsequenceof the highcost of powergenerationfrom the 2 [ n@3 0DS ARUNCONCERNEDGROUP FOR ,. 2,/P.O. Box 2125 Kathmandu, Nepal P.O.Box2772,Baluwatar. Tel: (977-1) 419610 Kathmandu', Ncplas: (977-1) 412538 Fax: 9771 72o161 ChristianSundgren Director FINNIDA KatajanokanLaituri3 SIN00160 Helsinki Finland 12July 1994 By Fax:358-0-341-6375 DearMr. Sundgren, We are writing to you regardingthe Arun 111hydroelectricprojectin Nepal which is being consideredfor fundingby FINNIDA.We believethatalternativesto the projecthavenot been adequately investigatedor publicly debated.We also submit that the long term cumulative environmentaland social impactof developmentand road buildingin this remote and pristine environmenthave not been adequatelyaddressed.Moreover,publicconsultationand accessto informationhas beeninadequatein the preparationof the project.Listedisanelaborationof our major concems: Witha currentprice tag of $764 million,the Arun III hydropowerscheme willcost as much as the entirenationalbudgetforoneyear. Thisis a majorfinancial commitment way beyond Nepal's limitedresources. Althoughmuch of the loanfor the Arunprojectis beingmadeavailableon concessionalterms, it is still a hugeburdenfor a countrywithsuch a limitedbudget. One third of the country's nationalrevenuealreadydisappearsintoloanrepayments.Sinceonly9% of the populationhas accessto electricity,the whole countrywillbearthe debtburdenfor the benefitsenjoyedby a >E D DS3CONCERNEDEARUN GROUP FOR @) a .- P.O. Box 2125 Kathmandu, Nepal Tel: (977-1) 419610 P.O.Box2772, Baluwatar, Kathmandu,Nepal F&x: (977-1) 412538 Fax: 9771 F2oI1 2 PhilippeJurgensen DirectorGeneral Caisse Francaisede Developpement 35 rue Boissy D'Anglas 75379 Paris France 12July 1994 By Fax:33-1-47427514 DearMr. Jurgensen, We are writing to you regarding the Arun III hydroelectricprojectinNepal which is being consideredfor fundingbyCaisseFrancaisedeDeveloppment.We believethataltemativestothe projecthave not beenadequatelyinvestigatedor publiclydebated.Wealso submitthatthe long term cumulativeenvironmentaland social impact of developmentand road buildingin this remote and pristine envirornmenthave not been adequatelyaddressed. Moreover, public consultationand access to informationhas been inadequatein the preparationof the projecL Listedis an elaborationof our majorconcems: wUlcostas * With a currentprice tag of$764million,theArun IIIhydropowerscheme much as the entirenatiohalbudgetfor oneyear. This isa majorfinancial commitment way beyond Nepal's limitedresources. Althoughmuch of the loanfor the Arunprojectis beingmadeavailableon concessionalterns, it is.still a huge burdenfor a countrywithsuch a limitedbudget. One third of the country's nationalrevenuealreadydisappearsintoloanrepayments.Sinceonly9%of thepopulationhas access to electricity,thewholecountrywillbearthe debtburdenforthe benefitsenjoyedby a ARUN CONCERNED GROUP FOR P.O. Box 2125 Kathmmndu, Nepal 419610 P.O.Box2772,Baluwatar, Ksthmandu, Nepal Tel: (977-1) Fax1277o)4253 Fax:+9771 CarlThamn DirectorGeneral SIDA BirgerJarlsgatan#69 S-1L525 Stockholm Sweden July 12, 1994 By Fax 468-322-141 DearMr. Tham, We are.writing to you regardingthe Arun III hydroelectricprojectin Nepalwhich is being the project have not been consideredfor funding by SIDA. We believe thatalternativesto cumulative adequatelyinvestigated or publicly debated.We also submit that the long term pristine environmentaland developmentand road buildingin this remoteand accessto environmenthave not been adequatelyaddressed.Moreover,publicconsultationand socialimpactof informationhas beeninadequatein the preparationof the project.Listedisan elaborationof our majorconcems. willcost as * With a currentprice tag of $764millioA,the Arun III hydropowerscheme commitment much as the entirenationalbudgetfor oneyear. Thisis a majorfinancial way beyond Nepal's limitedresources. Althoughmuch of the loanforthe Arunprojeciis beingmadeavailableon concessionalterms, One third of the country's *nationalrevenuealreadydisappearsintoloanrepayments.Sinceonlythe benefitsenjoyedbya it is still ahuge burdenfor a countrywith such a limitedbudget. 9%of the populationhas accessto electricity,the whole countrywillbearthe debtburdenfor iDfinR@ 0 13 ARUNCONCERNED GROUP FOR P.O. Box 2125 Kathmandu, Nepal Tel: (977-1) 419610 P.O.Box2772,Baluwatar, Kathmandu, Nepal Fae: (977-1) 412538 Fax: 9771 J201o6f Akira Nishigaki President Overseas Economic Cooperation Fund Takebashi Godo Building, 4-1 Otemachi 1-chome Chiyoda-ku Tokyo, Japan July 12, 1994 BY FAX 81-33-215-2897 Dear Mr. Nishigaki, We are writing to you regarding the Arun IIIHydroelectric project in Nepal which is under consideration to receive funding by the OECF. We are also following up on a June 5th meeting we had at OECF in Washington D:C. with Mr. Hasegawa, in which we discussed our concerns about the project as currently designed. We believe that altematives to"the project have not been adequately investigated or publicly debated. We also submit that the long term cumulative environmental and social impact of development and road building in this remote and pristine environment have not been adequately addressed. Moreover, public consultation and access to information has been inadequate in the preparation of the project. Listed is an elaboration of our major concerns: * Witha currentprice tag of $764million,the Arun III hydropowerscheme willcost as much as the entirenationalbudgetfor.oneyear. Thisis a majorfinancial commitment way beyond Nepal's Limitedresources. Although much of the loan for the Arun project is being made available on concessional terms, it is still a huge burden for a country with such a limited budget. One third of the country's national revenue already disappears into loan repayments. Since only 9% of the population has access to electricity, the whole country will bear the debt burden for the benefits enjoyed by a 1 LIST OF KEY MEMBERS OF THE ARUN CONCERNED GROUP International Institute for Human Rights, Environment and Development (INHURED International), Secretariat Alliance for Energy Coalition Nepal (environmental NGO) Rural Reconstruction Nepal (RRN) Informal Sector Service Centre (INSEC) Centre for the Vlctims of Torture (CVICT) Forum for Protection of Human Rights (FOPBIR) International Human Rights Lawyers' Society Child Workers In Nepal Concerned Centre (CWIr Women's International League for Peace and Freedom - Nepal Section (WILPF) National Concerns Society Child Watch Nepal Ad Hoc Committee on the People-Centred Development in the South - Nepal (Secretariat of the International Coordination Commlttee in South Africa) 6. take into account the detailed information to be provided by NGOs in Nepal on various issues relating to Arun Ill, particularly environmental impact assessments and mitigation measures as well as alternatives to Arun I1; and 7. satisfy with other unresolved issues relating to the life and sustainability of the project, e.g. riparian issue with China, glacier outburst, alternatives to energy development, adverse impacts in social sectors. Please do not hesitate to contact for further information or clarification. Thank you. Contact address in Washington, DC: c/o InternationalRivers Network 1025 Vermont Avenue #300, NW Washington, DC 20005 USA Tel: (202) 879-4280 Fax: (202) 879-3186 5 approval of agreement with China on riparian flows from issue (since China): 86% of status of the water agreement with India it exists; on the sale approval of energy, of 10% Investment if by Nepal and other of the $764 questions million project relating to the cost, conditionalities environmental of donors, and social and impacts. So far the provided Parliament this opportunity, has not been and significant. pressure the disclosure on the government of project for documents and a fruitful the present debate was expected session of the Parliament, in including independent Opposition Party and reports by the People's the Commission on Arun case anymore III, which due to recent is not the political developments In the country. The dissolution of the Parliament this week, and the elections calling of on November mid-term 13, 1994 have created further III project uncertainty if it Is not of Arun critically reviewed by the donors of the fragile to win the consensus political parties and the confidence final decision of the Nepali people. of the loans The for the project will be viewed democratic as undermining internal the process in Nepal as well as seizing during political of "opportunity" turmoil. The status of the project will further existing degrade members if the of the Cabinet and the ruling party November get defeated elections leading in the to new opening of debate on Arun lII. WHAT NEEDS TO BE DONE! It will be essential for the borrower country, the people postpone and the the July 26th voting cionors to of the project whole project by the Bank, and review with careful the attention during preparation the period of electoral for November elections, particularly: 1. Investigate violations of the Bank's Information operational Policy and procedures by the Bank Management; 2. study of issues and concerns raised by NGOs during consultation the June 28th meeting held at the Bank; 3. review the compliance of the Bank's policy, procedures, and standards guidelines relating to the project as the obligations borrower of a country, and access to basic project information affected people and by the the citizens of Nepal; 4. ensure the debate of the project in the next elected (November Parliament 1994) and its approval: 5. respect the decisions of the Supreme Court of information Nepal on access to on Arun III as well as the internal democratic process: 4 obligations by referring to some "library" public after meetings the case and was filed the setting in the Court. up of Following the Court's verdict, documents the petitioners and information first demanded the list of reports from NEA in the that second only week provided and of June a list basic in which of 151 information many of the were project missing. documents litigation It was and only the contempt after a threat of the of the Court, of another Memorandum the govermnent of Understanding provided a copy at the outset of October of the 1993 Consultation on June 26, 1994 Bank. with NGOs It is found on June out that 28, 1994 NEA has by the World reports supplied which the World was not Bank available a list in Nepal. of 298 Efforts of seeking project documents underway and there and basic information are strong are still suits possibilities in the Court of the by challenging second round of legal project the complete documents or partial by the denial government of basic Similar efforts without are also valid being legal made justifications. DC for at the the disclosure World Bank office of project in Washington, the list documents of 298 reports and Information that was according made to 1994. available by the Bank on June 15, In conclusion, the process of access has just to informnation began and on the several Arun obstacles III project Court verdict are foreseen for their release. in future despite the ABSENCE OF PARLLAMENTARY DISCUSSION AND APPROVAL Another disturbing issue regarding debate Arun In the III has Parliament been the lack and presented its approval. of fruitful any documents The government and Information, has never and general other information than policy about statements Parliament the construction despite repeated of the project, efforts in the disclosure of Members of project of Parliament documents for the Members for debate of Parliament and approval. even issued A group of 1994 with a public other statement public figures on January 12, documents and demanded and review for the of the release whole of project same project time, the largest by the Parliament. Opposition Around the Party Party of Nepal in the (UML)- Parliament issued - Communist approve an statement project and said nor assume that It will neither debated any responsibility in the Parliament in future if the with matter the disclosure is not of project information. There are several issues involved implementation relating to the of the design, project funding that and need approval of the Parliament, e.g. 3 people, political parties and NGOs in Nepal as the sympathy and support of the Bank and other donors in stabilizing the hard-won democracy in Nepal. DENIAL OF ACCESS TO INFORMATION Denial of basic information by the Nepali Government. particularly Nepal Electricity Authority (NEA), about the Arun III Hydroelectric Project has been one of the serious matter of concerns for the people and NGOs in Nepal. A formal request was made by the Kathmandu-based International Institute for Human Rights, Environment and Development (INHURED Intemational), Secretariat of the Arun Concerned Group, on December 10, 1993 requesting for all information about the project, and copies of the request letter was also sent to ministries of finance, and water resources as well as to the donors. As response to this letter, NEA provided the following documents on December 16, 1993: 1. Environmental Assessment and Management, May 1993 2. Environmental Management and Sustainable Development in the Arun Basin, October 1991 Since the above documents only give a general knowledge about the environment aspect in the Arun Valley, and not the details of the project and the environment impact assessment, a follow-up letter was sent for the availability of complete set of documents and information on the project, Including frequent visits to NEAofficials but without a success. Formal and informal requests were also made for the cooperation of the World Bank office in Kathmandu about the availability of basic project documents and information. It is now confirmed from the World Bank list of reports that about 13 major environmental assessment-related documents were denied by the government until very recently. A public interest litigation was filed in the Supreme Court on December 31, 1993 under articles 16 (right to information) and 88.2 (right to public interest litigation) of the Constitution of the Kingdom of Nepal. By exercising its extra-ordinary jurisdiction, the Supreme Court delivered a verdict on May 8, 1994 in favor of the petitioners and ordered the Nepali Government to provide all documents and information about the project. The Court decision went even further and stated that denial of information, fully or partially on any grounds that there may be, can be challenged in the Court within 7 days from the date of such denial. The Court did not believe that the government has fulfilled its constitutional and legal 2 MV *eINHURED INTERNATIONAI IN1TERNATIONALINSTITE FOR HUMAN RIGHTS, ENVIRONTMENTAND DEVELOPMENT P.O.Box2125,Putalisadak,Kalhmandu,Nepal* Tel:(0977-1)4-19610,Fax:(0977-1)4-12538. MEMORANDUM SUBMITTED TO EXECUTIVE DIRECTORS AND BILATERALDONORS ON ARUN Ill HYDROELECTRIC PROJECT IN NEPAL REGARDINGACCESS TO INFORMATIONAND PARLIAMENTARYDISCUSSION Presented by Gopal Siwakoti, Executive Director Member, Arun Concerned Group July 12, 1994 Washington, DC First of all, I would like to express sincere thanks for meeting the members of the Arun Concerned Group during the past two weeks and giving careful attention to issues that were raised regarding the proposed Arun III Hydroelectric Project in Nepal about access to information and public participation, environmental and social impacts. alternatives for energy development and the process of design and implementation of the project. Ihope the following information will assist you further in understanding the critical issues and debates that are taking place in Nepal with regards to the merits and demerits of Arun III if it is implemented in its present form. shape and size as well as its possible adverse impacts in national economy and development process. It is our belief and understanding that the postponement of the Board date of July 26th will provide all of us a unique opportunity in carefully looking at all aspects of Arun III and take appropriate policy and implementation measures in future. It is mainly because the information release process has just began and it needs more time for their availability in local language for public consultation with the local people as well as national debate in the Parliament. Since a thorough discussion of the project in the Parliament and its approval is highly significant for the better future of Arun III as well as a secure investment of donors, it is important that this opportunity is given to the forthcoming new Parliament to be elected on November 13, 1994 as the existing Parliament has been dissolved on July 10, 1994 due to political inflghting in the ruling party. I would like to assure you that the postponement of the Bank date will be viewed by the 1 The Intenational Instiluic for iuman Rights. Environment and D)m-elopmeni i- a non-novenimcniz1. non-parilsan ani non-profIt-makina In,dCpeTident publb, Inscrest organs.alunn. loworks for the promonon of human and people- nghl, 3nd genuinc democrac-. prolection of environment for iLutmtiiiabl.b dTeolopmen and for worid peace through education. caehing. training. necarrh. advnocacy.inirrrishi. vomnu,iiiv empowerment anrnri(hat,Lcr programmes. It has maintained working ri-llion%haps with UNI:SCO and otl er humitni nghi. bodw., of the United Natiorns oirvr WJr~I51T1 CONCERNEDGROUP ~ARUN P.O. Box 2125 .Km r. .1 kI PutalLsadak. Katmniandu. Nepal ,SAZsZrtf py,tSteA 9 r ;4X~It.v Lh" f e wt t <'(t'_~~~~Z4 C)A;eL4 9 /lal In coniclusion. structural adlustienL programs and [lie conllit!nlfalilles tlhal are tied to devcopnimcrt.lro ecLs such as Arin IIIhave negative effects on these igilhtsall over [llicworld. Suclh policies seriously iinlen-upt "lhe inilerent righL of all peoples to Celjoy and( utllize fully an.l freely their natural wealth and resources" as provided for by arlicle 25 of the Covenant. Finally, we would like to urge the Sub-Comnmission lo request: 1. that the InLernatlonal financial Institutions as part of lhc Unilled Naltlons systeni: 1. comply with all interniational humnan righits lnstrumiienitsin desgtigning and flinancintgrof any projecLs; 2. revIew all lendling condiLionalities and effects of structur-al ad jIstmnent programs In order to comply with the InlemaUonal Covenant on Economic. Social and Cullural Rights and Lhe DeclaraUon on Ute Right to Development; 3. provide all project documents and infomiation to NGOs. affected people anrd the public; 4. ensure Ulat thelir actions In relaUon to projects and finance schlenmesdo not undermine internal democratic processes: 5. allow Investigation by UN human rights bodies Into compliance of the policies. procedures, guidellnes and standards relating to projects andl obligations of a lending agency and a borrowing country; and 6. respecL the right of the peoples lo frcely enjoy and dispose of their national rcsources. 