With China taking greater interest in the internal politics of Nepal and funding several projects in the country, all eyes in the neighbourhood are on the Himalayan nation. However, as most of the projects awarded to Chinese firms lie in limbo and mired in cost-overrun, it is time that Kathmandu pauses to evaluate its engagement with the dragon Nestled in between two gigantic neighbours—India and China—Nepal has often found itself mired in situations when it has to juggle the primacy it places on its ties with the two nations. The Himalayan nation’s allegiance to either an assertive New Delhi and an imperial Beijing has shifted back and forth over the years depending on the powers that be. There is much talk lately about China and its funding to infrastructure projects that would ostensibly bring prosperity to Nepal. A new narrative spun by sections of Nepalese society and political class says that the renewed Chinese support would reduce Nepal’s dependence on its southern neighbour, India. This narrative received an increased impetus subsequent to Madhesi blockade in 2015 against the newly promulgated Constitution that was perceived to be non-inclusive and anti-federalism. The protest movement was projected as India-sponsored ‘economic blockade’ by a section of Nepalese media holding anti-India views and also the then ruling political party, Communist Party of Nepal, (CPN (UML). The attempts thereafter have been to cosy-up to China to attract investments and provide them as much space as they want in Nepalese economy, society and also polity. But one must pause to see the direction the Nepalese are headed in? Are these efforts to seek investment from China actually resulting in robust infrastructure in Nepal, except few cosmetic changes here and there? All major China-supported projects in the Himalayan nation are mired in cost overrun, delayed implementation and compromise on quality, like the West Seti, the Kulekhani 3 and the Budhigandaki hydropower projects. Various projects taken over by Chinese companies continue to remain incomplete as neither the agreed terms and conditions were honoured by the Chinese nor the time schedule on which they were supposed to be completed. A study of the actual on-the-ground situation in each of the five mega infrastructure projects funded by the Chinese is highly revelatory. It was not only the norms of awarding a project to a foreign entity that were flouted in favour of China but also major compromises were made in the process. Nepal’s impatience to grab Chinese investments has been fully exploited by China, which has been trying to wean them away from India’s sphere of influence like a pied piper. Take the example of West Seti hydropower project which was awarded to a sub-group of China, Three Gorges International Corporation (CTGC), in 2012 without any international bidding. The plan was to create a 750MW power generation unit but the project did not see any progress till 2016. Last year, after the Nepalese government threatened to scrap the deal, CTGC signed a framework agreement with Nepal Electricity Authority in January 2017 but the project still hangs in limbo because the agreement is yet to be ratified. The original idea of the project was to export the electricity generated from the plant to India. However, at the behest of China, Nepal eliminated that clause and inserted one which said that the electricity will be consumed domestically. It was not only the norms of awarding a project to a foreign entity that were flouted in favour of China but also major compromises were made in the process. Nepal’s impatience to grab Chinese investments has been fully exploited by China Another instance of delayed implementation relates to Kulekhani 3 hydropower project which has missed its fourth revised completion deadline set for July 2017. It was awarded to awarded to Chinese companies Zhejiang Jiahi and Sino Hydro in 2008 and was scheduled to be completed in 2012. The project faced not only time overruns but also cost escalation due to delays. The Initial estimated cost which was NR 2.43 billion is now doubled to NR 4.22 billion. The inordinate delay in the completion of the project prompted the National Planning Commission of Nepal to declare Kulekhani 3 a “troubled hydropower project.” The fate of Gautam Buddha Airport upgradation project, awarded to North West Civil Aviation Airport Construction Group of China in 2014, appears to be steeped in uncertainty just like the others. The airport infrastructure was to be improved as part of Nepal’s national pride project so that it could function as an international airport to serve the fast-rising business and industrial hub of Bhairahawa and facilitate international pilgrimage tourism to Lumbini, the birthplace of the Buddha. The upgradation work which was to be completed by December 2017 is now revised to be finished by 2019. Nepalese authorities have attributed slow progress on the project to very low bidding price and the weak cash flow situation in the Chinese company which grabbed the tender. Exasperated at the lack of desired progress, the Civil Aviation Authority of Nepal is contemplating measures to terminate the contract of the Chinese firm. They have also hired international contract management experts to resume the upgradation work at the airport. After remaining mired in troubled