Wednesday, August 16, 2006

Prakash A.Raj , Nepal

Nepal 's development budget has been heavily dependent upon bilateral and multilateral assistance for several years. There are also many INGO's working in Nepal which receive a considerable funding from foreign governments and also from non-government sources. It is believed that a large percentage of funds received never benefit the target groups or are spent for the purpose they were originally intended due to lack of integrity, transparency and accountability.

Accountability

The primary accountability for funds received in bilateral assistance is to the government or ultimately to the legislative bodies appropriating the funds for a specific purpose. On the other hand, such accountability in case of multilateral assistance is to the governing board consisting of countries providing such assistance. In case of INGOs the accountability will be to the Board of the INGO providing funds. As such funds are channeled for the most part through the Government of the recipient country, it is the major stakeholder but is often not considered accountable. There are also cases when funds in development co-operation are sent by non-government channels and sometimes in such a way that the government is not aware of such transfer. Some have already talked about shift in emphasis of donors no longer regarding the host state as sole representative of the people but also doing business with local bodies and civil society as well. There is ample scope of corruption in all of these transfers that may be called "development co-operation". Dr. Harka Gurung found that development aid has widened the scope for corruption in Nepal . As development co-operation is for such purpose as poverty reduction and overall development, the people of the country are also major stakeholders and the funds received should also be accountable to them. In other words, taxpayers of donor countries and elected representatives of beneficiaries could be considered the two major stakeholders if development co-operation were to be considered a "partnership".

Nepal did not have a Parliament since the dissolution of lower house, PratinidhiSabha in May 2002 on the recommendation of Prime Minister Deuba till restoration of the dissolved House on account of Jana Andolan-2 in April 2006. There was no body where the government would have to be accountable and where questions would be asked about the working of government including matters relating to budget and foreign assistance. The Constitution of 1990 requires that the Report of Auditor General, a constitutional body should be presented to the King who would send it to be presented to Parliament. As there was no Parliament for four years, this requirement has not been met and irregularities presented in the Auditor General's Report remained outside the scrutiny of People's elected representatives. Bishnu Bahadur KC, Auditor General of Nepal had opined " Nepal must be receiving something around 17 to 19 billion NRS annually as grants and only fifty percent of this is being accounted in the budget. Similarly, there is an annual flow of technical assistance of over Rs 10 billion in the country, which is totally out of the audit coverage. Compared to loans there is a total lack of transparency in grant money in the country". He adds- "I feel somewhat awkward to state that we do not know the actual position of expenditure made under grant money. In some cases, we even do not know how much we have received, who is spending the grant money, how it is spent, who is accountable for the management of grant money". K.C. has written that grant assistance outside the purview of Budget was more than the amount included in it. As technical assistance constitutes 40 percent of all aid, there was no practice of including it under audit preview of Supreme Audit Authority of Nepal. No information about audit done by other agencies is provided to his office, his office did not know the amount received and the amount sent under such assistance. Items included under Technical Assistance include advisory services, commodity, training and unallocated heads of expenditure. He added that the donors and authorities of recipient country claimed that TA was provided in the form of advisory services, commodity, and training there was no need to incorporate such expenditure in the national budget. Even in the case of loans where there is more transparency and accountability, there is often a requirement that a consultant has to be hired from the donor country and a contractor from a specific country has to be awarded contract. The former Auditor General of Nepal in a recent interaction organized by TI-Nepal mentioned that he was shown only 160 out of 310 Agreements signed.

One of the important bilateral donors, SDC (Swiss Development Corporation) policy against corruption envisages empowerment of such grassroots organizations such as VDCs and municipalities characterized by devolution of power. Elections for municipalities in Nepal took place in early 2006 after a period of six years but it was a futile exercise due to non-participation of major political parties. The country continues to remain without elected representatives at the local level to this day. After restoration of Parliament there were also demands for restoration of local bodies whose term had expired. However, Maoists opposed such restoration which was supported by some political parties of SPA (Seven Parties Alliance) including CPN(UML) that had received the largest number of seats in previous elections. Municipalities have their own resources as they can impose their own tax and can spend on their own. Resources directly received from foreign assistance to the municipalities and local bodies would have greater transparency and less corruption if there were to be elected bodies in such units.

