American Diplomatic Cable: US Criticizes India for Unfairly Treating Nepal

…we remain deeply concerned over India’s apparent unwillingness to collaborate fully in regional efforts which stand to bring much-needed, long-term benefit to poverty-stricken Nepal.

2003-03-04 04:50 
C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 000382 

SIPDIS 

STATE FOR SA DAS DON CAMP, SA/INS, AND SA/RA
STATE PLEASE PASS AID/ANE - D MCCLUSKEY, C LOWRY, G
WEYNAND, J WILSON
LONDON FOR POL/RIEDEL
NSC FOR E MILLARD 

E.O. 12958: DECL: 03/03/2008
TAGS: EAID ECIN ENRG PREL
SUBJECT: INDO-NEPAL CROSS-BORDER ENERGY TRADE STAGNATES 

REF: KATHMANDU 314 

Classified By: DCM Robert K. Boggs, for reasons 1.5(b) and (d). 

ś1.  (C) SUMMARY: Nepal's Minister for Water Resources Dipak
Gyawali is sharply critical of India's policies on
cross-border energy trade.  He told us that he believes New
Delhi focuses on the strategic aspects of water and energy to
the exclusion of economics.  Despite Nepal's current power
surplus, Gyawali understands that Nepal will need to develop
storage capacity in the future, in addition to slated
run-of-the-river projects, in order to compensate for the
high seasonal variability of water flows.  He believes that
joint venture models have the greatest potential for tapping
Nepal's huge hydroelectric potential.  In our view, India's
resistance to joining South Asian regional initiatives is
holding back the economic development of both countries and
will impede national as well as donor-funded efforts to
alleviate South Asia's poverty.  Please see action request
for Department and Embassy New Delhi in final paragraph.  End
Summary.

Water Resources Minister: India "Resistant to Economics"
--------------------------------------------- ----------- 

ś2.  (C) In the context of the recent SARI/E-sponsored Energy
Information Administration (EIA) regional workshop in
Kathmandu, SARI/Energy regional Coordinator, SARI/E Nepal
coordinator, and Kathmandu-based Regional Environment Officer
(REO) had a private dialogue with Water Resources Minister
Dipak Gyawali and Secretary for Water Resources Keshab Chand.
 Gyawali (in typically outspoken fashion) sharply criticized
India's policy on regional energy trading, saying that India
was not just resistant to cross-border cooperation, but
"resistant to economics."  Gyawali stated that as long as
India continued to view water and energy in purely strategic
(and not economic) terms, there would be little progress in
bilateral energy trading, and hence little opportunity for
Nepal to develop its energy exports. 

ś3.  (C) When asked about Nepal supplying India's enormous
future power needs, Gyawali pointed out that many Indian
states provide free (or nearly free) power to certain favored
customers, such as farmers.  "If the price is zero, then
obviously the demand will be infinite."  The Minister cited a
recent example where India had cut back on minuscule
purchases of a few kilowatts of power in border areas.  "So
if they don't need five kilowatts, then don't tell me they
need 40,000 megawatts." 

ś4.  (SBU) Gyawali conceded that although Nepal currently
enjoys a surplus of supply for its grid, he expects the
situation to turn around in 2-3 years.  Nepal will need more
run-of-the river projects in the 100-MW range, but also
storage capacity to deal with seasonal variations.  Joint
ventures have the greatest potential for mobilizing the
necessary capital, he thought.  He said that Nepal needs to
know more about both the irrigation and power systems of
Uttar Pradesh and Bihar in order to estimate the scope for
future cooperation with India.  (The Minister left soon
thereafter for an official visit to Patna, capital of Bihar.) 

MEA Mandarins Circling the Wagons?
---------------------------------- 

ś5.  (C) In a subsequent conversation, managing Director
General Janak Lal Karmacharya of the Nepal Electricity
Authority (NEA, which comes under Gyawali's Water resources
Ministry) told SARI representatives that Nepalese officials
were still upset over the treatment meted out to the Nepali
delegation at an aborted U.S.-Nepal-India hydropower
partnership meeting in New Delhi in November 2002.  (Note:
the event was aimed at technical management improvement, not
power trade.  India boycotted the meeting, even though the
Nepalis had already arrived.)  However, he felt that we
should take a long-term view, preparing the ground for future
cooperation, but not expecting early breakthroughs. 