11.that LtheGovemrment of Nepal: 1. coinply wtlh Its International human rights commtllLnientsandl obligations In reacllilng lending agreements witlh all bi-lateral and mulUlateral leinders and (lonors; 2. review existing economlic policies and development projccts. illcludnllg Arun III, to ensure that: a. the designi and financing of projects will not redluce currcitly avallable resources In economiiicand social sectors and cullural activities; anid b. thicbenefts of suclh projects will be equally distributed to all the people of Nepal for the effective realJzation of economic, social andl cultural riglhts and the righlt to developmienit. Finally, we would like to urge the Sub-Commission to undertake a follow-up study of ttie ilpacts of policies and programs of the international financial institutionis based on counlry cases and experiences and make recommendations for theimonitorinig of suclh matter-s by tIme huuman rights bodies of the United Nations. ORGANIZATI'IONSWITH CONSULTATIVEOR OB3SERVERSTATUS TO TIIE ECONOMIC AND SOCIAL COUNCIL OF THE UNITED NATIONS Disabled Peoples' International Consejo Indlo de Sud America HabiLant lLtcrinaUoxial Coalition Human iglits Advocates Inteniational AssociaLlon of Democratic Lawyers International EclucaUonal Development International Indian Treaty Council Intcrnatlonal Movement againsL All Forms of Discrliminationand Racism Initeniational Movemenl for Fratemal Unlon aamongRaces an(l Peoples OMCT /SOS Torture SERPAlJ-AL Sierra Club Legal Defense Fund Women's International League for Peace and Freedom Submitted on August 23, 1994 WVhilec tie govenintecil and local police have beenci fII!-dl Orflhese tiirc'ns mid afkl'cks, no aelioni was Laken(ILIC otgovenimexlt support of tle project. On OnICOCCaSIOn(ILICtOdet naioal and In(et-nitional outcIry a rlriist trjiislir'cs ecnnitted by the governnritent, tlie Primie Minlster of Nepal. whio was furioUs ividh tlic WoiId Dank forI(dIctatlIg Ncpal's electricity tariff rae-lincrcase and( cuts In oilier pLIWic services. sail: "I am a bit disappolinted wlil the Woild Batic becatise somietimes Lhey say one thiing and soinctiies anot.her. They say they prefer democracy to be maintained In (lie cotirieiiWsreceiving telicrald. and yeLthey inipose such conditions wlilclhput deimocracies like ours Ill trotuble. I feel they,are themselves not sure of whiat they want." (Weekcend, May 28, 1993 Kathinandu). The Prime NinisLer's slalemcnt is an example of how even a democratically electcd government, witlh its coinmitmiielitto hunian rights. can fall in realizingthe economic and social rights. 'rhe experience of Nepal In the realization of economic, social and cullural rights is lhat the currcnl development models being imposecl by tie international finanicial institutions and industrialized countries are inappropriate, undemocratic, and are linconsistent witil Inteniaatonal huniani righlis provisions. For example, LlhC proposed Arun Ill hydroelectric project to be funided by tlic World Bank and other sources have raiscd scrious questions regarding tlicir negaLive inipacts on economnic,social and culLural rights and the riglit to developnicnt due to pre-conclitlons set by lhe Icnders for the project. The people ol Nepal hadi been denic(d informiaLtonabouL lhe project (until tie Supr-emiieCourt ofNepal delivcred a landmark decision against the govemmcnl on the question) and an opportunity for broader participatlon in lhe process of design and implemnctatlon. The project, and timelendiers have bccii widelv criticiZed for inorinig lhe adverse effects and lhe pre-condilLions that. will further reduce existinig and fuLure resources and budgetary allocation in the economiiic andi social sectors, e.g. welfaric prograins, liealtih, educationi, housiig. Furthieiniore, tlCre is lack ol accountability anid transparency, and no definite plans exist for equitable distributioni of benefits to be generated by tihe proposedl project. According to information received from INI-IUREDInternatlonal, whilchihas bccI raising issues of the effeclive realization of economic, social and cullural riglhts under lhe International Covenant on Economic, Social and Cultural Rigilts undcr continuous p)hiysical threat andi Iilintidation, the people of Nepal will never be able to realize tliese rights if the project Is iiplemenLed in Its presenL shape, size, and lending conditlons. In July of this year, a regionial mecting of NGOs in Kathmandu discussed the nimpactof structural adjustment progranis in Soulh Asian countrles and concluded that the living standar(ds and healtih and educaionial attainnients of tle world's largesL population are dramatically decreasingC.They found that the Bank has been violaUng its own information and operational policies and procedures in designing and financing projects, including the acquisition, compensaUon and rehabiliLationi of tile affected people and the communities. For example, there hlas been a violation of the Bank's Operational Di)rective 4.30 on Involuntary Resettlement regarding Arun Ill projecl whichi outlines one of its primary aims as "providing people displayed by a project wilih the means to improve, or at least restore, their former living standards, earning capacity, and production levels" (art. 2). But, the affected people are being compensated at rates far bclow tile market price of their land. Sinillarly, the Bank strongly advocates "land for land" compensation, whicih is particularly importanl in the Arun Valleywhiere people are not linkcedIn to the cash econonmy and where serious problems have already been highilighitedfrom cash comlncnsatlon nieasures. As State Parties to the International Covenant on Economic, Social and Cultural Rights, govermients liave internaUonal obligations to ensure tihe full realization of economic, social and cultural righits of thelir people by adopting policies and programs Lliat are consistent wiLh the treaty provisions, including article 25 of the Universal Declaration of Hluman Rights, and article 11 of the Covenant on lhe righit to an adequate standard of living: e.g. healith, housing, food, and a safe environmeint for the continuous improvenient in living standards. Likewise, no consideraUon has been given to the local culture of the people of thc Arun Valley, whicil is largely composed of tradiLional etlinic groups, in tile proposed construction of tlhe project Ulat will depend on foreign, ratlher than local labor, bringing a huge influx of outsiders Into an isolated region of the country. The obligation of States Parties to take necessary steps for the conservation and tile development of such culture is provided uider article 15(2) of lhe Covenant. PFordv-Sixth Scssio.n ol thle UN SuLb-Coimissicmi Discrinmination on) Plr-vention caundProtcetion of of J'Vinoritics ral.als des Nations. Geneva, Swi(zerlird AuguLst1-26. 1994 Agenda tciin8 JO.NT' W'WlJTENSTATEM';IENT ON TIIE CULTI7UALNGI REALIZATIONOF ECONOPM1!(C, ITSANDTliE RGflT SOCIALAND) TO DEVELOPMENT First of all, wc would like to status draw of economiic, the attention social of the Sub-Coilinilssioli and cultural tire Third righlts to Llte World, and the deteriorating especially riglit to developuieiit on the countrles insLititlons due to tle adverse of and the Impact Industrialized of the policies of intemational Commission countries. on HlumianRgigts We also financial acknowledge tlie woric and measures and the Sub-Commission tliat need to be in Jldentilihig of lihe undertaken obstacles, difficulties, Nations svsLcm. at various levels - iiside and outlside lhe United We are concerncd about the fact Covenant that countries on Economic. that are Social SLates to (lie international have and Cultural Parties nol beci Righlts able. (ICESCR) despite their and olher relevant Instrumiienis devclopmnenL policies political wvilland and welfare lintercsLin manly cases. to undertalke culltlral programs rrigiLs as for tlie provided ftill enjoynient for by of coinomic, social by Lhese tIre Covenant. institutions, Since maniy ancl particularly of Lltese counLtileshave to adopt tle World beeni forecd free-markeL Bank and lhe economilc International these policics Monetary countiles and( strucLural Fund (lMF). liave been adjustimentL facing ninmega-devclopinent trcniendous progranis, cuts In social tie pcol)le projects, speiicirig. In anid debtl Priviatization. investnient nee(ledl re-payment for developmnrt. and servling [iiilich dIraiii resources To understand tIre gravity several and seriousness cases from of the above-nieiLloined (Ilfferenit counlries problems, ilicmentL wlhere finzd development govemmeniLs we can projects have Informat wiltiout. been forcecl and ion regarding popular to design particlpation decision-niaking anid rieaningrul access sUicl to World processes. Bank-IMF GovernmcnIs dictated assistance policies tlaL lhesiLate and loans ancl programiis to Jinplemenil wlil be face the threats that developiment transactions stuspended. as well This lead as economic to isolaLton in lrafde and commercial no adcquLtc anid trade eimbargoes. consiedratlon lowever, lias experienced lthal bIIml.nl becn given It Is vidcly rigtils to a counitry's conllnliltiinelt internatiatJonltrcaly obiligationis by the ini designing and World anid implementing Banik or the IMF. such On the proc'tLs and(I other prograslis organizations other hand, of the tlhese United Nations, Insti1uLilolnsact but wlthout as Llie sister comlilying Il miay be with relevant Its goals Lotake and the example objectives. of hli of Nepal least developed for an in-depth countries. study Party to several establisihecda of tlins subject. multi-party Nepal, one major Internationial systelmiin 1990. a State Covenant lhtuman It became on Economic, rigliLs insiirinieiits. Social andl inchluirtingtlie Iiternationial andJustice Cultural as well Riglits, as social and adopted wclfare policies of economic and(l development serviccs in ILsnew equalily policies Constitution. pursued Ilowcivcr, certain r'ar-laniient by tic and public goverimenL econonimic protcst. lave restilted Tnlls in criticisms in(discriiliinatc lias somctimnes in Llte Ikillingsin cdemonistrations led to State-sponsored examiple, last month, and otlier repressionl, a grouIp violationis Coiimilisslon, of about of civil stxty and political reportedly rigits. an independetil burst For Initothe otTiveof the Aruri controversial non-govenmienLal Public Arun body Ill hydlroelectric whiichi is Ilien anjiouriced project, and wrestlcd concictimlinghiearings plans to break LlicComimnzlssionr on tlhc Hluman iiito tlic nicnibers. 1lights. office Environment of Hatiniandl1u-bascd ITic group IntLcrnatlorial Institute Similar andl DcvelopmenL for attacks (INIIURED have also been InicrnaLlonal) Lthreatened to aLtackcIts officlals. January, against INIIURED's menibers Executive filing Director of tlheAruii Concerned a petition at tire and Program Group. Supreme Diirector In Court received death tlircats righlt after guaranteed of Nepal for publlc under disclosure the Constiltulon of Arun and International III Infonination - a huniari rights treaty provisions. ATrACHMENT-VII Under 6: Responsibility of the Bank Resources, Country Martin Karcher, the Division Chief for Population and Human in an interview with Department I in the South Asia Region at the World Bank stated above): "...1 the Environmental Defense Fund after his resignation (see Attachment-IV.A alleviation is the stated don't think I am divulging any great secret by saying that poverty assistance strategy for Nepal ........ overriding objective of the Bank's country the Bank for formulating We fully agree in what Mr. Karcher said, and we appreciate problems. But, such strategy as this would hit the nut-cell of Nepal's existing does not fit into the above strategy. In unfortunately, the Arun III project proposal plan for Nepal. The cycle of designing and implementing any economic and development consideration. In Nepal, extreme poverty and unemployment must be taken into primary live in the rural areas where for example, more than 85% of the 20 million population for about eight unemployment is very high. They are out of productive employment periods. We claim months throughout the year except for the cultivation and harvesting adequate employment that projects like the Arun III in its present form do not create to the size of investment. In addition, the opportunity for the local people comparable uplift their living standards long-term benefits must be guaranteed from such projects to has not considered such options which fit in and fulillltheir basic needs. But, the Bank strategy for investment that are the stated objective of the Bank's country assistance Even in case of the widely available in Nepal. even within the hydropower sub-sector. proposed to be Arun 111,the access road and various other elements could be which would generate income constructed by broad-based labor intensive approach of We strongly oppose the Bank's failure opportunitties for the local poor people. strategy for Nepal by compliance with its own stated objective of country assistance ixnposing the Arun E1 project. to the following documents as per In addition, the claimants would also like to refer and responsibilities of the United Nations broadly understanding the goals. objectives system in which the Bank is one of the sister organizations: Rights; adopted by the 1. International Covenant on Economic. Social and Cultural of 16 December 1966: entry Into UN General Assembly resolution 2200 A (MXl on 14 May 1991. force on 3 January 1976; accession by the Kingdom of Nepal General Assembly resolution 2. Permanent Sovereignty Over Natural Resources: 1803 (XVU)of 14 December 1962, Assembly 3. Declaration on the Right to Development: adopted by the UN General resolution 41/128 of 4 December 1986. Cultural Rights; Preliminary report by 4. Realization of Economic. Social and progress report, Danilo Turk, Special Rapporteur; E/CN. 4/Sub. 2/1989/19: progress report, E/CN. 4/Su b. E/CN. 4/Sub. 2/1990/20 and Add. 1: and Second 2/1991/17. Non-Governmental 5. Copy of the Joint Statement Submitted by 13 International on Organizations at the 46th Session of the United Nations Sub-Commission of Minorities; Geneva. 