Probable cases of corruption in Foreign Assistance

Multilateral

Marsyangdi Hydroelectric Project situated half way between Kathmandu and Pokhara has a capacity of producing 69 MW of power. It was started in 1982 and was completed in 1990. When the detailed feasibility survey was being carried out and global tender was called. However, it was reportedly awarded to a company on the condition that a local agent be appointed who would be paid a handsome commission. The surveyor hiked the cost of project considerably. Loan from the World Bank, Saudi Arabia , Kuwait and Germany were made available for this Project. Contractors from China and Japan agreed tunneling and powerhouse construction for $21.8 million but made a claim of $233 million on the grounds that more work had to be performed than what was stated in contract documents. However, the official report of project showed that actual expenses per item of work was less than the original estimates. Nepal was sued at an arbitration court and an out of court settlement of $69 million was reached and the contractors were paid three times the original deal. Perhaps some remote hands were pulling the strings.

Narayani Lift Irrigation Project envisaged irrigating land in Chitwan valley and a $12.5 million loan was received from Asian Development Bank. It was completed in 1989, a decade after its scheduled date of construction and cost twice the original amount estimated. The lift irrigation went out of operation after three years. It supplied water to fields when there is plenty of rain water available in Nepal . When energy bill for pumping water skyrocketed beyond the farmer's reach and the pump sets functioning during the Monsoon were spoiled due to high silt content which damaged machinery. It no longer pumps any water to benefit the farmers. It's possible that the people of Nepal are still paying principal and interest for this loan for a non-existing benefit.

Need to regulate INGO activities and impact of conflict

There is lack of effective government regulation on the activities of INGOS in Nepal . It is essential to have more transparency and to co-ordinate their activities with programs of Ministry of Finance. As many INGOs are working in districts of the country affected by the Maoists, many were asked to register with them and provide "tax" to them. Swiss Agency for Development Co-operation (SDC) threatened to close its operations as its development workers were being asked for "substantial financial contributions" by the Maoists. A Press Release sent to a Nepalese daily by AIN (Association of International NGOs representing 57 international organizations called upon the Maoists "to desist from their continuing harassment of INGOs and their staff with unacceptable requests for forced donations and required registration at the district level. Such illegal demands and efforts at extortion should not be permitted under any circumstances".

Remedy

An elected Parliament at the national level and an elected assembly for local governments is essential element for transparency and accountability, assuming that national and local governments were accountable to such bodies. There is now a national consensus for elections to constituent assembly (CA) that will frame a constitution for the country. Elections to some municipalities in the eastern Terai in early 2006 showed considerable participation in spite of boycott from major political parties and threat of the Maoists. This could have been a step towards having greater accountability and transparency at the local level. Since this is not the case at the present time, steps should be taken to ensure the election of constituent assembly and such bodies as VDCs municipalities. During the process of framing of new constitution by CA, steps should be taken to ensure that elections to local governments and local assemblies should not be dependent on political party in power at the center which should not have the power to dissolve it if it wanted. This will serve the cause of genuine autonomy and will ensure more transparency and less corruption.

The examples of probable corruption in two of the cases cited in this paper i.e. Marsyangdi Hydro Project and Chitwan Irrigation Project have been prevented? If there had been an effective Ombudsman's office and had performance audit been conducted and if had there been accountability on the part of both donors and recipients, it is possible that it could have been prevented.