relating to funding problems, Pokhara Regional International Airport witnessed some progress in August 2017 when the Chinese company, which was awarded the contract, started the construction work. The project, which was formulated at the cost of NR 22 billion, will be financed by China’s Export and Import Bank under a loan agreement with Nepal government. The airport, which was to be ready by July 2020, is now planned to be completed by July 2021 on paper at least. Whether it will happen or not remains to be seen. Likewise, Solar Power Project has run into controversy with the PAC directing the government to scrap the contract awarded to a Chinese company. The committee contended that the decision was against procurement law. On May 16, China’s Risen Co Energy Limited had bagged the contract from the Nepal Electricity Authority (NEA) management at the price of approximately NR 3.88 billion, despite the fact that the bidder ranked fourth in the financial proposal. An English daily in Nepal quoted PAC chairman Dor Prasad Upadhyaya as saying, “There (were) other bidders with equally good technical qualifications as that of the selected bidder, but the contract was given to this company in a premeditated way.” The committee has now asked the authorities to start a fresh tender to install solar power plants in the premises of Kulekhani reservoir in Makwanpur district and Devighat Hydropower Project in Nuwakot district. The project is already one and a half year behind its schedule and the NEA has stated that it could be abandoned if the World Bank decides to withdraw from financing due to overrun. The Budhi Gandaki hydropower project, awarded in June 2017 to China Gezhouba Group Corporation without any international bidding, has also run into troubles. A joint meeting of the parliament’s Agriculture and Water Resources Committee (AWRC) and Finance Committee has instructed the government to scrap the contract awarded to the Chinese firm to build the 1,200-megawatt hydroelectric project because the tender was awarded without bidding in violation of the Public Procurement Act. An English daily quoted Prakash Jwala, chairperson of the Finance Committee, as saying that the government made a blunder by awarding the project to a firm whose track record has been abysmal. He had said, “This project was handed over to a controversial Chinese company whose track record is so bad in Nepal by flouting various laws like Public Procurement Act. The intention behind selecting this Chinese firm is only to hold the project. How can a company, which could not build even a 30-megawatt project (Chameliya), build such a mega project?” Opposition to the project has also come up from political parties citing provisions in the Nepalese Constitution which ensures compulsory local investment in the development of natural resources. Experts are of the view that if the Chinese company proceeds with the development of the project, the cost is bound to inflate. Taking into account this viewpoint, the PAC of Nepal has summoned the concerned government officials involved in the deal. Opposition to the project has also come up from political parties citing provisions in the Nepalese Constitution which ensures compulsory local investment in the development of natural resources After the two-month-long standoff with India in Doklam plateau, China has accelerated its engagement with Nepal. The country’s foreign minister Wang Yi has promised to take the ties between Kathmandu and Beijing to a new level and the sentiment got a major boost when Nepal’s deputy prime minister Krishna Bahadur Mahara visited Beijing in September first week and met several high-level officials, including Premier Li Keqiang. To show that China approved of Nepal’s neutral stand during the Doklam standoff, Li had also said, “China is ready to provide support within its due capacity toNepal’s economic and social development.” Because of the growing bonhomie between the two nations, quite obviously, the developments in Nepal are being watched keenly by the neighbourhood. With the Left parties coming together to form a pre-poll alliance in October first week, the rumour mill is churning various kinds of news as to how the tieup will impact India and China. While some experts allege India’s role in forging the alliance, others claim that the tieup had received Beijing’s nod. The opinion is divided over how it will benefit or harm India’s interests. Considering that New Delhi has had its share of troubles with the CPN (UML) chief K.P. Sharma Oli in the past, a unity government under Oli’s leadership will be in Beijing’s favour. However, Nepal needs to tread the ground carefully. While seeking closeness to and investments from Beijing, Nepal will have to seek answers to a few questions: Why is China interested in Nepal? By helping Nepal, is Beijing serving its own nationalistic interests? Could the funds coming in from China land Nepal in a debt trap like Sri Lanka (which was forced to lease its Hambantota port to China for 99 years in order to pay back the debt)? Nepalese must ask themselves what are the commonalities between China and Nepal, in terms of religion, language, food, dress, culture and identity? China, as of now, is like a new toy being held in high esteem. Once its glitter is gone and it shows its true nature, it might be too late for Nepal.  