1-26 the Prevention of Discrimination and Protection August, 1994. (Attached) ATrACMENTV ATrIACHMENT-VI Under 5.B: Threatened Adverse Direct Impacts on Claimants in the Arun Valley A. Increased Food Deficit, Loss of Income and Increased Unemployment The EIA states that the road and its associated impacts are expected to lead to a loss of Income of farm households of 20%. The project Is also expected to lead to an increase in unemployment by 6%. The claimants believe that these factors directly and adversely threaten and affect them. While the claimants are not opposed to the road per se. they are opposed to the road being built rapidly before the consideration of the needs and concerns of local people and before the environmental and social safeguards are in place. Furthermore, the alignment of the road was changed from the Hill route to the Valley route because of the shorter construction time period, and not because of perceived benefit to the local people. B. Food Availability, Prices and Nutrition There is already a food defilcit in the Arun Valley. According to the EIA. increased population among other things will affect the food balance situation negatively. Impacts include a food deficit of up to 19.35 kg per capita during construction, higher food prices and temporary food shortages. This will have an effect on food availability for poor families. The EIA states "nutritional standards of those not able to access construction- related cash stream are likely to fall further. The number of such families Is not known. but one third of families in the MBEIS project area household survey have already mortgaged their land to buy food." C. Destruction of Forests The claimants and local communities depend on the forests for fuel, fodder and hunting. The Valley route will traverse forested areas for the major part of Its length (71 out of 124 kilometers). The total direct forest loss Is estinated at 205 hectares. Indirect impacts on the forest resources are expected to be "highly significant" according to the EIA (September 1992). These include increased pressure on forests and deforestation due to accidental fires, demands for forest products from construction workers and their families and demands created by additional cash. D. Adverse Health Impacts The EIA reports that the Influx of workers to the region will put increased pressure on local health care facilities which do not have the capacity to deal wlth the increase. Increase in Malaria and waterborne diseases are expected. The claimants believe these Increased health risks will directly impact on the local people and their families. E. Deterioration of Living Standards as a Result of Cash Compensation Since Nepal Is largely an agricultural country, the people are not used to cash economy. The cash compensation for their traditional lands might have seen attractive at the beginning but the people are now complaining that their economic condition Is deteriorating as the cash money has been used in paying debts or purchase of supplies or entertainment. They further complain that the HMG/N did not Inform of any provision for the land to land compensation before and during the compensation process. AITACHMENT-VI Communist Party of Nepal (Unifled Marxist & Leninist) Central Office Kathmandu Ref: Date: cc: Ministry of Water Resources, HMG/N Ministry of Finance, HMG/N Nepal Electricity Authority, Kathmandu Arun III Hydroelectric Project, Kathmandu The World Bank, Residential Office, Kathmandu Asian Development Bank, Philippines Caisse Francaise de Development, France Finish International Development Agency (FINNIDA), Finland Kreditanstalt fur Wiederaufbauf (KfW), Germany Overseas Economic Cooperation Fund (OECF), Japan Sweden International Development Agency (SIDA), Communist Party of Nepal (Unified Marxist & Leninist) Central Office Kathmandu Ref: (2) Date: As you might be aware of, our Party has been expressing its serious reservations about the way the Project has been designed and proposed. The Party has made its commitment absolutely clear in its election manifesto that in implementing mega projects like the Arun III the national interest will be given highest priority. We are also committed that if we are elected to form the government an evaluation of investment versus the outcome as well as problems relating to environment, settlement, etc. will be made prior to any final decisions. We are of the impression that the present caretaker government is keen to enter into agreement with project lenders and contractors as soon as possible. As there is a lot of controversy about the project*inside and outside Nepal, we would not think that such an action by the present government would be appreciable. We also understand that, as a result of the on-going public debate and controversy about the Project, the'World Bank Board date has been postponed up to November 3, 1994 which is about just two weeks beforc the mid-term General Elections for the House of Representativesin the country. Thus, if the case of Arun III is decided by- the Bank earlier than the formation of the new Parliament and the government, we suspect that 'this will be followed by consequential agreements by the present government with the lenders and the contractors. If this happens to be ihe situation, still bigger controversies will crop up leaving no room for debating the project in the Parliament and for building necessary national consensus. Finally, our party views that the proposed project must be reviewed by the new government in light of the on-going controversies before Nepal makes any commitment to such projects. Thank you very much for your prompt attention to this serious matter. Please contact for any further that you may need. Sincerely yours, Madhav Kumar Nepal General Secretary,CPN (UML) Communist Party of Nepal (Unified Leninist) /,deitral f$iSce. - Kathm"L,d1r Ref: _ _ Date: October18, 1994 Mr. Lewis T. Preston President, The World Bank 1818 H St. NW Washington, D.C. 20433 Dear Mr. Preston, I am writing you to express our Hydroelectric deep concerns Project over to which the World the proposed Arun III understand, Bank the Project, is one of the largest lending ever agencies. As we long built term in Nepal, consequences is going for to generate Nepal. serious and hundred million For a country US dollars which makes as its just over one year annual from its internal development sources, invesment the size in one fiscal big to of investment be decided during on the Arun a politically III project your attention unclear is too situation. to the fact that We would like to draw with the present limited government mandate. It does is a caretaker government reach not have into the right agreements to undertake that may any negotiations or Nepal have and long-term the Nepali consequences people. Furthermore, in the interest of unanimously decided all the political that the caretaker parties have recently having long-term government implications should elections. as part not take any of the actions (Notice Code of the of Conduct Election Commission, for the forthcoming Gorakhapatra, October 12, 1994) We certainly are more than willing water resources. to attract foreign But investment at the same in developing our should time, only any large be made funding after arrangement, reaching we feel, possibility into national of building consensus. national There exists a great Nepal, consensus at least, among in exploiting the major political water parties in development. resources. with It is a view also important to promote place that national in the a formal Parliament, and meaningful and debate takes final a national decision consensus is made about is built large therefrom projects before any discussions of the like the Arun project III. As in the far as Parliament the previous limited to providing are concerned, information they were by the basically some concerned Members minister of Parliament on questions during raised by meaningful "zero discussion hour sessions". about And the proposed any formal and project project documents with and information the availability of basic Parliament. in advance has not yet taken place in the ATTACHMENT-V Inside Nepal Under 5.A.4: Undermining Democratic Process need to be distributed more equitably Hydropower investment and associated beneflts construction period and resource across the country. Because of the long design and III, other areas in Nepal will suffer a longer than drain from building a project like Arun Many pockets of small demand such as remote necessary period of unsupplied demand. facilities. could receive power for rural areas which are far from centralized production If resources were available, their critical needs using micro and mini hydro projects. of the population. However these decentralized schemes could provide power to over 50% received $300,000 (0.3 million) in the Fiscal Year 94/95 these type of schemes have only the national budget that is expected to be spent as compared to the $100 million from ratio of 300 times for one project on Arun III each year of its construction. This is a which will serve the needs of only 10% of the population. "on numerous occasions" is no more The Bank's claim of discussion in the Parliament the public of the Bank's own than misrepresentation of facts to legitimize debate aspect of meaningful debate in policy. In fact, the project has not gone through formal process of basic project and information in the Parliament with the availability documents provided by the Water advance. The Bank's reliance on the pre-prepared set of answers raised by some Members of Parliament Resources Minister In March 1994 to question(s) public debate aspect of the project in the during "Zero Hour Session" does not justify the by democratic processes inside Nepal Parliament. The Bank has already undermined a timely manner and failing to actively failing torelease information about the project in (See the in the planning and design of the project. promote true public involvement Unified Marxist & Leninist. the main letter of the Communist Party of Nepal - of the main contenders in the opposition party in the previous Parliament and one to the President of the World Bank dated October forthcoming November 15 elections, 18, 1994). in Nepal and the Parliament has been Currently, there is only a caretaker government on July 10. 1994 as it was unable to get the disbanded. The government collapsed for the fiscal support that it needed in the Parliament to endorse its policy and programs originally for October 1994 has year. The aid consortium for Nepal which was scheduled by the new even been postponed until next year in order to allow involvement is pressing ahead to have the Arun Im government. Despite this, the Bank Management at the outset General Elections. This project approved on November 3. 1994 of the Nepal public disregard for democratic processes involving further underscores the Bank's and deliberation over its projects. debate, transparency, accountability up in Nepal in Additionally, an independent Public Commission on Arun Ill was set about the be Issuing a report in June 1994 to investigate the controversies project will The Commission, headed by the former November after the conduct of the elections. to release its findings Acting Chief Justice of the Supreme Court of NepaL.is expected Commission is conducting after the November 15 elections. It is reported that the and the concerned citizens on the project in spite of research and interviewing experts government officials for project information the lack of cooperation from the concerned wlll be publicly released and circulated widely and testimony. Once completed, the report government officials. NGOs and the international among press. parliamentarians, on the project, particularly inside Nepal. community to facilitate a broad public debate for project before the release of the Public Despite this, the Bank Is rushing approval Commission's report and the resulting public scrutiny. A1TACHMENT-V management support in our attempt to assistthe government to formulate a targeted povertyalleviation strategy and program directed at those people who are too poor to participate in economic development. Whereas a special Japanese grant of $800,000 was made available to prepare a project that would be directly targeted at the poorest people inNepal, the feeling was that it would distract too much of the government's attention, and that senior government officialsshould focus on macrn-economicmanagement issues. As division chief and a member of the Department's management team, I felt I shared In the responsibilityfor the decisions taken in the Department, particularly for such momentous decisions as the power sector investment program. which can affect thefate of the whole country. And since I had serious reservations and misgivings. Ifelt that one way of ma:king that statement more effectively than through my previous memos, would be to say I no longer want to be part ofthe decision-making process. 14 sufficientto invest in quality improvements in education but not inan expansion of the primary education sector in line with the growth ofthe school-agepopulation. So it is stilla fairly constrained budget. It doesn't allowfor major expansion of secondary education, which on the basis of a report which the Bank has just completed, is another area where the needs ' are extremelylarge. Moreover,as mentioned earlier, inorder to be able to carve out the budgetary resources required to allowfor an 8%yearly expansion in socialsector spending. the government would have to implement and sustain a number of very difficult revenue mobilization and expenditure prioritization and control measures. In other words, they would need to achievean unprecedented high levelof economic management and performance for Nepal. Is it realistic? Twoyears ago, Bank management arrived at the opposite conclusion, even though, as I now recall, the total power sector investment program was smaller than the one proposed now. EDF: Just one final question. Has your decision to retire fromthe Bank had anything to dowith how the Arun project was handled and managed at the Bank. Karcher: Yes it does. It was not an easy decision, after 29 years with an institution that had provided me with tremendous opportunities for professional growth. Myfeelingwas that the project was not being handled in an objectiveand even-handed manner. Since senior management seemed to be committedto the project, a serious and open debate was no longer possible, and even common sense questions were beingdismissed. Allthe avafilableenergywent into building the case in favor ofthe project. rather than examining alternatives. By contrast, we receivedvery little 13 EDF: Whenyou, over the past years or months, have had various questions about the affordability of project -- has there been a response? Have there been discussions about the concerns you were raising? Are these problems actually being actually-beingaired or are they being suppressed? Karcher. I think Igot a hearing. Iwant to be fair. Ifyou look at the most recent Country EconomicReport, basicallywhat it is, it's a public expenditure reviewfor Nepal. tying to see if the government proceeds with its fullinvestment program in the powersector, including Arun, what is likelyto be the crowdingout Inpact, and what measures the government needs to take in order to accommodate such large investments. The bulk of the report Is on that issue, and we were consulted, in the social sectors. about what are the needs. Initially, wewere given an envelopefor social sector investments which assumed a 5%real growth in social sector investments. Wesaid that that was absolutely insufficient, that If investments in the social sector only growby 5%a year, the government would not even be able to meet its commitments under the basic and primary education project that IDAis funding. and it would not be able to invest as much in the health and population sector as they were about to commit themselves. So that constraint was relaxed. It was decided that the social sectors would get an 8% rate ofincrease. EDF: Which is significant. Karcher: Yes. In real terms that means something. But it doesn't allowfor a major expansion, say. in the number of teachers. It doesn't allow catching up with the huge backlog of children who don't attend school. It is 12 more efficientthan it is today. Given the past record of the NEAand given the fact that there won't be too much leverageonce the credit is signed, how much incentive is there going to be for the NEAto implement major reforms? EDF: This is a generic question about capacity building. Obviously requirements for consultants and procurement for this projectare goingto be very large. What willhappen to capacity building,for instance at NEA? Karcher. Accordingto my colleagues. the past record has not been very good.NEAhas not really been taling advantage of technical assistance that they receivedin the past, and they have receivedquite a lot. Howmuch better they willdo in the future, that is a bigquestion. EDF: One of the reasons why the Bank rejects Plan B or a senies of smaller investments is that it claimnthat this would providetoo little incentive toimproveNEA'smanagement and finance. Youneed the big investment to providethe adequate incentives. From a common sense perspective. itjust doesn't add up. What do you think? Karcher. Is the rationale that you need a biggercarrot? What's wrongwith starting with smaller-size projects and gradually developingthe institutional capacity? In fact those smaller projects are not that small compared to the existing capacity of less than 300 MW. Mysense has always been that ifyou went with snmller projects. there would be more work for Nepaliengineers to developtheir skills. to generate employmentfor them. Youwouldn't have to rely as much on largeforeign consulting firms. Youmay still need foreign contractors and all that. But there would be more local capacity building. in a true sense. 