China Set to Finance Controversial Nepal Dam

by Yuki Tanabe
Saturday, September 1, 2007

It has been 12 years since the World Bank dropped its support for the massive and costly Arun III Hydroelectric Project in Nepal in response to local and international criticism. Today, Indian companies are bidding to construct Arun III and the Asian Development Bank and Chinese fi nancial institutions are considering fi nancing an even larger dam project on the Seti River in western Nepal that, like the ill-fated Arun project, brings few benefi ts to local people and exports all the power to India.

The US$1.2 billion West Seti Hydroelectric project is being planned and built by the Australian Snowy Mountain Engineering Corporation (SMEC), funded by Chinese banks, and its electricity transferred to India. Nepal will receive just 10% of the project’s revenues in exchange for displacing more than 12,000 farmers (the most for any hydropower dam in Nepal) and bearing the project’s environmental destruction.

The West Seti project is symptomatic of the current trend in hydropower development in Nepal. China and India are calling the shots: they provide the money and they import the generated electricity. In July, a Chinese government delegation visited Nepal and announced its willingness to invest in the nation’s hydropower sector. The Chinese delegation immediately offered loans for the 60MW Upper Trishuli hydropower project in Nuwakot district. In April, Nepalese newspapers announced that it was very likely that Indian companies would get the contracts for the 400 MW Arun III and the 300 MW Upper Karnali projects.

Leaving local people out

When I visited the affected area in July, many affected people expressed concerns regarding the West Seti project. Local people are worried about their upcoming losses and are unsure how the company will resolve them. The project’s resettlement plan is yet to be disclosed to the local community, despite the fact that the company says it intends to begin construction as early as November. The West Seti Concern Group, a committee of affected people, has written to Haruhiko Kuroda, the President of the Asian Development Bank, requesting the ADB reconsider its financing for the project.

According to the Environmental Impact Assessment (EIA), four public hearings and many informal meetings with local people were held during project preparation. However, there has been no public hearing in the submerged area, and the public hearings participants’ list reveal that most participants came from non-submerged areas. In addition to the public hearings, there have been many informal meetings, but these did not provide opportunities for affected people to raise their concerns or participate meaningfully. People also told me that the only information disseminated by the company was short information sheets, and that SMEC rejected a request to make detailed information on the project’s environmental issues available. In fact, when I visited the affected area, nobody had seen drafts of the EIA or the resettlement plan.

According to the EIA, more than 12,000 people will be displaced to Terai in southern Nepal. Terai is significantly less rich in natural resources than the submerged area, and livelihoods in the area where the resettlement sites will be built are significantly different from those in the submerged area. On my field trip, I walked in a mountain area for five days, and found many types of natural products being used by local people. Affected people are likely to lose many natural products such as edible wild plants and fruits, and will find it difficult to maintain their livelihoods. Moreover, resettlement lands in Terai are widely dispersed, resulting in the existing communities being broken up geographically.

One old man from the area to be submerged told me, “I don’t want to move. The company will give us some money for compensation, but they won’t give us a place with nature and climate like here.”

The West Seti project is just the first of a flood of proposed hydropower projects for exporting Nepal’s “water wealth” to neighboring countries. The Nepali government earlier this year opened bids for the Arun III, the Upper Karnali and the Budhi Gandaki large dam projects, and happily announced that it had received interest in these projects from both India and China. The policy of reducing the barriers to private-sector investment in the energy sector is not geared toward increasing modern energy services in Nepal, where just a third of the population has electricity in their homes. While Delhi and Beijing are starting to exploit Nepalese water resources to feed their power-hungry industries and megacities, millions of Nepalese will continue to cook their meals over a smoky three-stone fire in poorly lit and ventilated kitchens, spending an hour or more each day collecting firewood