US embassy cable - 03KATHMANDU1257

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 001257 
 
SIPDIS 
 
DEPT FOR SA/INS 
DEPT PLEASE ALSO PASS USTR - WTO ACCESSIONS/CKLEIN 
LONDON FOR POL - GURNEY 
NSC FOR MILLARD 
GENEVA FOR USTR 
 
E.O. 12958: DECL: 07/02/2013 
TAGS: PGOV, PREL, PTER, ETRD, EINV, NP, U.S-Nepali Relations 
SUBJECT: NEPAL:  AMBASSADOR'S MEETING WITH NEW FINANCE 
MINISTER 
 
REF: KATHMANDU 0902 
 
Classified By: AMB. MICHAEL E. MALINOWSKI.  REASON:  1.5 (B,D) 
 
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SUMMARY 
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1.  (C)  In a June 29 meeting with the Ambassador, Finance 
Minister Dr. Prakash Chandra Lohani said that the Government 
of Nepal (GON) is preparing for another round of negotiations 
with the Maoists and making some headway in persuading 
political parties to join the new government.  He said that 
while all parties may accept the need for social and 
political change in Nepal, questions remain about the exact 
nature of the change needed and how to manage it.  He 
welcomed USG proposals to provide technical assistance to the 
GON on WTO accession and undertook to look into the 
contractual dispute between a U.S. investor and the Nepal 
Electricity Authority.  End summary. 
 
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PEACE TALKS 
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2.  (U)  Accompanied by DCM Robert Boggs and newly arrived 
USAID Mission Director Donald Clark, on June 29 the 
Ambassador called on newly appointed Finance Minister Dr. 
Prakash Chandra Lohani.  Lohani, who received his MBA from 
Indiana University and his PhD. from UCLA, has also been 
named to head the Government of Nepal (GON) team to negotiate 
with the Maoists. 
 
3.  (C)  According to Lohani, the two-man GON team has 
already held two quiet, informal meetings with Maoist 
representatives outside the glare of the media.  He remarked 
that the Maoists recently have been "fairly aggressive" in 
their claims that the GON is backtracking on commitments--for 
example, the 5-km restriction for the Army (Ref A)--allegedly 
made by the former GON team during the two previous rounds of 
dialogue.  Since there was no written record kept of either 
round, reconstructing what was said has been difficult, 
Lohani said.  The new team has met with former GON 
negotiators Ramesh Nath Pandey and Narayan Singh Pun, 
however, and has concluded that the GON did not agree to the 
5-km restriction. 
 
4.  (C)  Before embarking on a third round of dialogue, the 
GON is in the process of working out basic, non-negotiable 
long-term goals, Lohani said, which thus far include the 
integrity of the nation, progressive social change, and 
"saving the nation from plunging into further chaos."  In 
their discussions with the Maoists, the GON team has proposed 
putting aside the controversy about the 5-km restriction for 
now, to which the Maoists provisionally agreed, Lohani 
reported.  Maoist distrust of the GON persists, however, 
Lohani observed, adding that the insurgents fear that "we're 
trying to outwit them."  At the same time, the security 
forces worry that the Maoists may be planning to break off 
negotiations with a series of devastating surprise attacks as 
they did in November 2001.  Despite this mutual mistrust, 
Lohani described himself as "cautiously optimistic" about the 
peace process, but added that he remains worried by Maoist 
activism--specifically, continued extortion, conscription and 
training--during the ceasefire. 
 
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GON SEEKS PARTY PARTICIPATION FROM 
"INSTITUTIONS," NOT "INDIVIDUALS" 
------------------------------------ 
 
5.  (C) Lohani said the two-man GON negotiating team had been 
kept small to allow room for representatives from other 
political parties, should they decide to join the government. 
 The GON wants all the political parties to work together in 
order to make elections possible, he asserted.  While 
second-rank leaders seem more flexible about compromise than 
their leadership, the GON has given up the idea of trying to 
"break people out" of party ranks to join the Cabinet, he 
said.  The GON now realizes that persuading individuals, 
rather than the institutions themselves, to join a Cabinet is 
neither productive nor desirable. 
6.  (C)  The GON is gradually making progress toward this 
goal, Lohani reported.  The parties are beginning to realize 
that their street protests are not working and that only the 
Maoists are benefiting from the poisonous political 
atmosphere.  "Our arguments are having an effect," he 
asserted.  The incestuous nature of Nepali domestic politics 
helps in this regard, he observed.  Since "everyone is 
related to everyone else" and Kathmandu is so small, rival 
politicians still have ample opportunity to meet socially and 
discuss otherwise sensitive matters amicably. 
 
7.  (C)  He indicated that there is a certain amount of 
hypocrisy among the parties as well.  Even though politicians 
"talk a good game" about democratic ideals, as soon as they 
get into power they immediately abandon this idealism and 
insist on conformity with the party line. Nepali political 
parties use democracy more as a campaign slogan than as an 
operating principle, he charged.  While all parties accept 
the idea that the Nepali political system is "too centralized 
and feudal," there remains substantial debate about how best 
to reform it.  Although the current system is unsatisfactory, 
the Westminster system is "too formal for us."  Most 
mainstream politicians seem to agree tht basic change to the 
political system is needed, but disagree about the degree of 
change needed, as well as how to manage and channel such 
reform, he concluded. 
 
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TRADE AND INVESTMENT 
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8.  (SBU) The Ambassador underscored USG support for Nepal's 
attempts to accede to WTO, but noted that substantial 
progress still must be made before accession is likely.  The 
USG has offered the GON technical assistance on both customs 
valuation and sanitary and phytosanitary measures but has yet 
to receive the written requests needed before such aid can be 
initiated.  Lohani promised to ensure that the necessary 
request letters are sent soon.  The Ambassador also asked for 
Lohani's assistance in helping to resolve the outstanding 
contractual dispute between the Nepal Electricity Authority 
(NEA) and the Bhote Koshi Power Company, in which the U.S. 
company Panda holds a majority share.  (Note:  As Finance 
Minister, Lohani sits on the NEA Board of Directors.  End 
note.)  Some progress toward resolving the dispute amicably 
had been made at the behest of former Water Resources 
Minister Deepak Gyawali, the Ambassador said, but since the 
June 4 Cabinet change the efforts seem to have stalled. 
Lohani undertook to give his attention to the matter.  Lohani 
also promised to waive the customs duty on ten electric 
vehicles produced by REVA, an Indian/US joint venture. 
 
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COMMENT 
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9.  (C) Lohani is a thoughtful and engaging interlocutor who 
is friendly toward the U.S.  We welcome his observation that 
attempting to lure away individual second-tier leaders from 
the recalcitrant parties could backfire.  Sources in contact 
with the Maoists report their suspicion that the new 
government and negotiating team will attempt to revisit 
concessions already made--or purportedly made--by the 
previous GON team.  Whether or not GON negotiators made the 
5-km concession as the Maoists claim, we believe that 
controversial issue should be walked back. 
 
MALINOWSKI