11 trip in the country, whilevisitng some prirnaiy schools being constructed with WorldBank assistance. we found that on some stretches of the was easier road it for us to drivealongside the road than on the road itself, basicallybecause maintenance had not been adequate forseveral that the years, road had so virtually collapsed. I am mentioning this simply illustrate to that the resource requirements just to preserve the existing ofcapital stock are enormous in Nepal. and we know from experience economicrates that the of return on road maintenance and rehabilitation programs are signiflcantlyabove 15percent. Similarly,WorldBank studies found have that investments in human resource returs, developmentyield even higher especiallyin low-incomecountries. Under those circumstances, how dowejustify using an opportunity cost of capitalas lowas there are 10%if significant funding gaps and risks that such gaps will continue exist? When to I raised the question of using a higher opportunity capital cost of against which to assess the Arun project. Iwas told: 'We have alwaysused 10 percent; why change for tWsproject?" I donot consider this a satisfactory answer to my question. This is not just an esoteric, theoretical question. It has practicalconsequences regarding the compositionof the government's investment program. The higher opportunity cost the of capital. the lessattractive the large capital-intensive hydro-projects become. EDF: Isthe calculation of thebenefits ofthe project based 400 megawatts on the initialca. project? Karcher. Actually,it'sbased on much morethan 400 megawatts. recall, It's As I based on the government's entire power investment program 1994 through from to maybe 2010 or 2015. Soit doesn't isolate the Arun project 9 as such. but It takes into account the whole sectoral lnvestmientprogram. The analysis doesn't disaggregate the rate of return on phase 1 of the project. I understand from colleagues in the energysector that that is the way it's done. Weuse the least cost generation expansion plan methodologyto dedternine the most attractive investments and then we compute the economicreturn on the total investment program rather than on the individualprojects. In light ofthe important up-front investmnents required, however,my strong suspicion is that the rate ofreturn on phase 1 ofthe Arun project would be significantlysmaller. probably less than 10%. EDF: Ifyou had several discrete much smaller hydro power plants which are much moreflexibleand decentmlized, then you would avoid putting all your eggs in one basket. Karcher. Right. EDF: Youcould stop the project if at some point you see that curTentcosts are much more than you thought or if ... Karcher: Ifconsumption is less because of tariff increases or some other reason, or if thegovernment faces major budgetary resource shortfalls, then you can still do something about It. Youhave to recognizethat the government ofNepal has already significantlyincreased tariffsover the past 3 years. Howmuch more they willbe able to increase them remains to be seen. However,it's an important issue since the government's ability to fund prioxityinvestments in the power and in the social sectors willnowbe dependent on the capacity ofthe National ElectricityAuthority (NFAto generate substantial financial surpluses. NEAwould have to become much 10 Karcher. I think that the economicrate of return came downfrom 18% to about maybe 15%. Since the costs of the program haven't there come down, must have been some moderation of the imputed kilowatt ecomomicvalue hour but of a it may stUllbe unrealistically high. This is a question deserves that to be lookedinto. EDF: Ifthere is this eight-foldhigher figure for the cost of a In Nepal kilowatt hour as compared to Washington, obviously this strains anyone's credibility.....Howcan the task manager and the country manager with such proceed a project? Karcher. The economicanalysis had to be redone. The problem.however, with waiting for such a late stage in the project processing cycle before doing a proper economic analysis is that ihe opportunity to use of the the results analysis to shape the design of the Investment program is then The analysis lost. merely serves tojustify the project after the fact. Had the analysis been done earlier,it would have been helpful to learn sensitivity from the analysis that plausible variations in the loadforecast discount or in the rate have a signficant impact on the timing ofthe project. For istance, should electricityconsumption growat a rate which is of the only 75% base case, phase 1 of the Ann project would be neeeded 6 (in 2009, years laer rather than 2003). Similarly, should the opportunity capital cost of be 12%instead often percent. the commissioning ofthe would project be delayed by some 7 years to 2010. Now,besides there electricpower, are other imlortant unmet needs in Nepal. The demand for clectrlcity can be moderated simply by reducing the rate of new household connections. This may allowfor meeting other priority maintenance, such as highway for Instance. What Is stiking as you travel in enormous Nepal,iSthe need for road maintenance and rehabilitation. On my last field 8 service salaries. these are issues. A significant part of the energy the urban goes to elites, including civil servants. The government may increase electricity tariffs, but then there may also be an induced effect on civil service salaries. And the government will be collecting with one hand it may what have Lohand j out with the other. EDF: What do you think about this estimated economlc rate of return 15.4 percent? of Karcher: I have not seen the latest documents. As I was starting to say. had major I concerns about the economic analysis which was first shared back in January. The methodology was based on the consumers' willingness to pay for electricpower. First of alL how does one estimate that? What is the shape of the demand curve? When I looked imputed at the the economic value of a kilowatt hour in Nepal, I found that on this was average about 7 1/2 times what consumers were paying and I was wondering how Is it possible that you can assume that the average Nepali consumer would be willing to pay something like $0.53 per kilowatt when hour, we in Washington pay something like 7 or 8 cents? Obviously, use these if you kinds of values, then any project becomes feasible and justified. My colleagues, in the department, also feltthat the figures lacked credibility, and that one needed to do something to improve the economic analysis of the project I have seen a draft of the revised economic analysis, but I have not been able to figure out what is the revised imputed value economic of a kilowatt hour. EDF: It is probably not too different because otherwise wouldn't to be a there have revision of the economic rate of return? 7 Karcher. No. Because, to some extent in the social sectors in Nepal the government is still inthe process of developing the capacity to provide those services, and it's not an easy task. Providing health services that reach into every village in Nepal is not an easy task. You need trained personnel: you need women with a certain level of education to provide those services. So to some extent, the limiting factor in the social sectors isthe implementation capacity, but as I was saying earlier, this is a constraint which Is being lifted, so that in the 'mediumterm--we are talling about three to fiveyears--you would be able to expand those services quite rapidly. And It is at that point that the issue is going to come up: will there be suffficient resources available? EDF: It appears that the economic viability of the project depends to large degree on the Nepalese Energy Authority (N&EA) increasing tariffs of electricity. Karcher: 1dght. EDF: There have been huge tariff increases in the past and there have been riots in the streets. How much over the current price do current energy costs have to increase? Karcher. As Irecall, the average tariff had to increase by about 100% between 1994 and the yea 2000. Soyou would have to continue increastng these tariffs quite regularly and significantlyoverthe next sbc years or so. Whether that is feasible or not remains to be seen. Whether electric power is goingto be affordable and to whom,and what kind of impact this is going to have on the cost of living and possibly on civil 6 Nepal's bargaining position, because Nepalwillalready have invested its own resources in those facilities, and India may simply offerto pay a tariff coveringthe incremental costs of generation, such as additional turbines and transmission lines. But let us take it that the power development program was designed to meet domestic consumption. The question then becomes what should be the priority given to meeting the localdemand for electricityin relation to other needs, and is the methodologyfor selecting power projects adequate to answer that question? Starting out with a demand forecast for electric power. the Least Cost Generation Expansion Plan methodologyseeks to find a sequence ofinvestments that minimizes the cost of meeting the projected demand. NowI think that klnd of methodologyis okay if the size of the investments is not too out of line with the size of the countrys economy. I mean ifyou are talking about relatively small increments to the power system and ifyou have a program that doesn't really overwhelmthe whole macroeconomicframework, then that kind ofmethodologymakes sense. But if the methodologythrows up huge investments which carry significant risks for the balanced developmentof the country, then you have to ask yourself whyis It that it isso important to meet fully the projected consumers' needs for electricity? Whyis it not equally important. perhaps even more important. to meet the needs for primary education, for water supply. or for familyplanning services? Why is electricityconsumption, a significant proportion ofwhich goes to the better-off urban dweUers,more important than the needs of the poor, especiallyfor an institution like the Bank which is primarily concemed about povertyalleviation? EDF: Areyou saying, that for other sectors--health, education, and so on-- you don't find this analysis--an assumption--saying that education needs have to be met completelyor that health needs have to be met completely? 5 project Ifpovertyalleviation is the overriding objective,there must be alternative ways of stimulating productive employment than by concentrating so much of the available government and donor resources on this one sector. EDF: What doyou think ofthe economic analysis of the project? Karcher, I have some serious reservations about the economicanalysis. First ofall itwas difficultto get bold of the economicanalysis until quite late in the projectprocessing cycle. Somehowthat informationwasn't being shared very readily. Then in January 1994. when we finaly did get a copy ofthe draft StaffAppraisal Reportfor the project, I found many problems with the analyis. At the sectoral level, there was no clarity as to what the composition of the government's overallinvestment program in power actualy was and to what extent it was designed to serve exportneeds in addition to domestic consumption. Part of the justification was that the project was goingto help Nepalexort electric power to India, but there was no indication that Nepalcould produce power at a cost and sell it at a price which would yield an attractivereturn to Nepal. Although Nepalhas major hydro potential, the unit cost of installed hydro capacity is quite high. Therefore Iwould have liked to see a demonstration that the electricity generated by the project and the follow-onprojects in the ArunValleywas actually competitiveand that those projects would constitute an attractive investment for Nepal. This was missing. Moreover.if electricityexports were an objective for the program, then it seemed to me that the Nepal government should have entered into negotiations with India beforegoing ahead with the investment because of the major up-front investments required for the access road to the dam site and the other faclities for the first phase ofthe Arun project. To do otherwise may seriouslyweaken 4 out Investments In the social sectors. It's possible to construct where scenarios that will not happen, but they usually rest on rather optirnistc assumptions. You may have access the latest country econoriic memorandum of the World Bank on Nepal which was issued and is, last March I believe. a public document. It describes the set of measures government the of Nepal would have to implement over the next 10 in order or 12years to avoid the crowding-out impact. I personally fear that measures, those which include revenue mobilization, strict recurrent expenditure control. investment prioritization, and steep tariff increases, difficult may be very to inplement and especialy to sustain over a long period I'm not casting of time. doubts on the good intentions of the government but if of Nepal and when the crunch comes, then I think there is a significant that the government risk will have to cut back on its prlority programs social in the sectors, as well as in some other important sectors. Prudence argue in favor would of less risky alternatives. EDF: We have not been able to obtain a copy of the Country Strategy, Assistance as it is not available to the public. Howdoes the Arun into the project overall fit strategy of sustainable growth and poverty aJlevation? Karcher: I don't think that Iam divulging any great secret by saying poverty that alleviation is the stated overriding objective of the Bank!s assistance country strategy for Nepal. This requires broad-based, labor-intensive growth to generate income opportunities for the poor. and investments basic social in services. In light of what I said earlier. obviously about I have how the doubts project fits Into such-a strategy. because It does to be not appear consistent with the goal of labor-intensive growth. and the project's Arun benefits will not readily trickle down to the poor, the majoiity overwhelming of whom live in the rural areas that will not be served by the 3 2022346049 EDF LSHIGTO DC F-580 T-616 P-003 SE=2" - scale of the investments and the nature of the risks one is a large taking project with such and perhaps even two of them (because plan is I understand now to the go ahead simultaneously with both the Arun Gandaki and the projects). Kali A related concern has to do with the fact the World that, whereas Development Report of 1990 calls for labor-intensive (labor often growth being the most plentiful resource in poor countries), see that such I do not large investments in the power sector growth, lead to labor-intensive certainly not In the short to medium teruL lherefore, me that it seems the goveniment to and the donors need to consider investment alternatives programs and a more balanced pattern of development, would generate which more productive employment, particularly among the poor. EDF: The question many peoplehave raised is that with close total to $760 project million, costs more than Nepal'sentire annual likelyto budget, crowd is this out many not the socialinvestments that your interested divisionis In, such as expenditures for education. health. resource development? and human Karcher: Even though the costs of the Arun project 9 years, will be spread that over has been 8 or a real concern of mine. In Nepal development human resource is stillat a very early stage. The levels of education services, family and health planning services are stillso inadequate investments that major are required. Nepal Is presently developing expand the potential those to services quite rapidly. My main concem happens has been about in the what medium term, when you have developed provide the capacity better to prinary education, to improve secondazy education, and higher and to provide health and family planning services level toreach at the very village poor women. It is at that point investments that those large in the power sector.once having started, are liable to crowd 2 2022346049 EDF LASHINGTON DC P-580 T-616 P-02 EP 27 '94 ': 1 Transcript NEPAL'SARUN DAM Environmental Defense Fund Interview with Martin Karcher. Division for Population Chief and Human Resources, Country Department I in the South Asia Region at the World Bank (September 9, 1994) Karcher: Before we start. let me point out that, having left my offlce about two months ago, Icannot claim to be fully up-to-date on what's happening with the A-unsProject. EDF: The basic facts of the size of the project and costs involved probably have not changed. In view of the Bank's claim that poverty allevation, specifically and your area. population and hurnan resouces development first priority, are its what is the rationale of IDAfunding for this mega-project? Karcher: The Bank's rationale for the project is that it willgenerate economic growth. This is the first of the two-and-a-half prongs of the poverty alleviation strategy outlined in the World Development Report 1990. of Firstly,you need income growth in poor countries to alleviate poverty. Secondly you need to invest in human resources, And thirdly. you stil as have some people who are not going-to benefit directly from economic growth, you may also need targeted poverty allevatlon to reach programs those people, particularly the absolute poor, including women. the basic So rationale for the Arun project is that It