ś6.  (C) Department of Electricity Development Director
General Lekh Man Singh told us that progress on the Arun III
cascade project, expected to provide a total of 402 MW, was
glacial.  The GOI still had to agree in order for Nepal to
activate a USD 10 million Asian Development Bank credit to
update technical and engineering studies which could
eventually lead to ADB financing of the project.  Further,
Indian MEA officials had attempted to block the Australian
West Seti project (750 MW) on the grounds that India should
not pay foreign exchange for Nepali power when there were
still possible hydro sites to develop in India.  According to
Singh, only a high-level intervention by Nepali officials
with Indian ForMin Yashwant Sinha succeeded in getting this
decision reversed.  He believed that the MEA mandarins might
try again to short-circuit the project when it gets to the
Power Purchase Agreement (PPA) stage. 

Divide and Conquer Strategy Appears Anachronistic
--------------------------------------------- ---- 

ś7.  (C) COMMENT: India's preference for dealing with its
neighbors on a bilateral basis extends well beyond the issue
of energy, and certainly beyond USAID's regional energy
program.  There will be little immediate impact on the
prospects for a regional power pool or bilateral work in the
hydropower sector, since India has participated minimally in
SARI/E programs aimed at this aspect to date.  If one of
SARI's objectives is, however, to engender a more productive
atmosphere for energy trading negotiations between India and
Nepal, much more clearly needs to be done.  Fortunately,
there is much more to SARI.  From Nepal's perspective, SARI
provides numerous other benefits in training and technical
information sharing with regional counterparts with or
without India.  Further, such activities supplement our
bilateral efforts.  We therefore support SARI/E's
continuation, although the focus on regional energy trading
may need to be revamped in favor of sector reform
initiatives.  The door must be left open for India to
re-think its bilateral-only approach. 

The Emperor Has No Clothes
-------------------------- 

ś8.  (C) COMMENT CONTINUED: However, we remain deeply
concerned over India's apparent unwillingness to collaborate
fully in regional efforts which stand to bring much-needed,
long-term benefit to poverty-stricken Nepal.  Indeed,
indications are multiplying that India will resist
participating in any forum organized by the U.S. that has
only South Asian countries as participants.  The hamstringing
of Nepal's efforts to realize its enormous hydroelectric
potential by its only market is a major obstacle to Nepal's
development prospects.  This is particularly costly at a time
when low standards of living and lack of economic opportunity
in the countryside are fueling an insurrection that is
sending Nepal backward. 

ś9.  (C) ACTION REQUEST FOR DEPARTMENT AND NEW DELHI: There is
a considerable U.S. investment to protect in this regional
initiative.  We believe the U.S. has a strong interest in
promoting regional cohesion and alleviating South Asia's
crushing poverty.  It would therefore be in the U.S. interest
to try to wean the GOI, especially the MEA, from its
anachronistic insistence on bilateral approaches to regional
problems -- which has long been a source of irritation to
India's smaller neighbors, such as Nepal.  Department and
Embassy New Delhi may wish to consider how best to further
the objectives of SARI and other USG-sponsored regional
initiatives through a discreet but consistent dialogue with
decision-makers in MEA and other GOI power centers.
MALINOWSKI

