Nepal Climate Loans Violate 'Polluter Should Pay' Principle

Nepal Climate Loans Violate 'Polluter Should Pay' Principle

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Climate talks in Durban, South Africa are set to wrap up this weekend. While reports show that pariticpating nations have agreed to a massive fund to help poorer countries cope with climate-related issues, in Nepal protestors say a plan to offer loans in the form of Climate Investment Funds will drive one of the world's pooresrt countries deeper into debt, without addressing its climate needs.

KATHMANDU--Nepal will implement five projects with $110 million sanctioned by the controversial Climate Investment Funds (CIFs), ignoring protestors who say this least developed country merits grants rather than climate loans.

The money--$50 million in grants and $60 million in credit--will be disbursed through the Asian Development Bank, International Finance Corporation (IFC) and the World Bank through four years as the projects start early next year, Nepal’s environment secretary Krishna Gyawali said.

One of Eight Developing Countries

Nepal is among eight developing countries that were offered CIFs under either the Clean Technology Fund or the Strategic Climate Fund (SCF). Other potential CIF recipients were Bangladesh, Bolivia, Cambodia, Mozambique, Niger, Tajikistan and Zambia.

In May 2009, Nepal’s first Maoist government agreed to participate in the Pilot Programme for Climate Resilience (PPCR), developed under the SCF.

Besides the environment ministry, the nodal agency for implementing the projects, other stakeholders include relevant ministries, the National Planning Commission and the Federation of Nepalese Chambers of Commerce and Industry (FNCCI).

In 2010, a new government led by the communists identified four priority areas where the funds would be spent.

Building climate resilience of watersheds in mountain eco-regions is top priority. It will focus on communities living in watershed areas significantly vulnerable to climate change.

A second priority is responding to climate-related hazards through early warning systems, as well as developing insurance.

The other two components are mainstreaming climate risk management in development, and building climate-resilient communities through private-sector participation.

Later, at Nepal’s request, a fifth project was added to build the climate resilience of endangered species.

Climate Loans Add “Insult to Injury”

However, several nongovernmental organizations, trade unions, legislators from ruling parties and civil society members are campaigning against the climate loans, saying they add insult to injury.

"Developed countries must provide unconditional financial support on adaptation to countries vulnerable to climate change to build their resilience," said Keshab Thapa, program coordinator at Local Initiatives for Biodiversity, Research and Development.

Thapa said climate loans violate both the U.N. Framework Convention on Climate Change, where developed countries have committed adaptation support to vulnerable countries, as well as Nepal’s own policy on climate change, the National Adaptation Programme of Action (NAPA).

With NAPA requiring 80 percent of the funds of any adaptation program to flow directly to the community level, the PPCR in Nepal, Thapa said, violates the principle of country and community ownership.

He also objects to the private-sector participation component, to be effected through IFC and FNCCI.

"The PPCR proposes to lend money to private-sector companies which will never achieve community resilience," he told IPS. "Private companies are often happy to use the loan money for their own benefit, simply looking at the scheme of interest and repayment; they are often totally unaware of climate change, adaptation, resilience and the principle of equity and justice."

With Nepal being at medium risk of debt distress and spending eight percent revenue to repay foreign debts, protesters say climate loans will burden the taxpayer with additional debt.

"We petitioned two earlier prime ministers against taking climate loans and are following it up with the current one," said Hari Parajuli, secretary of the All-Nepal Peasants’ Federation, an umbrella of 22 organizations that has participated in public rallies against the PPCR.

"Nepal has one of the lowest greenhouse-gas emission levels in the world due to its low industrialization," Parajuli added. "It also has forests covering nearly 40 percent of its land. Yet, the developed countries that cause pollution are now seeking to make Nepal take loans and pay them interest."

Parajuli said the protests are also against the involvement of the World Bank.

"We don’t regard it positively," he said. "It is not service-oriented but works for profit."

Corruption Fuels Fears

The growing corruption charges against ministers and government officials have also fuelled fears about the climate loans.

"Past precedents make us fear that new loans may not be utilized properly," said Madan Lall Shrestha, an academician at the Nepal Academy of Science and Technology. "Before taking a new loan, the old ones should be reviewed first."

A parliamentary committee on finance and labor relations has also criticized the government, saying it should ask for grants, not loans.

"Climate loans go against the polluters-should-pay principle," said Sunil Pant, a legislator. Pant has been campaigning against climate loans in parliament and advocating the idea of a grant.

"Climate change cannot be mitigated by putting poor nations in deeper debt, especially when the problem is generated by the wealthy nations," he stated. "Rich countries emit huge amounts of carbon and then hypocritically impose debt and loans on the poor countries they take resources from, creating deeper poverty.

"We are calling on the wealthier nations to compensate Nepal and the rest of the world for the damage and environmental destruction they have caused that threatens us all."

The World Bank, one of the targets of public criticism, says it is merely the fund- disbursal instrument.

"Whether or how the available resources are used to address urgent financing and knowledge gaps is entirely up to Nepal," said Christine Kimes, the bank’s acting country manager for Nepal. "Concerns regarding climate financing in Nepal should therefore be discussed with the government," Kimes added.

As for the government, officials defend the decision to take the loan.

"The apex body on climate change, the Climate Change Council headed by the prime minister, approved of the funding, provided it was used on priority sectors like agriculture, biodiversity and renewable energy to enhance productivity," said Gyawali. "Besides, it is a remarkably concessional loan."

The $60 million loan has to be repaid in 40 years with a 10-year grace period. Also, Gyawali said, there is no interest, only a 0.10 percent service charge to be paid semi- annually.

But the protesters say they have not given up.

"Civil society organizations will closely monitor the use of the PPCR grant and loan," said Thapa. "They will also continue lobbying to prevent further climate loans."