willhelp generate economic growth, because you need electricity In order to promote industrial growth, including smaUlscale industry, and tourism. make Let me clear at the outset that Iam not against the development Nepal. of power in The country needs power but what Is at issue, in my mind, is the ATTACHMENT-IV.A Under 5.A. 1: Project Cost -and Crowding Out of Social Sectors Even bank staff have expressed the view that the size of the domestic investmerlt requirement will crowd out the social sectors. In a recent public statement by Martin Karcher, a Division Chief for Population and Human Resources, Country Department 1 in the South Asia Region at the World Bank stated in an interview with the Environmental Defense Fund who resigned over Arun III controversy stated: "Even though the costs of the Arun project will be spread over 8 or 9 years, that [crowdingout of investments in social sectors] has been a real concern of mine. In Nepal human resource development is still at a very early stage. The levels of education and health services, family planning services are still so inadequate that major investments are required. Nepal is presently developing the potential to expand those services quite rapidly. My main concern has been about what happens in the medium term, when you have developed the capacity to provide better primary education, to improve secondary and higher education, and to provide health and family planning services at the village level to reach very poor women. It Js at this point that those large investments in the power sector, once having started, are liable to crowd out investments in the social sectors." (See intervlew wlth Mart1n Karcher, September 9, 1994 attached). I ATTACHMENT-lV Under 4.E.4: Land-Based Resettlement In the case of Arun m project, about 640 families reportedly are expected to be directly affected by the Valley route, and about 1650 familIes from the previous Hill route. At filrst glance, the Valley route seems to affect fewer families. However, one has to take Into account what has already occurred In the area of the originally proposed Hill route. Because, the HMG/N has already acquired the land of many families living on the originally proposed Hill route which is now no longer needed. The Valley route displacement should be viewed for what it is - additional displacement - above and beyond what has already unnecessarily taken place. Given the timing of the Bank's decision to rearrange the route (based solely upon financial objectives), what could have been viewed as compliance with the objective of mninnimzingdisplacement now has to be viewed as an aggregation of involuntary resettlement. The RAP could be considered a development program though the executing agencies in general, are not aware of their responsibilities to carry out this program (interview by Janet Bell with the Chief District Officer of Sankhuwa-Sava District. April 1994). It is also difficult to determine what is a recommendation and what is a mandated responsibility as there is no clear-cut regional action plan. In the case of the Hill route for the access road, displaced persons had not been given sufficient resources in order to replace their lost resources. A cash compensation is still the centerpiece of the Nepali government's Land Acquisition Guidelines 2050. The EIA reports that "Access Road guidelines are based on the premise that resettlement of affected families to new land is impractical, mainly because, firstly, there is no new land available, and secondly, families do not wish to leave the area of their ancestral homes. Therefore, compensation is cash-based." According to the same EIA. it is expected that Valley route PAFs will have even less ability to be able to comprehend cash compensation because they are already poorer than those affected on the Hill route. The updated Land Acquisition, Compensation and Rehabilitation Plan (ACRP) has attempted to cope with these issues by insisting that project affected people be given the option of receiving land Instead of cash. The burden of identifying this land, however, has been placed upon the displaced themselves and they must further arrange for the state to purchase the land. Those already displaced by the project do not have the option of land, and it has been proven in earlier ElAs that the amount of compensation has not been adequate. Furthermore, no socio-economic survey has been carried out on the Valley route in order to determine the value of the lands of the affected families. This violates section 11 of OD 4.30. In addition, no resettlement plan has been established for those who will lose their households because of the power transmission lines. In fact, no environmental or social and health plans have been developed for this portion of the project. The indigenous peoples-component needs to include baseline data, protection of communally held lands, a strategy for local participation, a strengthening of institutional capacities for responsible organizations, a separate monitoring and evaluation unit, an Implementation plan, etc. In the absence of the plan for indigenous peoples, the components for the plan are missing as well. A1TACHMENT-IV The cash compensation has been shown to fall in thecase of those compensated no longer operational for the Hill route of the access road. According to Access Road, the EIA. 'A majority Hill Route Project of Affected Families (PAFs) and Families (SPAFs) Seriously Project Affected have already spent their cash compensation consumer purchases. on debt repayments, or subsistence needs, and have been unable capital assets. to reinvest Inland or The same lack of ability toplan ahead is likely to happen Valley route to the present PAFs." The HMG/N has given a 30-day notice of land acquisition of Manakamana project area on Village in the October 5, 1994 asking the affected families to claim According to for compensation. the notice, acquisition of land for the access road is to take place Nepal's Land under the Acquisition Act, 1979. Study of the Act and the procedures acquisition makes for land it explicitly clear that there is no sufficient provision for land compensation. a land for The sole use of the Act for the purpose of ACRP contradicts with of the Arun 1II the relevant Bank policies and procedures. Thus. the ACRP implementation the later Is violated by process. ATTACHMENT-lI1 in reality, to offsetthe extreme adverse environmental and social impacts. Theclaimants believe the RAPis unlikely to be implemented by NEA since It Isthe same agency which is promoting the project by all means. Moreover.according to the EIAfor the Valley route (September 1992), serving the needs of the local population is secondary to providing access to the project site (page 2-1). The route of the road was changed to the Valley purely for expediency and on financial grounds, and not to help the local people for sustainable development. ATTACHMENT-E Under 4.C. 1: Environmental Inforznation To our knowledge the project authority organized two meetings, one in Hile and the other In Tumlingtar in which various aspects of the project were discussed to some extent. (The first meeting was held in Hile only on December 2. 1993 with the distribution of a booklet in a local language on compensation procedures, but no other project documents and information were made available to the public at that time). Even in the so called 23 public meetings too, except for distributing a leaflet with some project data and compensation procedure, no information on the critical aspects of the project were disclosed. However, there was an attempt to answer questions at the Tumlingtar meeting by the NEA officials without the wider availability of basic project documents and information. Regarding participantion in these meetings letters were sent only to the elected representatives of the Village Development Committees. and the meeting was neither announced over the radio nor publicized through leaflets or posters before the meetings such as in Tumlingtar so that the concerned people could participate. There was no mentioning of the likely adverse environmental impact during the meetings by the project authorities. The carefully guarded meetings held in the Arun Valey were to explain the affected people about the legal procedures on compensation as described earlier. In some of these meetings, the claimants also made attempts to address the local people or distribute some critical literature about the project, they were either prevented to speak with the people or warned to limit their statements on the compensation alone. There is no single occasion one recalls in which the likely adverse environmental impacts were made public and the views of the local people were sought. It can be believed that during the initial stage of the fleld work for the environmental impact studies, the designated professionals interacted with the local people. But that was primarily focused in obtaining information from the local people, but not to let them know the likely adverse impacts and listen to their recommendations. The local people were not offered choices. The proposed road as the project documents claim is highly desired by the local people which Is a fact. But this road will cause severe disruption in the economic, social and cultural patterns of the lives of the Valley people which they are not properly informed of. In the latest environmental mitigation plan prepared by the NEA, the introductory chapter states "The Arun-lII project. particularly the road. wil bring major changes. Without effective intervention, the impacts on the Valley could be severe particularly on the poorest families." Whether the local people are adequately informed by the project authorities about these severe impacts is the important question. The claimants strongly feel that they have not. The local people are never asked about their choices between a "road built with environmentally tolerable pace and with environmental friendly approach and techniques" and 'the one being proposed". They are disguised by creating dilemma of either the proposed road or the environment. The Arun Valey is an area of immense biological diversity. It contains one of the few Intact pristine forests left in the Himalayas. According to the EIA, the Arun m project, 122 kmnaccess road and transmission lines wil bring many irreversible and negative changes to the Valley. Because of the expected negative impact to the region. the HMG/N has prepared a "Regional Action Plan". However. the claimants have strong reasons to believe that the RAPwill not be properly implemented, and the construction of the project wiDproceed before environmental and social safeguards are in place. Although the RAP and the access road has been publicly promoted as an "area development plan" for the people of the Arun Valey. the RAP is only a mitigation plan, ATrACHMENT-ll ATrACHMENT-I and Document Under 4.C. 1: Arun III Project Information denied access to basic project Throughout the project cycle, the claimants have been the Bank's stated policy-commitment Information in a timely manner. This has violated to operatlonalize the of accountability and transparency, and the Bank has also failed is criticalbecause failure to presumption in favor of disclosure of information. Tineliness from challenging release information to the claimants prevented local people and NGOs the project from public debate and the project or its various aspects and shielded planning. scrutiny at criticaljunctures in projectdesign and the founding members of For example, the Allance for Energy, a local group and one of promoting alternatives to the the Arun Concerned Group, the claimant, that had been did not have Arun III project for two years was always at a disadvantage because they analysis, cost/benefit analysis access to the Bank's analysis on alternatives. least cost from international NGOs or financial plan. It was only after pressure and involvement that the Bank finally began to release this based In the Bank's major donor countries information. available in he Arun Valley was mostly Information about the project that was actually land which is being acquired on compensation procedures and compensation rates for Document (PID)were not for the project. The EIAdocuments and the Project Infornation available in the Arun Valley or in the Nepali language. AIrACHMENT-1 THEWORLDBANK/IFC/MIGA OFFICEMEMORANDUM ANNEXD RECEIVED DATE: ORIGINAL November 21, 1994 TO: Mr. Ernst-Gunther Broder, Chairman, The Inspe Panel , ; I NOV2 A FROM: E~~~J INSPECTION Ernest PANEL Stern, Managing Director, EX EXTENSION: 82004 SUBJECT: Reauest for Inspection - Nepal: Arun III Hydroelectric Prolect 1. Kindly find attached for your consideration Response to the above the Management Request for Inspection. 2. We believe that the Response appropriately questions raised addresses in the the Request, and demonstrates followed its that operational the Bank has policies and procedures and appraisal with respect of the proposed to the design project. 3. The Response addresses the substance It does not of the address Request's the issue complaints. of the eligibility applicable of the provisions Request under of the the Resolution establishing the Panel. Attachment cc: Messrs. Mr. L. Preston, President, EXC Mr. I. Shihata, Senior Vice President, LEG Mr. D. Joseph Wood, Vice President, SAS ORIGINAL fc66-[V~~~~~~EDl l 94No22 AN 8:45 THEINSPECTON PANEL NEPAL:ARUNIII TO MANAGEMENT:RESPONSE REQUESTFORINSPECTION ACRONYMS ACRP Acquisition, BP Compensation,and BankProcedures RehabilitationPlan DSM EA DemandSideManagement GIS EnvironmentalAssessment GLOF GeographicInformation System HMG/N GlacierLakeOutburst Floods His Majesty's IDA Govemmentof Nepal IEPS InternationalDevelopmentAssociation Initial kWh ExecutiveProjectSummary Kilowatt hour LCGEP MIS LeastCost Generationand ExpansionPlan MW ManagementInformation System Megawatts NEA NGO NepalElectricAuthority OD Non-governmentalOrganization OperationalDirective OP OperationalProcedures OPN PAFs OperationalPolicy Note ProjectAffected PIC Families PID Public Information Center ProjectInformation RAP Document RegionalAction SAR PlanforArun Staff III Project SPAFs AppraisalReport UNDP SeriouslyProjectAffected Families WDR United NationsDevelopmentProgramme World DevelopmentReport TABLEOFCONTENTS Page Chapter 1 Strategic Context and Project Background .. ................ 1 Chapter2 The Requestfor Inspection ......... ................... 4 Chapter 3 Responseto the Project-SpecificIssuesRaisedin the Requestfor Inspection......... .................... 5 Chapter 4 Conclusion ...................................... 18 Annex A SelectedBankOperationalPoliciesand Procedures .... ...... 19 Annex B DocumentsRequestedin Mr. Br6der's November4, 1994 Memorandumto Mr. Wood ..... ........ 21 Annex C PreviousRequeststo the Bank ........ ................. 22 SOUTHASIA REGION November21, 1994 CHAPTER1: STRATEGICCONTEXTAND PROJECTBACKGROUND I. STRATEGICCONTEXT 1. Nepalis the seventh poorest country in the world. Annual GDPper capita is under $200. Its socialindicators are on a par with the leastdevelopedcountries in Africa. Populationis increasingrapidly; it is projectedto doublewithin 30 years. The absolutepoor constitute almosthalf the population. 2. The ranksof the poor have been increasingin Nepal. GDPhasbeen risingby 3.5 percent perannum. But this is not fast enough to reducethe number of poor people, when population itself is growing at 2.5 percent per annum. Economicgrowth would need to acceleratefor the numberof poor peopleto beginto decline. 3. Nor can significant inroads into poverty be achievedthrough redistributional policies. Sincesuch a largepercentageof the populationis poor,there is simply too little to redistribute for such policiesto be animportant part of the poverty reduction strategy. This suggests that the core 1990 WDR strategy of efficient labor-intensive growth plus investments in humancapital is the right approachfor Nepal. 4. TheGovernmenthasbeenpursuingthis approach. It has adopteda numberof policy reformsin recentyears. Expendituresonbasicsocialserviceshavebeenincreasedand are programmedto risefurther - by over 5 percent perannumin real per capitaterms over the next 10 years. 5. While the results of these efforts have been positive, they have been constrained by two major factors - implementationcapacity to convert the higher social sector spendinginto markedlyimproved literacy and healthoutcomes and power to fuel the private sector supply responseto the reforms. 6. The proposedArun IlIlproject addressesthe secondof theseconstraints. It will help put an endto the load-sheddingand power shortagesthat have kept the labor-intensive micro-enterprise and tourist sectors from expanding and relieve existing pressures on fuelwood and onforest resources. By providingthe basisfor sustainedandefficient growth, it is central to Nepal's - and IDA's - poverty reduction strategy. 