The tranche of documents uncovered recently has not only brought several stalwarts of Indian politics, cinema industry, and business tycoons under scanner but has also thrown up pertinent questions over the moral dilemmas of avoiding tax

The paradise in the Paradise Papers refers to tax havens of low or even no taxation. Such havens usually are shadowy and sleazy little countries and principalities such as the Cayman Islands, Lichtenstein and Monaco, and sometimes entities within countries like Jersey, Guernsey, Bermuda in the UK and Delaware and Puerto Rico in the USA. Then there are low taxation countries like Switzerland, Singapore and Dubai that assure secretive rich people of their privacy. 

Essentially a tax haven exists to cheat sovereign states of their lawful incomes. The Tax Justice Network campaign group estimates that corporate tax avoidance costs governments $500bn a year, while personal tax avoidance costs $200bn a year. This in effect means that anywhere between $20-30 trillion of business transactions are sheltered from taxations. Moody’s estimated that in 2016 giant American technology companies such as Google, Microsoft and Apple were hoarding about $1.84 trillion cash in offshore havens. Clearly they are avoiding tax and as bending the rules of the tax system is not illegal unlike tax evasion; they are operating within the letter, but perhaps not the spirit, of the law.

In the early 1980’s, shaken up by the number of scandals in Wall Street, and by the number of its MBA graduates who were found wanting in ethical and moral values, the Harvard Business School made a course on “Leadership and Corporate Accountability” a core requirement. I am sure Jayant Sinha, a Harvard MBA, had to do this course and would have scored a high grade in it. Such courses now are in the core curriculum of the business schools attended by the other two young politicians also named in the Paradise Papers or capers if you will. Sachin Pilot graduated from the famous Wharton School of Business and Karti Chidambaram took his business masters from Texas and a law degree from Cambridge to boot.

Doing the required ethics course is one thing but it is quite something else to be able to resolve moral dilemmas of what John Kenneth Galbraith described as the “HBS’s ethical view of capitalism which derives straight out of the Protestant ethic and its transformational view of money, in which the ability to accumulate wealth is a reflection of one’s character.”

The charge against Jayant Sinha is that while acting as an Omidyar Network representative was on the board of a California company that made a loan to that company’s Cayman subsidiary. Usually such a loan to such a subsidiary suggests a fiddle. Whether Sinha knew this or did not know it is something else? Clearly the evidence does not suggest any malfeasance. But clearly there is room for skepticism. 

Omidyar Network proclaims its belief: “Just as eBay created the opportunity for millions of people to start their own businesses, we believe market forces can be a potent driver for positive social change.” Grand words but that hardly conceals the true goal that is to make bucks, sometimes fast ones too.  Again as Galbraith put it: “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”

Jayant, then fresh out of one of the IIT’s, worked with me way back in the mid 1980’s on a paper that proposed the mass construction of smokeless challahs for rural homes as a profitable employment for hundreds of thousands of rural workers. I remember it as a bit of an elaborate scheme that also computed the savings due to improved health results. It was published in this newspaper and the then Prime Minister Rajiv Gandhi took note of it. I was impressed enough to write a recommendation when he applied for a Masters in Energy Management at Pennsylvania. 

