US embassy cable - 03KATHMANDU261

UNCLAS SECTION 01 OF 02 KATHMANDU 000261 
 
SIPDIS 
 
DEPT FOR SA/INS/DCAMP 
PLEASE PASS TO USAID/ANE/SA 
 
E.O. 12958: N/A 
TAGS: PGOV, ECON, NP, Government of Nepal (GON) 
SUBJECT: NEPAL'S INTERIM GOVERNMENT MOVES REFORM FORWARD 
 
REF: A. A. KATHMANDU 25 
     B. B. 2002 KATHMANDU 2467 
     C. C. KATHMANDU 80 
 
Summary 
======= 
 
1.  In the four months of its existence, Nepal's interim 
government has begun important reforms to control corruption, 
decentralize some government services, privatize ailing 
industries, and improve accountability.  Although much 
remains to be done, including establishing services in 
conflict-affected areas of the country, these signs of 
progress are encouraging indicators of improved governance in 
certain key areas.  End Summary. 
 
Interim Government Presses Reform Agenda 
======================================== 
 
2.  When King Gyanendra appointed Lokendra Bahadur Chand as 
Prime Minister, he specifically charged the PM with improving 
governance in Nepal.  In the intervening four months, the 
interim government has begun to meet the challenge and has 
initiated reforms in government services with measurable 
success in some areas and potential for long-term 
improvements in others.  In recognition of the government's 
reform efforts, the World Bank doubled Nepal's annual lending 
profile from low-case (eligible for USD 50 million in new 
loans) to base-case (eligible for USD 100 million in new 
loans) (Ref. A).  The following provides an overview of 
several of the reforms that address long-held barriers to 
good governance in Nepal. 
 
Anti-Corruption Drive 
===================== 
 
3.  Amendments to the constitution that were passed by the 
previous government strengthening the central anti-corruption 
agency, the Commission for the Investigation of the Abuse of 
Authority (CIAA), have resulted under the interim government 
in high-profile arrests and investigations. Most notably, the 
CIAA charged two of the most powerful ministers in the former 
government with steering contracts to political allies and 
amassing wealth beyond their means(Ref B).  A third former 
minister remains under investigation.  In an effort to root 
out petty corruption, the Judicial Investigation of Property 
Commission (JIPC) is evaluating the property and incomes of 
83,000 current government officials (appointees, civil 
service, police, and military) and will deliver its results 
in May 2003.  The results of JIPC's investigation likely will 
result in another series of arrests by the CIAA.  Surveys of 
corruption in Nepal have insufficient data to evaluate the 
impact of the Government's efforts thus far (Ref C). 
However, business contacts have commented repeatedly on the 
decline of bribe requests. 
 
Government Service Decentralization 
=================================== 
 
4.  Schools.  Nepali parents, especially in remote locations, 
have long complained of chronic absenteeism on the part of 
teachers assigned to these less desirable school districts. 
The Ministry of Education is moving forward with devolving 
26,000 public schools to local management by 2007.  School 
management will be undertaken by local School Management 
Committees, a body of parents and teachers, which will have 
the authority to hire/fire teachers, direct school funds, and 
hold public school officials accountable.  The Ministry in 
Kathmandu will be limited to curriculum planning, teacher 
training, and monitoring.  Local publication of the school's 
budget is also under discussion. 
 
5.  Health.  Similar to school reform, rural health 
infrastructure will be turned over to Village and District 
Development Committees to make service providers responsive 
to the needs of the communities in which they serve.  The 
local committees will monitor whether the health employees 
work at the health posts on their assigned days, and whether 
the requisite medical supplies are kept in inventory (rather 
than being sold on the black market).  Also under Government 
consideration are plans from the Health Ministry to develop 
mobile health teams to serve people in Maoist-controlled 
areas. 
 
6.  Energy.  To combat theft and low collection rates and 
improve service delivery, the Nepal Electricity Authority 
established eighteen electricity distribution centers across 
the country.  Currently, 24 percent of Nepal's energy is lost 
to pilferage, costing the Government millions of dollars 
annually and driving up electricity rates.  The establishment 
of these semi-autonomous units eliminates layers of 
bureaucratic control held by Kathmandu, which will now 
monitor performance indicators and focus on infrastructure 
planning. 
 
Privatization 
============= 
 
7.  In January, the Government of Nepal sold the 
government-owned Butwal Power Company (BPC) to a 
Norwegian-Nepali joint venture for USD 12 million in what is 
hailed in Nepal as its most successful privatization effort. 
BPC runs two hydro-electric projects, producing 17.1 
megawatts, and holds 15 percent of the 60 megawatt Khimti 
hydro-project.  The privatization effort had been bogged down 
in bureaucratic limbo for four years, amid charges that 
vested interests--in the shape of a powerful local 
businssman--impeded the sale.  The sale should strengthen 
foreign investor confidence in Nepal and demonstrates the 
Government's commitment to privatize sensitive infrastructure 
holdings.  The sale of BPC is the first clear success in 
Nepal's history of privatization and should serve to 
encourage similar efforts. 
 
Improvements in Government Service Accountability 
============================================= ==== 
 
8.  In November 2002, the interim Cabinet established a 
National Vigilance Center to assist in corruption control and 
improve delivery of government services.  One of the Center's 
first acts was to require the posting of fees and procedures 
at government offices to dissuade civil servants from taking 
advantage of their customers.  Offices were also to post the 
contact information for the Center in an effort hold them 
accountable.  No information on the success of this endeavor 
has yet been officially reported.  However, anecdotes from 
users indicate a responsive approach to phoned complaints and 
prompt written replies to the complainant.  In one case, a 
foreign businessman operating in rural Nepal complained of 
mistreatment at the hands of the Royal Nepal Army.  Within 
three weeks of filing his complaint, he had a written apology 
from the Secretary at the Ministry of Defense and a personal 
apology from the regional military commander.  More examples 
will be required to call the National Vigilance Center a 
success. 
 
Comment 
======= 
 
9.  The lack of political stability since the restoration of 
democracy in 1990, as reflected in the rapid succession of 
thirteen governments in as many years, has admittedly been 
the single greatest impediment to greater progress on several 
fronts critical to Nepal's socio-economic development.  That 
said, the four-mounth old government has made an encouraging 
start.  Nepalis cite corruption as the principal source of 
their disenchantment with successive democratic governments 
since 1990.  That the interim government is attacking the 
problem with vigor--especially by focusing on high-profile, 
influential individuals long believed to be above the 
law--will be an important step toward restoring public 
confidence.  Despite political opposition, Maoist violence, 
and waivering international support, the interim Government 
has made some progress toward delivering good governance. 
Much remains to be done to broaden the reform drive and 
deepen the efforts already begun.  Ultimately, the interim 
Cabinet's progress must be measured by the provision or 
restoration of services to Nepal's conflict areas. 
MALINOWSKI