The International Centre for Integrated Mountain Development (ICIMOD) published a report on a topic I have blogged about earlier this month: hydropower development. ICIMOD’s report, also published this month, is called “Benefit Sharing and Sustainable Hydropower: Lessons from Nepal.” In it, ICIMOD summarized their findings from data collected from 317 participants and identified five benefit sharing mechanisms for sharing the wealth of hydropower projects with local communities built:
- The royalty mechanism
- Equity investment: Local share offers in hydropower projects
- Support for local livelihoods: Employment and training
- Investment in community development and local infrastructure (including rural electrification and irrigation/water-related benefits)
- Environmental enhancement activities
Interesting report so far. After I finish reading it, I will post a more in-depth critique. For now, I have two quick observations.
I. “Free Shares”
It seems that no private investors were interviewed about their thoughts on benefit sharing. This is concerning because most of the investors that I talked to at the Nepal Power Investment Summit earlier this month did not seem very pleased with the prospect of offering “free shares” to anyone. It was a non-starter for many of them and it greatly limits their ability to finance large projects. The idea of selling the government shares did seem attractive. Once the government has a stake in a project, it is easier for them to support the project. It is not until a project is in operation that there are investment returns. The government would almost necessarily need to borrow money to buy shares. But it is easier to lend to government than others without a credit history and good returns will service the loans.
Other investors seemed resigned to make certain investments in community development and local infrastructure as a cost of business. One, already operating in Nepal, even said that they are happy to do so. Indeed, it already had delivered far more to its local communities and even increased the number of local communities reached by its efforts. But managing director noted the project company did this largely without the help of, and sometimes in spite of, local government support, or even security. Which leads me to my next point.
II. Local Elections (or the lack thereof)
I have not yet identified a section of the report deals with the possibility that the reason local communities tend to seek certain benefits from projects might be because of the almost complete lack of any (local or national) government presence in their communities and the two-decade absence of local elections that, if in place, would help foster government accountability. Part of the reason local communities demand things like access to healthcare, roads, or education from hydropower projects in their backyard is because their government is not providing for them. When a big project comes to town, many see it as their only chance of someone actually taking an interest in the survival of their community. For many, the only prospect for government interaction is with an unelected official in a faraway district headquarters that speaks in a different language than they do at home. Nepal has not held local elections in more than two decades and many local posts, especially in earthquake-affected areas, remain unfilled because the existing backlog of recovery work scares underpaid civil servants. This absence of government can place a huge burden on the hydropower projects who effectively become the local government. This might seem like a libertarian’s dream, but Nepal is far from a libertarian country (indeed, its ruling coalition are two communist parties with names like Marx, Lenin, and Mao in their name). Even once the local communities and project agree on a benefit-sharing arrangement, it is not difficult to wonder what happens to all the communities not blessed by presence of nearby rivers suitable for bankable hydropower projects. Some benefit sharing, or rather wealth redistribution, may be in order. That takes the steady hand of a government. And the kind of accountability that only local elections can offer. For locally elected official, elections are a good reminder of who is the boss is that is looking over their shoulder: the local people who can vote them gone.
As I continue to read ICIMOD’s report, I hope it addresses my concerns, but I am sure that others will arise in their place. A lot of things have to come together to make a hydropower project work. In Nepal, agreement on benefit sharing may be one of them.