I next met him when I was serving as his fathers Advisor in the Finance Ministry. Jayant and his wife were both working with foreign companies investing in Indian stocks. He was apprehensive about a proposal made by me to disinvest PSU stocks by selling them to the governments banks for onward restructure and disinvestment. The minister had clearly spoken to him. At that time too I wondered if the HBS’s core business ethics course would have seen conflict of interest issues in it? The minister however had plenty of flex in him.

To my mind tax avoidance is just as reprehensible as tax evasion. Sinha was too junior in the Finance Ministry to have expressed views on this. It would have been unlikely though for that is not the HBS way. The previous Finance Minister, himself a Harvard MBA, would not have any left footprints for young Sinha to tread on. Neither would the present lawyer Finance Minister. 

 

Once at the helm of opposing China, the Manch finds itself using China as an example to keep the WTO at bay, will the government listen?

At an event held in the national capital, the Swadeshi Jagran Manch, an affiliate of the Rashtriya Swayamsewak Sangh, has urged the Government of India to not let up, and continue to apply pressure on the World Trade Organisation (WTO) till the international organisation accepts their demand to eliminate the subsidies-related Aggregate Measurement of Support (AMS) from negotiations – a stand that they have long maintained. The organization believes that the implementation of the AMS will be detrimental to the Indian farmers. They want the government to push for a permanent solution on development subsidies and public stockpiling of food (for the Public Distribution System) in the forthcoming 11th ministerial conference in Buenos Aeries on December 10 and 13.

Many developing countries have grave misgivings over AMS or what is commonly called the 'Amber Box'. Earlier this year, India and China jointly submitted a proposal to the WTO that demands the removal of the unequal policy. The countries claim that the 'Amber box' has now become a prerequisite for the consideration of any other reforms in domestic support of agriculture and should not be so. In the joint submitted proposal, they call these types of deals ‘trade-distorting’ deals, “The joint paper reveals that developed countries, including the US, the EU and Canada, have been consistently providing trade-distorting subsidies to their farmers at levels much higher than the ceiling applicable to developing countries. Developed countries have more than 90% of global AMS entitlements amounting to nearly US$ 160 bn. Most of the developing countries, including India and China, do not have AMS entitlements.”

Participants at the event urged SS Ahluwalia, Minister of State, Drinking Water and Sanitation, to ensure that India must counter the efforts of countries in the European Union, US and Canada to divide the 100-odd developing countries and Least Developed Countries (LDCs) on the issue. According to SJM National Convener, Ashwini Mahajan, instead of pushing of a temporary Peace Clause, India should instead push for a permanent solution and the demand for exemption of these subsidies should be pressed. The day-long deliberation was attended by trade experts and civil society members.

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US, the EU and Canada, have been consistently providing trade-distorting subsidies to their farmers at levels much higher than the ceiling applicable to developing countries.

Asserting that every country has the right to adopt special measures to curb sudden surges in the supply of agriculture produce by increasing import tariffs, the SJM said India should negotiate for the Special Safeguard Mechanism in this regard.

On the proposal to bring rules on Fisheries subsidies, the meeting expressed concern about the attempt to allow developed countries to continue with their subsidies while banning subsidies by developing countries for small-scale, traditional fishing. The organisation also opposed the proposal for investment facilitation which it said might end up in 'commitments from India on investor protection and market access’. It said that India should tread carefully on the issue of freeing e-commerce from regulation as it was a “complex and unknown area’’ which might restrict the government’s ability to regulate giant, multi-national e-commerce companies. “India should not allow the WTO to decide on regulatory rules shaping key policies on health, labour, trade, industry, agriculture, and finance. Losing all tariff revenue on e-commerce, as well as regulatory control over imports is unthinkable for a country like India.’’

The SJM also warned the government against succumbing to pressure on e-Commerce being pushed in trade negotiations in the Regional Comprehensive Economic Partnership (RCEP) and said that it will impact retailers and custom duty revenues.

Giving the example of China, it said the neighbouring country was pushing the interests of a wholesale manufacturer and supplier of Chinese goods, which seeks duty-free access using the e-commerce route.

With Inputs from United News of India