2003-02-28 11:45

UNCLAS SECTION 01 OF 02 KATHMANDU 000363

SIPDIS

STATE FOR SA/INS
LONDON FOR POL/ERIEDEL

E.O. 12958: N/A
TAGS: PREL ELTN NP IN XD
SUBJECT: INDO-NEPAL COMMERCIAL TRANSPORTATION
NEGOTIATIONS STALL

SUMMARY
——-

ś1. ON FEBRUARY 10-14, REPRESENTATIVES FROM INDIA AND
NEPAL MET IN KATHMANDU TO NEGOTIATE RAILWAY AND TRANS-
BORDER MOTOR VEHICLE TRAFFIC AGREEMENTS, WITH LIMITED
RESULTS. THE GOVERNMENT OF NEPAL (GON), UNDER
SIGNIFICANT PRESSURE TO OPEN ITS WORLD BANK-FUNDED
INLAND CONTAINER DEPOT (ICD), MADE A NUMBER OF
COMPROMISES INCLUDING AGREEING TO INDIAN MANAGEMENT
OF THE DEPOT AND TO REDUNDANT CUSTOMS PROCEDURES FOR
TRANSITING CARGO. INDIA’S INSISTS ON LINKING
CONCESSIONS MADE MOTOR VEHICLE TRAFFIC TO PROGRESS ON
A RAILWAY AGREEMENT. INDIA’S NEGOTIATING PLOY COMES
AT THE EXPENSE OF NEPALI CONSUMERS AND EXPORTERS, WHO
WOULD BENEFIT FROM THE ESTIMATED FORTY PERCENT
REDUCTION IN TRANSPORTATION COSTS THAT WOULD ENSUE
FROM IMPLEMENTATION OF THE ICD. END SUMMARY.

NEPAL-INDIA TRANSPORTATION NEGOTIATIONS
—————————————

ś2. ON FEBRUARY 10-14, REPRESENTATIVES FROM INDIA AND
NEPAL MET IN KATHMANDU FOR THE THIRD ROUND OF TALKS
ON THE NEPAL-INDIA RAILWAYS AGREEMENT (NIRA) AND
REGULATION OF TRANS-BORDER MOVEMENT OF MOTOR VEHICLES
(RTMMV). THE NEGOTIATIONS WERE HELD IN CONSECUTIVE
MEETINGS DURING THE WEEK BUT WITH FEW RESULTS.

NIRA KEY TO NEPAL’S TRADE FUTURE
——————————–

ś3. THE REPRESENTATIVES OF THE GOVERNMENT OF INDIA
(GOI) AND OF THE GOVERNMENT OF NEPAL (GON) FACED THE
SAME THORNY ISSUES IDENTIFIED IN THE FIRST TWO
NEGOTIATING ROUNDS ON THE RAILWAY TREATY, IDENTIFYING
AN OPERATOR FOR THE BIRGUNJ INLAND CONTAINER DEPOT
(ICD) AND AGREEING TO SIMPLIFIED CUSTOMS CLEARANCE
PROCEDURES. THE GON IS UNDER PRESSURE TO CONCLUDE
THE AGREEMENT, AS THE ICD IS IN DEFAULT TO THE WORLD
BANK FOR THE USD 28.5 MILLION PROJECT. THE WORLD
BANK HAS EXTENDED THE DEADLINE FOR THE ICD’S
OPERATION TO SEPTEMBER 2003; SHOULD IT LAPSE, THE
BANK MAY BE FORCED TO LIQUIDATE THE FACILITY. (NOTE:
TWO OTHER ICDS IN BHAIRAHAWA AND BIRATNAGAR ARE
ALREADY IN OPERATION, WHILE THE BIRGUNJ FACILITY,
WHICH IS THE ONLY FACILITY WITH RAIL CONNECTIONS AND
THE TRADITIONAL TRADE ROUTE WITH THE PORTS IN
KOLKATA, IS YET TO OPEN. END NOTE.) ONCE THE
BIRGUNJ ICD COMES INTO FULL OPERATION, TRANSPORTATION
COSTS FOR NEPALI EXPORTERS, MOST OF WHOSE GOODS
TRANSIT INDIA, ARE EXPECTED TO DROP BY 40 PERCENT.

ś4. INDIA HAS DELAYED FINALIZATION OF A RAILWAY
AGREEMENT, INSISTING ON INSPECTING CONTAINERS BOTH AT
THE PORT OF ENTRY AND ON THE INDIAN SIDE OF THE
BORDER BEFORE ENTRY INTO NEPAL. THE GON HAS INSISTED
ON A “ONE-TIME LOCK” SYSTEM, ENSURING DIRECT ENTRY OF
THE CONTAINERS TO THE ICD ONCE THEY HAD BEEN
INSPECTED AND LOCKED IN KOLKATA, INDIA. INDIA HAS
ALSO STIPULATED THAT, IN POSSIBLE CONTRAVENTION OF
THE TERMS OF THE WORLD BANK LOAN, THAT THE CONTRACT
FOR OPERATING THE ICD INCORPORATE AN INDIAN MANAGER.
ACCORDING TO NEPAL’S LEAD NEGOTIATOR, PURUSHOTTAM
OJHA OF THE MINISTRY OF INDUSTRY, COMMERCE, AND
SUPPLY, NEPAL CONCEDED TO INDIA’S DEMANDS. FOR THEIR
PART, INDIAN NEGOTIATORS AGREED TO SIMPLIFY DOCUMENT
REQUIREMENTS AND CUSTOMS CLEARANCE PROCEDURES.