Dr Devendra Raj Panday, former Chairman of TI has stated the huge technical assistance component in many projects and big remuneration and perks paid to expatriate and national experts has made it difficult to distinguish if consultants are made for projects or projects for consultants. He suggests that primary costs of projects could be achieved at much lower costs. He has also cautioned against extra-legal and extra budget payments to officials by donors for services rendered. In many projects, a considerable part of technical assistance is paid for CTA (Chief Technical Advisor) who is normally recruited from donor country. There should be more transparency regarding purchase of equipments and training. Dr Harka Gurung in a recent interaction on TI Nepal mentioned a CTA hired for a project in Nepal for High Altitude Pasture Development who was from coastal area in South India who had never been to such altitude.

One writer has written "in the context of corruption and punishment, Nepal conspicuously stands as a typical exception due to a culture it has inherited from the past". In the major donor countries providing assistance to Nepal , there is much less impunity in corruption cases. Dr. Harka Gurung has written "If Nepal today is enmeshed in aid-induced corruption, the host government is also party to it, by doing nothing". Some of recommendations made by Bishnu Bahadur KC, former Auditor General of Nepal should also be considered. These are as follows: a) all resources irrespective of whether they are internal and externally should only be used by sanction of Parliament b) all aid resources should be included in the budget and be utilized through the budgetary process and the entire foreign assistance without any exception should be brought under the framework of national budget. c) programs assisted by INGOs should be tied up with programs of line ministries and should be monitored by them. The annual audit report of Auditor General's Office for B.S.2062 found that some line ministries of the Government, NGOs and local bodies were entering into agreement with donor countries and INGOs without the knowledge of Ministry of Finance. It suggested that provision should be made for signing agreement with INGOs only with approval of Ministry of Finance and their activities should be linked with programs of concerned Ministries and monitoring and evaluation should be done by concerned Ministries and the Ministry of Finance. It is essential to make assistance provided by INGOs more transparent about their source, amount and intended beneficiaries. One of the measures that will ensure transparency is participation of all stakeholders in formulation, implementation and evaluation of projects.

It is also suggested that audit of all foreign aid should be made by Auditor General's office or jointly by Auditor General's Office and the Audit authorities of the donor countries. It is already being done regarding UNDP assistance in Nepal . It also suggested making a set of rules for selection of consultants, remuneration given to them and their responsibility and accountability. Development co-operation with such local bodies such as municipalities and VDC has not come under Auditor General's Office. Although Local Self Government Act of BS 2055 requires that such local government units as VDC, DDC and Municipalities should have their accounts audited and the audit report presented before District or Town Councils, this has not been done in practice. Development assistance is received directly for such bodies. Those bodies which don't comply with this requirement should be penalized regarding grants sent from the central government. Such assistance should be co-ordinated with Ministry of Local Development and Auditor General's Office. Provision for performance audit should also be made as far as possible in order to prevent leakage and to ensure the work done on such assisted projects. A criterion for providing grants to local bodies made on the basis of performance should increase healthy competition between them. There is also need for more co-ordination between line ministries on one hand and donors and concerned ministries on the other. There is reported to be periodic co-ordination meetings between donor countries after insurgency started affecting their activities. Unlike in the past, action should be taken against those who are guilty of corruption impunity should not be allowed.

Economic Survey published by the Government gives information about foreign grant and loan (bilateral and multilateral) disbursed via central government. According to one estimate it is only a third of total resources received. Some donors disburse considerable amount by their own embassies or via NGOs. Although it does not mean that all foreign assistance should be channeled via central government, it should receive information about such assistance. The benefits of reporting bilateral assistance as separate from multilateral assistance should also be considered. A situation when no unit of government such as Ministry of Finance, National Planning Commission or Auditor General's Office has full information about the total amount of foreign assistance received by the country including the amount spent, beneficiaries and retention inside the country has to be made more transparent. It is hoped that new constitution to be framed by CA will ensure greater transparency in this respect as Nepal is expected to receive large funds for post-conflict reconstruction.

(Paper presented in a meeting organized by Transparency International, Nepal )