7. Theeconomicanalysisof the proposedproject suggeststhat the expectedrate of return is 13.5 percent. This is adequate by Bank standards, which typically uses a minimum 10 percentbenchmarkfor the opportunity cost of capitalas acutoff. Moreover,for Nepal, the critical constraint is not the availability of donor financing - indeed, Nepal's calculated "norm" IDA allocation is not being fully taken up for lack of good projects, and donor-financed project disbursements are among the slowest in the world. Ratherthe key constraint is absorptivecapacity. Accordingly, the 10 percent opportunity cost benchmark overstates the valuethat the Arun project funds couldearn in alternative usesoverthe next few years. -2- 8. In the circumstances,Bankstrategy simultaneouslyon is to work three fronts: with the Nepaleseauthorities First, we are helping Nepal to build institutional front. As noted, capacity implementation on a broad capacity constraint is the that Nepalfaces. key development We are working relax that constraint with the authorities and to increasethe to country's for donorandotherinflows. absorptivecapacity and sector We aredoingit through projects, work, economic and technical assistance. process,but This is essentialfor a staff-intensive Nepal's developmentprospects. * Second,we arecontinuingto work with policy and public expenditure the Nepaleseauthoritiesonthe framework poverty for sustained reduction. growth Critical and here is the continuation revenue increases and expenditure of the programfor prioritization emphasison - including increasedspendingfor the the PolicyFrameworkPaper.' basic socialservices - set forthin * Third, withinthe broadercontext of support developmentin for efficient Nepal,we power sector are proposingto the Arun finance (with project. other donors) The primary objective Nepal'sgrowingpower requirementsat leastcost sothat of this project is to meet on growth andpoverty this constraint reduction can be overcome. 1I. PROJECTBACKGROUND 9. Nepal's world. Only 9 percentpercapita commercialenergy consumptionis important of the populationhas one of the lowest access in the energy to electricity. source for cooking Fuelwood is the most fuelwood and heating. (72 percent), Indeed, the main (1 percent);the agriculturalresidues(12 energy sources are percent), remainderis imported(6percent). dung (9 percent),and hydropower at 25,000 megawatts (MW), of which cost generation expansion planfor only 241 Nepal's hydropowerpotentialis estimated MW hasbeendevelopedto as one the Nepalgrid date. The least- of the identifies core investments the Arun in meetingNepal's medium-termenergy needs. IlIlhydropower project 10. The proposedproject,givenits complex set situation in the by foot. Its 450,000 of environmentaland socio-economicissues. ArunValley, posesa uniqueand inhabitants The Valley is now lead a harsh accessibleonly education subsistence and health services. life, with limited They have access Rapidpopulationgrowth no access to to electricity contributesto or safe drinking in particular pressureon water. forests. Against food supplies,jobs, this background, andnaturalresources, opportunity the proposed project - and posesmajorrisks - for project for the represents a major future developmentand of the Valley. the Valley andfacilitate maintenancewill The accessroad required greatly reducetransport tourism and labormarket costs into and out of development. But thesechanges,coupled 1/ See Nepal: PolicyFrameworkPaper,1994-96;SecM94-324,March30, 1994. -3 - onthe fragileenvironmentof the with constructionactivities, couldalsohave majoreffects area. detailed 11. In recognition of the various development-related risks, a very environmentaland socio-economicanalysiswasundertakenduring project preparation.The major analysis, led to the formulation of an Environmental Action Plan, with three Resettlement, and components: an Environmental Mitigation Plan,a Land Acquisition, CompensationPlan, and a RegionalAction Plan. Taken together theplanned mitigation limit measurescoverthe full rangeof environmentalandsocio-economicrisks. They aimto and negativedirect impacts and to maximizethe Valley's prospectsforsustainablegrowth poverty reduction. CHAPTER2: REQUESTFOR INSPECTION 1. The Requestfor procedures in six areas: Inspection allegesviolation of Bank operationalpolicies and * economicanalysis of projects: properly The allegations consideredand that arethatalternatives failureto treat the risk analysisis faulty. have not been properly three The latter issues is ascribedto the - possible shortfalls possible in power exports to India; upstream developmentsin China; andthe valuation of large-projectrisks. * energypolicy: The allegationis the from the program. omissionof demandside managementmeasures * disclosureof information: technical material The allegationsarethat was releasedtoo the PIDlacks requireddetail; that Assessmentwas late to be useful; not availablein and that the Environmental also a request to Nepaliin a timely make publicthe and convenient manner. SAR. Thereis * environmental assessment: The considered;that allegations there are that was insufficient alternatives were and that the cumulative impacts material availablebefore the not fully public analyzed. of Arun meetings; Thelack Valley of an lack of assessmentof developmentwere mitigation plansfor fish, floods, the transmissionlineis alleged,alongwith not adequately and disposalof the construction spoils. * 4 involuntaryresettiement: and failure to provideelectricity Theallegationsarethat therewere insufficientcompensation displacedfamilies; to the that there planningwas was no not done in socio-economicsurvey; Valleyand permanentemploymentandlandto a timely and that manner. resettlement * indigenouspeoples: indigenous Theallegationsarethat peoples, who will suffer therearenolocalbenefits for the Valley's mitigation only adverse and that the indigenouspeopleswere or.indigenouspeoplesdevelopmentplan;that the impacts and that there is no insufficiently cadastralsurveywaslate; consulted. 2. The Request for Inspection rights and interests, in also terms of: alleges adverseeffects on the Requesters' * crowding out of * social sector spending; too heavy relianceon * foreignersfor crowding construction; out of small * power projects; * adverse underminingdemocratic processes;and effects in the Arun unemployment,fooddeficit, Valley, including income livelihood from land. deforestation,healthproblems,and lossof loss, CHAPTER3: PROJECT-SPECIFIC ISSUESRAISEDIN THEREQUESTFORINSPECTION' I. ECONOMICEVALUATIONOFINVESTMENTOPERATIONS A. The studies of possiblealternative investments Nepal's power needs and approachesto undertaken meeting during requirementsof project preparation OP10.04: meet the EconomicEvaluationof InvestmentOperations. the 1. ' According to OP 10.04, consideration important features of alternatives for the of properproject analysisthroughout is one of the most analysis of power the project cycle. projects Bankprocedures involve expansion the identification plan (LCGEP)for of the least-cost meeting the generation projected investment programis then load growth. subjectedto The resultingleast-cost economic rate ofreturn and risk analysis. 2. The analysisof Arun Illfollowed LCGEPanalysis, for this approach. which many The SAR (some3,000) summarizesthe were initially alternative considered. Underlyingthe generationand expansionplans candidates of LCGEPare varying Thermal options sizes,which had beenexaminedto 11 individualhydro investment project were alsoconsidered,subject the pre-feasibilitylevelor beyond. includes to technical a detailed descriptionof feasibilityconstraints. the economic The SAR and risk analysis.' 3. In responseto questions,additional order to check the robustness of the standard alternativestrategieswere investigated in consideration least-cost of project analysis. candidatesthat This involved preliminary the With the expandedproject analysishad candidateset,the Arun before 2010. LCGEPmodelwas previously screenedout. This constraint led to the constrainedto not introduce 2000-2009 inclusion period's LCGEP. 3 of several"Plan Using B" projects appraisalteam to the set in the of assumptions be most likely,the considered by cost of the Bank's than the cost of the HMG/N's proposedinvestment this alternativeinvestmentprogramwas higher program.' 4. The Requestfor and proceduresby Inspectionarguesthat not ensuringthat feasibilitystage. Thisis anareawherethereareno the PlanB project proposalswere investigatedto the Bankviolatedits operationalpolicies the pre- - about the likely costs and benefitsof hard-and-fastrules;professionaljudgment further determining study, factor. and of The appraisalteam's the associateddelay - is the the number of hydro candidates exploredassessment,endorsedby Management,was that respectable effort to the pre-feasibility for a country suchas Nepal level represented a very - especiallyin view of the time and expense 1/ Documentnumbersreferto memorandumto thedocumentsrequestedby the Mr. Wood. Panelin SeeAnnex Bfor the listof documentsandthe Mr.Br5der'sNovember4 correspondingnumbering. 2/ See Document#1: pp. 54-62;Annexes5.4 and 5.7. 3/ Plan B is describedinDocument#1: Annex 5.4, para 41. 4/ See Document #5. Seealso Document#1: Annex 5.4. para42. -6- incurredby the authoritiesin in our view, investigatingthem.5 met by the Hencethe is supported standardleast-costanalysis. Bank's policy requirementwas, by the supplemental The reasonablenessof this judgement evidencethat analysisdone on the further Plan B study of alternative. projects in There 'Nepal's the 30-80 is no LCGEP. MW rangewould displaceArun III from funding for further Meanwhile,analysisandrefinement continues. pre-feasibilityand Indeed,the feasibility project contains projects do emerge,they work for small hydro can be projects. accommodatedin If attractive the periodically-revisedLCGEP. B.' The analysisof projectrisksmeets the requirements of OP 10.04. 5. As summarizedin OP10.04, the costs the Bank's and benefits of approachto asthe basisfor the various possibleoutcomes risk analysisis toidentify calculatingthe project's andto carefully followed in the expectedeconomicrateof assignprobabilitiesto them, return. of the SARgoes beyondstandardBankpractice - economicanalysisof Thisapproachwas Arun 111.The approachdescribedin Annex 5.7 delineation in the of the assumptions underlying outcomes considered.6 the analysis transparencyandexplicitnessof the and the number (72) of possible 6. the risks to project Thebreadthanddepth ofthe risk analysisnotwithstanding, viabilityof the Project possible construction it doesnot consider referred to in the requestfor of the inspection. ChangsuoBasin Irrigation these risks to This is be minimal. becausethe As noted is about 230 km2, in the SAR,the appraisalteam judged catchment lessthan 1 percent of area of to be the Arun the ChangsuoBasin almost imperceptibleat Basincatchment, the project site.' so anydiversionis likely cut off, the impact Evenif the flow would not be in the tributary significant. were totally still be morethan In the wet 400 m3/second;in season,the the dry Arun Riverflow would the basin as well season,the as by glaciermelt. river is fed becauseof The Chineseauthorities by aquifersthroughout its small size,the downstream ChangsuoBasinIrrigation have recentlyreconfirmedthat, water users.8 Projectis likely to have no effect on 7. The Requestfor sales to Inspectionsuggeststhat India; hence it Arun IlI's viability arguesthat project dependson power economic analysisassumes "committed" approval must await a bilateral agreement. purchasesfrom energysales to The Indiaupto India - the samelevelarealsoassumed. but for only up to 50 MW; Thismodestassumptionis fully 5/ At an estimated averagecost of $1-1.3 feasibility million study, per pre-feasibility andwith and $15 million for detailedengineeringrangingup study and $2.5 million per Arun, thevolumeof effort and investment of engineeringwork to approximately$7millionfor KaliGandaki carriedout resources,or an estimated by Nepalrepresentsconsiderable $50 millionsince 1983. 6/ For a discussionof standardBank practice, Towards a Result-OrientedApproach see Econ Report: to Evaluation: EconomicAnalysis of Projects World - Bank, 1992. 71 See Document #1: paras3.15-3.16. 8/ Seecommunications(October24, 1994 to the World Bank Executive andNovember14, 1994) Directorfor China Planner/Engineer. and Donal betweenGuangyaoZhu, Advisor O'Leary, World Bank Senior Systems -7 - in linewith recent levels of agreementhasnot power tradebetween Nepal dispute which disrupted impededthis volumeof sales,evenduringthe and India. The absenceof a formal other trade flows. with "surplus" sales to Recognizingthe 1989-1990 tradeandtransit greater India (above50 which was usedin MW), they uncertaintyassociated the price of the least-costanalysis,andthe arenot included in the demandforecast current sales andteststhe sensitivity economicanalysisbothvaluesthem at half The result of the project's - if no surplus viability sales occur to theirrealization. economicrate - is a one of return, percentage point which remainsabovethe drop in the project's opportunity cost of capital. 8. The Requestfor factored into the Inspectionsuggests that risk analysis. the project's OP10.04 largesizeneedsto be projects, andspecial does not policy with respect analytictechniquesarenot required. mention the treatment of risks in large to the Nordoesthe valuationof managementof risks - Bankhaveanexplicit as distinguished risks from the - associatedwith analysis and/or magnitude largeprojects. and importance to the That said,the such comprehensiverisk Nepaleseeconomy recognitionof Arun's was what analysisof led the exampleof this project, Bankto undertake which such analysis. is now considereda.best-practice II. POWER AND ENERGYPOLICY A.. Thedesignandappraisalof the project on the power are/were consistent sector andenergyefficiency. with Bankpolicies 9. A central tenet a clear commitment commitment to improvingsectorperformance.9 of Bankpower and energypolicy is the focus oncountrieswith through the framework regulationofthe sector, it is introducing Nepalhasdemonstratedthe requisite under the promotion of privatethe commercializationof the NepaleseElectricityAuthority Arun IlIl forthe transparent sector financed provision of power."0 (NEA),and FY92 Power Sector In addition, energy efficiency EfficiencyProject, building on the Arun IlIl provides IDA- issuesinto the use the policy dialogue- a vehicle for integrating of tariffs fully in as an line with instrument Bankpolicy - Following of demandside for which large increasesin 1991 and 1993, management (DSM)is a critical March electricity issue. 1994 - bringing tariffs them project, to about 70 were raisedby percent 38 percent in NEAis committed with base to further increasesin of long-run marginal costs. Underthe case assumptions,they order to meet its the 1996-2004 wouldaverage4 financial requirements;" percent period. By the latter date,tariffs per annumin realterms during would equallong-runmarginalcosts. 10. timing of plant NEA'sDSMprogramalsoincludesnon-pricemeasuressuchasequipmentsizing, operation, power factor correction, and energy efficient lighting,as well as 9/ SeeWorldBank,The Conservationin WorldBank'sRolein the Electric the Development World,1992. Power Sector andEnergyEfficiency and 101 SeeDocument #1: paras 1.23-1.27. 11/ See Document#1: paras1.18,4.23,and4.27. -8- efficiency improvementof central non-electricalloads such outreachfacility sector to institutionalizethese as industrial steam cycle systems."2 A is also planned. activities with Meanwhile, the involvement of systematically reduce network NEAhas the private been carrying out a program losses. to identify rehabilitating service NEAstaff and are trained in been introducedto connections and deteriorated lines, and repairing defective meters, monitor related consumers (such losses,meter testing tasks. Equipmenthas facilities as temples and NEA's own have been improved, and exempt billing system. Non-technical consumption) have been brought losses are within the billing pr6cedures,aswell being addressedby improved meter reading and resultingimprovementsin asby field inspectionsand correctionof irregularconnections. The LCGEP. energyefficiency havebeenbuilt into the Arun IlIlloadforecast and Ill. DISCLOSUREOFINFORMATION A. Thecontent anddisseminationof theArun substantially inline with Bankpolicy ProjectInformation Document were and procedures. 11. This is an area where alongsideproject Bankpolicy and developments.. procedureshave beenevolving was issuedin Indeed,BP 17.50: rapidly September1993 Disclosureof OperationalInformation - Arun Project at the sametimethat Information the project Document available IPID)was was beingappraised.The to the prepared on Public January Information 24, 1994, Center and made subsequently revised is (PIC) in March 1994. fully consistent That the PID was initial PIDbeforeappraisal;revisionafter with BP 17.50. not The latter requiresrevision in the project. However, appraisalis calledfor of the Arun Ill only if there and, in any case, appraisaldid had beenappraisedby aremajorchanges the time the initial not result PIDwas issued, in major changes. 