NEPAL-INDIA MOTOR VEHICLE TRANSPORTATION TALKS
——————————————— –

ś6. NEPAL AND INDIA HELD SEPARATE BILATERAL
NEGOTIATIONS ON THE REGULATION OF TRANS-BORDER
MOVEMENT OF MOTOR VEHICLES (RTMMV), WHICH ALSO
GARNERED FEW RESULTS. THE NEGOTIATIONS FOCUSED ON
TWO AREAS OF CONCERN: PASSENGER TRANSPORTATION AND
CARGO TRANSPORTATION.

ś7. ACCORDING TO DR. MADAN BHATTARAI, MINISTRY OF
FOREIGN AFFAIRS JOINT SECRETARY FOR SOUTH ASIA, GON
REPRESENTATIVES OFFERED DIRECT BUS SERVICES TO 11
MAJOR NEPALI CITIES FOR INDIAN BUS OPERATORS.
HOWEVER, INDIA, CITING SECURITY CONCERNS, REPORTEDLY
STOOD FIRM IN BARRING DIRECT ACCESS FOR NEPALI
VEHICLES TO MAJOR CITIES LIKE DELHI, KOLKATA, AND
PATNA, LEADING NEPAL TO DENY ENTRY INTO KATHMANDU AND
POKHARA. IN TERMS OF CARGO TRANSPORTATION, INDIA
REQUESTED THE FREE PASSAGE OF CARGO VEHICLES WITHIN
NEPAL. NEPALI TRUCKING COMPANIES AND THEIR
ASSOCIATIONS EFFECTIVELY PRESSURED THE GON DENY THE
INDIAN REQUEST. NEPALI TRANSPORT COMPANIES FELT
THREATENED, AS CARGO COMING FROM INDIA AND INDIAN
PORTS WOULD NO LONGER REQUIRE TRANSFER TO NEPALI
CARRIERS AND NEPALI OPERATORS HAVE LITTLE CONFIDENCE
THEY WOULD RECEIVE RECIPROCAL TRANSIT RIGHTS IN
PRACTICE.

COMMENT
——-
ś8. OBSERVERS HERE ARE SKEPTICAL OF AN EARLY
RESOLUTION TO THE PROBLEMS RAISED DURING THE NIRA AND
RTMMV NEGOTIATIONS. INDIA’S NEGOTIATING TACTICS ON
NIRA LEVERAGE NEPAL’S DEPENDENCE ON INDIAN PORTS, AND
ITS LIABILITY TO THE WORLD BANK FOR THE CONTAINER
DEPOT. DUE TO THE OPEN BORDER, INDIA’S CROSS-BORDER
SECURITY CONCERNS DO NOT STAND UP TO SCRUTINY AND
APPEAR TO BE ANOTHER MEANS TO DEFLECT NEPAL’S
REQUESTS FOR RECIPROCAL COMMERCIAL BUS OPERATIONS.
IN WHAT APPEARS TO BE ANOTHER CALCULATED MOVE, INDIA
HAS TIED CONCESSIONS ON CARGO TRUCKS TO OPENING THE
CRITICAL ICD FACILITY TO RAIL TRAFFIC. THE
DIPLOMATIC MANEUVERING OVER THESE AGREEMENTS COMES AT
THE EXPENSE OF NEPALESE CONSUMERS AND EXPORTERS, WHO
FACE HIGHER COSTS. CONTINUED DELAY ONLY BENEFITS
INDIA, AS A MEANS OF PRESSURING NEPAL INTO MAKING
DEEPER CONCESSIONS.

MALINOWSKI