12. not discuss someThe PIDprovidesthe informationrequiredby BP17.50. issuesrequired by Information BP10.00, However,the PIDdoes Annex Document. A, Outline The latter for an Investment Arun Ill was issuedin Project PID. By that June 1994; time, the hence it availability does not and Washington of project applyto the information alreadyfar to the exceededthe public in both expandedrequirementsof Nepal the PID. B. Bankpolicies and procedureson have been complied the releaseof factual technical with. information 13. Notwithstanding initial provisions of delaysin BP 17.50 implementingthe onthe new disclosure policy, the A number releaseof factual of factual technicaldocuments technical availableat the PICduringJune/July documents13were have beenadheredto. cleared for public release 1994. and made factual technical matters since September1994. have beenprinted separately;they Morerecently,sections of the SARthat dealwith have been availableat the PIC 12/ Ibid: paras1.28-1.29. 131 SeeMay31, 1994letterfrom Ms.Garcia-Zamor to Governmentof Nepal. C. The dissemination of the results of the substantially in Environmental Assessment line with was Bankpolicies andprocedures. 14. 1993; itwas made The EnvironmentalAssessmentSummarywaspublishedin availablein the Arun Kathmanduin May Project openedin October 1993. Information Center The resultsof the in Kathmandu,which Arun Valley in June 1993.14 assessmentwere madeavailablein An oralpresentation Nepaliinthe tape ofthis meeting is in the Valley availablefor the Panel'sreview. was also arranged;a video Assessmentfor With respect the Valleyalignmentof the to the Environmental concernthe have beensummarizedin compensationarrangementsand appealmechanismsfor accessroad,the key questionsrequiringfeedback landacquisition. Nepaliand distributed These widely alongthe proposedroute."5 IV. ENVIRONMENTALASSESSMENT A. The EnvironmentalAssessment complies goveming with Bankpolicies the environmentalanalysisof and procedures reflected in OD4.01: EnvironmentalAssessment.6 altemativeinvestmentpossibilities, as 15. of OD 4.01 The EnvironmentalAssessmentExecutiveSummary'7 with respect meetsthe requirements to the treatment addressesalternative of alternatives. Chapter technologies,three 6 of the summary dam sites accessroad alignments. in the Arun Valley, and It clearlystatesthat two different studiesundertaken up identificationof Arun ll to 1990; was basedon these studies addressedenvironmental/socialissues atleastcost reconnaissancelevelfor all feasiblesites. the 16. The access road has the most significant components environmental of the Arun impact IlIldevelopmentprogram. of all the conducted for both the Hill and Valley alignments - Full EnvironmentalAssessmentswere the two alternativeaccessroad routes 14/ See Document#1: para 3.37. See also Karmacharya,Director-in-Chief November11, to DonalO'Leary. 1994 communicationfrom J.L. 15/ Seepara31 below. 16/ OD4.01 1987. Nevertheless, isnot applicableto thisprojectsincetheIEPSfor theProjectwasissuedonFebruary5, Management projectsfor proceededas if earlieraresubjectto OD4.00, AnnexA, which IEPSsareissuedafter October1, it wereapplicable.OD4.01 is applicabletoall 1991. Projectsfor to beapplied"whereappropriateandfeasible".OD4.00, AnnexAis,however,applicableto projects issuedonOctober31, 1989;for theseprojects,OD4.01is which IEPSswereissued which reachedthe IEPSstageafterOctober15, requirementwasto 1989. time andresourcesconstraints.SeealsoAnnexA. review"howto achievethe objectives'of Forotherprojectspastthe IEPSstage,the OD4.00,AnnexA withinthe existing 171 See NEA, NepalArun /ll HydroelectricProject: 460, May 12, 1993. EnvironmentalAssessmentSummary;SecM93- - 10- considered."8 The impacts are comparedin selected Valleyroute the EnvironmentalAssessmentSummary. is significantly The shorterand affects the EnvironmentalAssessmentSummary. lesspeople,as illustrated in detailin road (3-4 years)was carefully In addition,the constructionperiodplannedfor the designed to allow for measures.1 9 full implementation of all mitigation B. The basin-wide environmental sustainability study requirementswith respect meets the Bank's developmentof to theanalysisofpossiblecumulativeimpactsof the the Arun Valley'shydropower resources. 17. OD4.01 states that a number of similar but significant a regional EnvironmentalAssessmentmay beused where projects areplannedwith With this potentially as one of cumulative its objectives, impacts. a basin-widestudy Trust for was prepared by Nature Conservation. the King 20 Mahendra This study, which is described entitled Environmental in a 13 volume report Management and Sustainable Development investigated "ways in which managementof in the Arun Basin, Arun Basin as a region might best the resources,economyandenvironment of the respond to hydroelectric the processes of change brought development program".2" by the In addition, Assessments project-specific coveredArun Environmental Ill, the alternative arediscussedinthe accessroads,and the transmission are likely EnvironmentalAssessmentSummary. Theeffects line; they to be environmentally of UpperArun, which more sensitive than Arun Lower Arun, IlIl,were studied essentially a separately.22 downstream powerhouse, significant impacts. is generally recognizedto have less C. Theproject's environmental studies and mitigation transmissionlines, plans in respect of the risks to fish, and disposal of construction conformity with Bankpolicies and procedures. spoil are in 18/ SeeJoint Venture Arun SocialImpact Study Report: IlIlConsulting Services,Addendumto the June Volume2: 1990 Environmentaland ArunAccessRoad, Assessment for Arun AccessRoad- January1992;andEnvironmentalImpact ValleyRoute, September1992. 19/ Ibid. 20/ TheKingMahendraTrust,whichis aNepaleseenvironmental workbecauseof itsinternationally-recognized NGO,waschosento carryoutthe and in settingup workinnatureconservation peoplesinincomegenerationschemesandinpromotingnatureconservation the AnnapurnaConservationArea,whereit intheChitwanNationalPark hasworkedcloselywith indigenous paras21, 31 and35 below. andeco-tourism.Seealso 21/ King MahendraTrustfor Developmentin NatureConservation,EnvironmentalManagement theArun Basin,Volume and Sustainable 1: SummaryandSynthesis,October1991: p. 1. 22/ MorrisandKnudsenEngineers, et al, UpperArun Il: Final Report, HydroelectricProject- December,1991: FeasibilityStudy, Chapter11. Phase - 11 - 18. The Requestfor Inspection's allegation notwithstanding, a full Environmental Assessmentfor the transmissionline was conducted.23 19. Under the project, the risk from.floods includingglacier like outburst floods (GLOFs)and the effects and method of spoil disposal and appropriatemitigationmeasures were carefully studied.24 The resultswere reviewed and approvedby the Project's Panelof Experts.2 5 20. Fisheries studies conducted as part of the Environmental Assessment determined the effects of the project to be not significant. Critical spawning periods are duringthe monsoonseasonwhen adequatedischargeis availablefrom the (run-of-the-river) project; nevertheless,further work will beundertaken in the first yearof the projectto verify that potential impacts areminimaland identify mitigation measures,as necessary. 26 D. Thepreparationof theEnvironmentalAssessmentstookinto account the views of affected groupsand local NGOs,in line with Bankpoliciesandprocedures. 21. Extensivepublicconsultationstook placein Nepalduring- andinthe wake of - the project's environmentalstudies. Numerousconsultationswere heldin 1990 and 1991 in the course of the King MahendraTrust basin-widestudy. Morerecently - in 1993 and 1994 - there have beena seriesof public consultations on the project in the Arun Valley. Thesehavedrawn on various project-relateddocuments - in Nepali- includingthe above- mentioned environmentalsummary.2' Reflectingthe consultations,.changeswere made in the project to accommodatethe views of affected people - includingthe provisionof priority training andjobs with project contractors, and changesin the placementof the accessroad. The Government has respondedto the disappointment expressedby somecommunitieson the changesin the accessroadalignmentby makinga commitmentto buildspurroadsto link thesecommunities with the accessroad. The RegionalAction Plan(RAP)alsowas designed with the direct participation of thoseto beaffected; recognizingthat indigenouspeoplehave traditionally managedtheir forests on a community basis,the RAPincludesa program for forestry user groups.28 23/ SeeJoint Venture Arun IlIlConsultingServices,Addendum to theJune 1990 Environmentaland Socio-EconomicImpact Study Report: Volume3 - EIA of the TransmissionLine System, January 1992. 24/ See EnvironmentalAssessmentSummary: pp. 39 and 60. 25/ See Document#1: paras3.23 and3.44(b) for a discussionof the Panelof Experts. Seealso Compendiumof PanelReports. 26/ SeeEnvironmentalAssessmentSummary: p. 78. 27/ See para 14 above. See also November 11, 1994 communication from J.L. Karmacharya, Director-in-Chief,NEAto DonalO'Leary. 28/ Seealso paras33, 35, and36 below. - 12 - V. INVOLUNTARYRESETTLEMENT A. The compensation provided RehabilitationPlan(ACAP)is fully for under the Acquisition, Involuntary Resettlement. consistent with Compensation,and the requirementsof OD4.30: 22. Arun IlIl does numbersof not involve people. the resettlement A total of communities the project of 1,097 project area. Of these, affected families or of very large (SPAFs). 140 29 have The Acquisition, beenidentified (PAFs)havebeenidentified as seriously in the project project-affectedfamilies is consistent with TheACRPaddressesthe LandAcquisition affected by land acquisitionandprovides- Compensation,and RehabilitationPlan (ACRP)developedunder OD4.30.3° compensationof families Act in additionto - of transition after rehabilitation grantsto their land is help both normalcompensationunderNepal's the Bank,ACRPimplementation acquired by PAFsand the projeCt.3' SPAFsduringthe period arrangementswere Basedon agreedat commentsprovidedby negotiations. 32 B. theyarenot Whileland-basedresettlement strategiesarepreferable accordingto required, OD4.30, of displacementof and may not be appropriate, Arun for projects with the scale giventheoption of compensationfor their landcompensation,andallPAFsarebeingofferedarebeing 111.Nonetheless,seriouslyaffected families land. full cash 23. Despiteefforts of land. The type of compensation significance of to minimizelandacquisition, somefamilies facepermanentloss provided land in - the affected cash versus value of compensation paid family's land - depends on the valuations aredone accordingto will be income-earningactivities. same whether it is However,the actual paid of land-basedincomeunderthe of cash as compensation. project havebeenofferedthe standardslaidout inthe ACRP. SPAFsfacingsignificantloss in cash or in kind (land); all and family Becausethere option is no issueof large-scalecommunity of receivinglandinstead SPAFsarebeinggiventhe land-holdingsareoften fragmentedand widely resettlement flexibility distributed not the Government, of identifying their within the community, will purchaseanyreplacementland chosen by preferredreplacementholdings. NEA, SPAFs. 33 24. All other affected TheACRPprovides familiesareto for compensationfor land, buildings, and immovable assetson be providedcashcompensationfor their land. acquired 29/ incomeisfrom landandat leasthalfof totalincomelosesits A householdis classifiedasanSPAFif it (1) dwellingunitor SeeDocument#1: Annex3.3, para2. will belostdueto (2)if project-related its mainsourceof landacquisition. Action 30/ JointVentureArunIlIlConsultingServices,Acquisition,Compensation,andRehabilitation(ACRP): Plan,InitialReport,April 1993; FinalUpdate,June21, 1994. 311 Ibid: Sections 3.3 and3.4 and AppendixA. 32/ SeeArun 1/1Agreed Minutes of Negotiations: para9 andAnnex 5, Attachment 33/ Ibid: 2. Section 3.8. SeealsoDocument#1: Annex 3.3 - 13 - land at market values, basedon detailed cadastralsurveys of the entire accessroad area.34 SPAFswho opt for cashcompensationandPAFs will receivesufficient fundsto purchaseland of similar sizeand quality. Grievanceproceduresareincludedexplicitly in the ACRP. 35 25. A cadastral survey of all areas expected to be affected by the project was completed prior to land acquisition.36 Compensationarrangementsare covered under the ACRPfor all landso surveyed, which includeslandheld undersole proprietorshipformal and informal tenancies, and land owned by a group or community. In addition to compensation provided to landholders,the ACRPprovidesfor land compensationand rehabilitation grants for tenants. Whereclearownership of land or property affected by the project by a group of people or a community can beestablished,then the group or community is to be treated as a PAFfor compensationpurposes. 37 C. Theobjectiveof theBank'sresettlementpolicy is to ensurethat thepopulation displacedby a project areprovided opportunitiesto share in project benefits. It containsno requirementsas to how project benefits should be shared, nor doesit requirethat pernanent employmentbe provided to displacedpersons. 26. The project has been designed to ensure that residents of the Arun Valley receive a rangeof benefits from the project. Fromthe point of view of valleyresidents, the main direct benefit derivesfrom the accessroad,which will reducetransportation costs into and out of the Valley dramatically. In addition, construction of the accessroad and other infrastructure will create substantial project-related employment in the Valley, and local residents are being given priority in filling these jobs.33 The RAP provides for rural electrification of the Valley through micro-power stations; contract documents contain provisions for turning project power sources over to local communities on completion of construction. This will allow electrification of most of the major villages in the valley downstream of the project site.39 Electric power is another direct benefit of the Arun Ill project. 27. OD 4.30 does not require SPAFsto be compensatedthrough permanent employment. It does requirethat displacedpersonsbe no worse off, if not better off, than beforedisplacement. To this end,on top of compensationfor lossof land,at leastone person in each SPAFhouseholdis to be offered employmentby NEAunder the ACRP. A special 34/ SeeACRPAction Plan: Appendix A. 35/ Ibid: Section3.9. 36/ Ibid: Section 3.1. 37/ ACRPAction Plan: Section 11.2. 38/ SeeDocument#1: Annex 3.2, para 25. 39/ SeeDocument#1: Annex 3.2, paras12-15. - 14- trainingprogram is beingset up to which impartjob is intendedto skills tothose helpincreaseSPAFs' participating in this earningscapacity on program,4o a permanent basis. D. requiredby Detailedsocioeconomicsurveyswerecarriedout duringproject preparation,as OD4.30. 28. Hill (road)alignment,and in Fullsocioeconomicsurveys, coveringall PAFs,were 1993 for carriedout in 1990 for the been undertaken. 41 the Valley itself. Detailedcadastral surveys 42 Information A Management Information have also System System (GIS),and (MIS), integrated a project a Geographic planning and monitoring the managementsubsystem ACRP, and surveys information have been developedfor are currentlybeing from the enteredinto cadastral and socioeconomic MIS/GIShasbeendevelopedto the system. This is the first prior toproject implementation. managelandacquisitionprogramsfor time that an integrated Theintegrated a Bank-financedproject Bank and ACRPstaff MIS/GISwill to closely monitor provideauniqueopportunity throughout the impacts for the implementationphase."3 of the project on affected families E. The timeliness of resettlement planning requirementsof under OD 4.30. the project meets the 29. In line with OD4.30, including the draft all necessarysurveys ACRPwas preparedprior of affected to project affected families appraisal, by construction of the and properties." initial accessroad or All families identification has been the hydropowersite to be made of families have beenidentified. transmissionlinesandthe potentially An affected principlesfor by construction of the constructed (Definitiveidentification is pendingdecisionson their compensationarrangementshave beenagreed. five yearsafter the the final alignmentof start of to construction the project.) the lines, which will be of transmission expected to lines will Permanentdisplacementof be minimal; familiesdue bepermanentlydisplaced." at most only eight households will require Muchof only way-leave and building the landaffected by are under the height restrictions. the transmissionlines ACRPto compensateaffected Arrangementshave families beenmade for any such restrictions."6 30. Thus the vast majority displacedby the of affected families projectand what know already form of that they compensationthey will be will receive. However, they do 40/ SeeACRP Action Plan: Section3.8. 41/ See Document#1: para3.32 andAnnex3.3, para11. 42/ Seealsoparas25 and34. 43/ SeeDocument#1: Annex3.3, para21. 44/ Seefootnote30above. 45/ SeeDocument#1: Annex3.3, Table1. 46/ SeeDocument#1: Annex3.3. -15- not know the precisedateof displacement. the timetable of Giventhe complexityand durationof the project, land acquisition, compensation,and rehabilitationactivities isto on a two-year rolling be finalized basis. The implementationtimetablefor years of the project ACRPactivities in the first two (primarilyconstruction of the road)will befinalized of the time within three that a decisionis takento months beginconstruction. yearswill be TheACRPtimetablefor successive preparedannually, covering at leastthe following two years." 31. To make clearthe policies and proceduresbeingfollowed, a Due Process NEAhas prepared Manual in Nepali." The Manual describes the ACRP, compensation procedures,land acquisitionprocedures,paymentof provision for compensationandrehabilitationgrants, specialtreatment of SPAFs,compensationof considerationof public propertiesand facilities, informaltenant of the ACRP. rights, grievanceprocedures,andmonitoringand evaluation Over 3,000 copies of the Nepaliversionof to PAFs and to the Manual have beendistributed other concerned persons, and it has beendiscussed meetings in the extensivelyin public project area.'9 VI. INDIGENOUSPEOPLES A. Mitigation efforts proposed under the project and included in the Regional Action Planare consistent with OD4.20: IndigenousPeoples. 32. OD4.20 requiresthe preparationof basedonfull a culturallyappropriatedevelopmentplan, considerationof the options preferredbythe indigenouspeopleaffected project. To this by the end - and at the requestof Government,the World Bank,andthe the basin-widestudy UNDP- preparedbythe KingMahendraTrustfor how changesinducedby NatureConservationexamined the project would impact varioussocial and ethnic groups3 0 Valley and in the designed the RAP accordingly. The study's summary report51 and Action 47/ See Document#1: Annex 3.3, para 18. 48/ NEA,Arun I IHydroelectric Project - Due ProcessManual, November1993. #1: Annex 3.3, Seealso Document para 18. 49/ See November11, 1994 communicationfrom Donal O'Leary. J.L. Karmacharya,Director-in-Chief,NEAto 50/ The basinis culturallyandethnically diverse. up 53 percentof Rai,Limbu,GurungandMagartakentogether make the total populationin the SankhuwasabhaDistrict. Brahmans/Chhetris,7 This is followed by 27 percent percent for occupational caste groups and Tamang, percent for Sherpaand Newar and Tibetan, 5 1 percent for others. However,the samplepopulation growth centers closeto from the potential the proposedroad alignment anddamsite give the district in a different picture general. They to that of are dominatedby Brahmans/Chhetrisand while Rai, Newars,the Limbu and trading castes, other castes of Mongol origin account for about Occupational castegroupsandKumhals,both one-third of the total. percent. regardedasunderprivileged,are estimatedat about 10 51/ King MahendraTrust for Nature Developmentin Conservation,EnvironmentalManagement and Sustainable theArun Basin, Volume 1, October 1991. - 16- Programs52 form the basis for including the RAP. a range of The RAP actions to fulfillsthe objectives of OD 4.20 Valley, by including addressthe diverse both developmentneedsof as well the verypoor andthose all groups in the as other who Valley residents. havestrongethnic sensitive to Actions the cultural proposed or culturalaffiliations, groups' diversity in under the the Arun RAP are relationship to land, natural resources,and Valley and to designedto be take full account of the different their cultural heritage. 33. generatiorl; The RAPincludesactions in institutional strengthening; six broad areas,asfollows: research, extension monitoring and conservation;income and information. training; infrastructure regarded as priorities In terms for implementation. of scheduling,five and energy; sectoral government management;helpinglocalcommunitiesserviceconstruction-relateddemands;strengthening These relate programsare to: strengthening local forest institutions to development; copewith impacts;training $14.6 and environmentalmonitoring. andeducationfor localhumanresource million (excluding contingencies).5 The tentative cost of the RAPis estimated at B. Therecommendationsof OD 4.20 establishing with respect legalrecognition to the cadastral surveysand othermeans of indigenous peoples' sequencingof (first) landrghts - through followed. - and (then)acquirng thelandhave been 34. A key through objectiveof OD 4.20 a loss is that of land rights indigenous peoplesnot becomeworse project as a resultof preparation a cadastralsurvey project-related activities. off of all As noted earlier,during - includingthe land way roadright-of-way itself andland within in the area of influence of the accessroad - and other provided componentsof the project one day's walk of the for legalrecognition of was completed plannedright-of- userights prior to in the surveyed area. land acquisition; this 35. A substantial portion Government, of land particularly required forest by the grazing, land. project collection By tradition, is owned of fodder, local by the communities firewood, ACRP to compensate and so usethese on. any community Arrangementshave areasfor dependent or users the on it group beenmade in for timber who mitigate and fodder is looking after deforestation for the loss of the forest and of forming pressures,theRAPwill these commodities. 54 In addition, to formed 34 forest continuationof the ongoingprocess along pasture and forest-usergroups; to support the the road right-of-way; date, 27 additional groups areto usergroupshavealreadybeen be formed. 36. in Bhojpur and is Meanwhile,the nationalcadastralsurveythat to regularize land nearingcompletion in 5 isunderwayhasbeencompleted tenure, forest-users to recognizeuseSankhuwasabha.s Actions taken rights underthe groups to managecommunity on public project lands,and to set resources are up pasture and all efforts to protect the land-use 52/ KingMahendraTrustfor NatureConservation, Action Program, Volume2, 53/ October1991. SeeDocument#1: Annex3.13,para7. 54/ Ibid:Section3.6.1. 55/ See November21, 1994 Representativein facsimile from Nepal,to Joe DonalO'Leary. Manickavasagam,World Bank Resident - 17 - rights ofthe peopleof the Arun Valley. will be necessarythroughout Theseprecautionsnotwithstanding, a close aremet. To this end, project implementationto ensurethat watch of the impact of project-relatedactivities on the project supervisionplan involvescareful monitoring andevaluation the objectivesofOD4.20 vulnerablegroupsin the Valley. C. Project preparation has met the requirements informedparticipation of OD 4.20, in termsof of the affected the RAP. indigenouspeoplesin the design of the 37. Thepreparationof the RAPwas study team highly participatory. was made up largely of Nepaleseexperts. TheKingMahendraTrust interaction amongstudy There was close and team membersand the continuous householdsurveywas people of the Arun undertakento Basin. A wide-ranging learnfrom to tap theirknowledgeand experience. Over 70 localresidentstheir expectationsas well as Arun Basin itself. The man-monthswere study beganand ended devotedto studiesinthe which representativesfrom with two major workshops local HMG/Noffices, in the basin at gave their opinionsand ideason local NGOs,village leadersand the how the public the RAP's proposalsfor study shouldbest proceedand, action programs. 56 later,feedback on 56/ See King MahendraTrust for Nature Conservation,Volumes I and 2. CHAPTER4: CONCLUSION 1. We believe that Chapter 3 appropriately addressesthe questionsraised in the Requestfor Inspection and clearly demonstratesthat the Bank hasfollowed its operational policiesand procedureswith respectto the designand appraisalof the proposedproject. Of critical importanceforquality at entry, we have assessedthe various technical, economic, financial, environmental, and sociologicalriskscarefully, devoting considerableattention to alternative scenarios.With a view towards managingproject risks, we have providedfor remedial actions where appropriate. In addition, we have built into our supervisionplan mechanismsfor periodic monitoring andevaluation- the resultsof which canbe addressed during implementation - in order to safeguardthe project's development impact inthe face of unanticipateddevelopments. ANNEX A SELECTEDBANK OPERATIONAL POLICIESAND PROCEDURES Pointin Project Dateof Polcy Cycleto Which Applicability Policy Guideine Dateof Policy PolicyApplies for Arun lIl Comments OD 4.00. Annex A: Environmental Oct. 31,1989 * applicable to Assessment * for projectsnot in advanced projectswith IEPS stageof preparation,the Task issuedafter Manager& RegionalEnvironment October15, 1989 Divisionshouldreviewstatus& recommendhow to achieve objectiveswithinexistingtime andresourceconstraints 00 4.00, Annex B: EnvironmentalPolicy April 28, 1989 * not said to be for Damand ReservoirProjects retroactive OD 4.01: EnvironmentalAssessment Oct. 3, 1991 * IEPSissued * not applicable OD4.01 applicable'where after October1, sinceIEPSwas appropriateandfeasible to 1991 issuedon projectswith IEPSbeforeOctober February5, 1, 1991 andaresubjectto OD 1987 4.00, AnnexA. OD 4.20: IndigenousPeoples Sept. 17, 1991 * at IEPSstage * not applicable I at IEPSstage,the applicable * at preparation at IEPSstage policywas OMS2.34: Tribal and appraisal * applicableat Peoplein Bank-financedProiects stages appraisalstage issuedFebruary1982. which was supersededby 00 4.20 OD 4.30: InvoluntaryResettlement June 29, 1990 * at IEPSstage * not applicable at the IEPSstage,the * duringappraisal at IEPSstage applicablepolicywas OD 2.33: and negotiation * applicableat SocialIssuesAssociatedwith appraisaland InvoluntaryResertlment in Bank. negotiation FinancedProjectsissuedin stages I _________________________________ February1980, whichwas _______________ ________________ superseded by OD4.30 3P17.50: Disclosureof Operational Sept. 1993 * at IEPSstage Information * not applicable * pursuant to (para.151and for PID at IEPSstage (AnnexD,para. 1 (a)of BP I PIDto be * applicableon 17.50, for projectsthat were updatedbefore January1, pastthe IEPSstagebut not yet appraisal 1994 (i.e., presentedto the Board,a PID * PIDto be after appraisal was to be producedby January updatedafter for both PID 1994. appraisalif major and FTD)I disclosureof FTDon request changesto but only at CountryDirector's projectmadeby discretionIpara.12 of the Policy previousproject on Disclosureof Information) preparationfor FactualTechnical DocumentIFTD) - 20 - I | Point in Project Dateof Policy | l |PolicyGuideline Cycleto Which Applicability Date of Policy PolicyApplies for Arun IlIl Comments InvestmentProjectInformation Document stage:draft Initial January1994 PIDwhen project andmadeavailable at the PICinMarch1994 enters5-yearl lendingprograml I at preparation andpre-appraisal: discussPIDwith borrower/stake- holders.Update PtO OP10.04: EconomicEvaluationof * OP:April Investment Operations * at identification * not applicable 1994 andSept. * at IEPS and appraisalstages, BP 10.04 stage (Supplementto OP10.04) given advanced 1994 * at appraisal the applicablepolicieswere:OMS stageof BP:April 2.21 EconomicAnalysisof stage preparation 1994 ProjectsissuedMay 1980. and except where CentralProjectsNote(CPN)2.01 identicalto InvestmentCriteriain Economic previously Analysisof ProJectsissuedin applicable June 1977, both of whichwere instructions supersededby OP10.04 Note: ArunIll- IEPS:February5. 1987 Appraisal:May and September1993 - 21 - ANNEXB DOCUMENTSREQUESTEDIN MR. BRODER'S NOVEMBER4, 1994 MEMORANDUMTO MR. WOOD (1) The MemorandumandRecommendationof the President(MOP),the Staff Appraisal Report (SAR)andthe legaldocumentsfor the proposedproject; (2) EnvironmentalManagementPlan; (3) RegionalAction Plan; (4) The Least Cost Generationand ExpansionPlan (LCGEP)of 1987 and 1990; (5) 1993/94 Argonne NationalLaboratories(ANL)Study: Analysesof Options for the NepalElectricalGeneratingSystem, May 1994; (6) FeasibilityStudies of alternativeproject designs; (7) Available documentson a proposedChangsuoBasin Irrigation Projectin China; (8) Arun IlIlHEP: EnvironmentalImpact Assessmentfor Arun AccessRoad- Valley Route Report,September1992; and (9) Nepal's Land Acquisition Act, 1979. ^ 22 - ANNEXC PREVIOUSREQUESTS TO THE BANK Attachment Vill of theRequestfor Inspectionlists ten previouscomplaintsto the World Bank. * Fourof the itemsreferto correspondencewith the ExecutiveDirectorsand are not the responsibilityofBankManagement. .0 Oneletterfrom the RequesterdatedJuly 7, 1994 requesteddocumentation. The response,datedJuly 18, 1994, referred the Requesterto the Project Information Center in Kathmandu, which houses all the requested documentation. We alsoencloseda list of the documentationavailableat the World Bank's PublicInformation Center (PIC)in Washington. -- A secondletter from the Requesterdated October 7, 1994 requesteda list of documents relatingto the Arun III project. The World BankResident Mission in Nepal responded on October 7, 1994, providing a list of documents available at the Resident Mission and a list of documents availableat the ProjectInformationCenter in Kathmandu. In addition,the Requesterwas referredto the PICin Washington. * We have checked our correspondencefiles in relation to the otherdates cited. All suchcorrespondencecamefrom the Alliance for Energyand was fully responded to by the World Bank. Supporting documentation is available. International Development Association FOR OFFICIAL USE ONLY IDA/SecM94-378/1 FROM: Vice Presidentand Secretary January 20, 1995 Request for Inspection- Nepal: Arun III HydroelectricProiect Attached is a memorandumfrom the ExecutiveSecretaryof the Inspection Panel dated January 20, 1995, transmittingthe Memorandumto the Executive Directorsby the Chairmanof the InspectionPanel on "Requestfor Inspection- Nepal: Arun III HydroelectricProject". Distribution: ExecutiveDirectorsand Alternates Office of the President SeniorManagement,Bank, IFC and MIGA |This document has a restricted distributionand may beused by recipients otheir officialduties. Its contentsmay not otherwisebe only in theperformancen disclosedwithoutWorldBankauthorization. THEINSPECTIONPANEL OFFICE MEMORANDUM DATE: January20, 1995 TO: Mr. Timothy T.Thahane,SECVP FROM: EduardoAbbott,INP :# EXTENSION:82617 SUBJECT: Request for Inspection Nepal: Arun III Hydroelectric Project Attached for distribution to the ExecutiveDirectors of IDA please find a Memorandumfromthe Chairmnan andmembersof TheInspectionPanel entitled"Request forInspection-Nepal: ArunIIIHydroelectricProject"datedJanuary20,1995. THE INSPECTION PANEL INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 1818H Steet, N.W. INTERNATIONAL Telephone: (202)458-5200 DEVELOPMENT ASSOCIATION Washington, D.C.20433 Fax: (202) 522-0916 U.S.A. Cable Address:INTBAFRAD Ernst-GOnther Br6der,Chairman RichardE.Bissell AlvaroUmafla January20, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS SUBJECT: Requestfor Inspection Nepal: ArunIII HydroelectricProject 1. The InspectionPanel, on December16, 1994,submittedto the ExecutiveDirectorsits recommendations on aRequestforInspectionof allegedviolationsof IDApoliciesinthedesignand appraisalof theabovereferencedproject;andfurthertothis,onJanuary9, 1995,providedaninformal note summarizingtherecommendations. 2. OnJanuary 9, 1995,thePanelmet informallywiththeExecutiveDirectorsto discussthe recommendations.At thismeetingthe Panelwasadvisedthat Managementhadofferedto provide detailsnot includedin its November22, 1994Response. It was agreedthat Managementwould furnishthePanelwithmoreinformationonIDA'sactionswithregardtotheallegedviolationsof IDA policiesclaimedintheRequest,andfollowinga reviewbythe Panel,thattheBoardwouldacton the Panel'srecommendation bytheendofJanuary. 3. ThePanelhadmeetingswithRegionalandENVstaffandreceiveda numberof documents deemedby Managementto be furtherevidenceof compliancewithIDA policiesor of its current effortstotakeremedialactioninorderto complyfullywithsuchpolicies. 4. Afterthoroughconsiderationof thedocumentsreceived,andin lightofthe discussionswith Management,thePanelhasdecidedtoreiterateits originalrecommendationfor an investigationon possibleviolationsof IDApoliciesrelatingtoEnvironmentalAssessment,InvoluntaryResettlement andIndigenousPeoples,asset forthinitsReport(paras45,51, 52, 84,85, 89,90) andthe informal notereferredtoabove(para6). 5. Withregardto EconomicAnalysis,the applicationof relevantpoliciesby IDAto ArunIII generatescontinuedconcernonthepartof thePanel,particularlyinthelightof additionalinformation providedby Management. The Panel neverthelessconfirmsthe scope of the investigationas originally recommended. It also believes that an investigationof EnvironmentalRisks- EnvironmentalAssessment,InvoluntaryResettlementand IndigenousPeoplesissues--wouldshed usefullightontheoverallEconomicAnalysis,ascalledforinoperationalpoliciesonthelatter. 6. It is estimatedthat aninvestigationas proposedby the Panelwouldrequireapproximately threemonths. Theexactlengthwouldbe subjectto interaliathe extentof cooperationthe Panel receivesfromManagementandthe proposedborrower.Otherfactorsincludeactualprogressinthe currenteffortsbeingmadeby theGovernmentandIDAtoupdatetheRegionalActionandIndigenous PeoplesPlans,andthe timerequiredto reachan agreementon the nowabandonedHillRouteland tenuresituation. ThePanelfeelsthat sucheffortsby the Governmentand IDAshouldbe pursued concurrentlywith theproposedinvestigation.