Reforming Investments by Local Government in Nepal

The government of Nepal has shifted investment towards environment friendly infrastructures development, increasing revenues without compromising environmental integrity of natural resources and green economy taking into account to climate proof infrastructures and adaptation activities. Context Since the early 1990s, when resources and authority began to be channeled through local government bodies, the use of heavy equipment for road construction such as bulldozers and excavators started to increase. Furthermore, the desire to establish road connections quickly also resulted in the increased use of unsustainable road construction approaches and methods. Development of road network is a consensus priority at local levels, which has expedited with promulgation of LSGA (1999). Nearly 40 Mill US$ is spent annually on rural roads and every VDC spends nearly 1 mill NRs annually. Sand, gravel and Stones (SG&S) are a new-found source of revenue for many local governments (District Development Committees/Village Development Committees and Municipalities) after the promulgation of Local Self-Governance Act (LSGA 1999) and Local Self-Governance Regulations (LSGR 2000). Through LSGA and LSGR, local bodies have been given important rights to tax sell and regulate SG&S exports, the revenues from which are expected to help finance poverty reduction and inclusive/participatory local development Nepal has an abundance of SG&S resources which, if utilized judiciously, could help to shape Nepal's development and affluence. However, a balanced outlook on Nepal's SG&S sub-sector seems to be lacking. There are two extreme outlooks – one group trying to accumulate wealth at the cost of the environment and the other group opting to keep the resources intact and untouched. It is estimated that, Nepal government collects revenue from tax about Rs.1072 million per year. The annual value of environmental losses due to SG&S extraction, processing and transport estimated is Rs.206 million, or about 19 percent of the revenue generated. The situation has now improved after the Ministry of Federal Affairs and Local Development has made mandatory to local bodies that they should prepare the IEE/EIA studies of the Source Rivers and formulate environment management plans based on IEE/EIA findings. In many districts, only taxes from the transport of SG&S is being collected at road toll points, but actual extraction of the resource from the river bed or terrace is free. In fact, the SG&S resources need to be priced in all districts and this will be one avenue for increasing the revenue of the districts from SG&S. Government is in line with introducing a resource pricing system at least for control in resource extraction technology and amount, which could be nominal to start with, in order not to distort the competitiveness in the export market. Moreover, the financial and economic analysis shows that the SG&S trade, both domestic and export, is highly remunerative and a small extra resource pricing will not reduce the profitability and competitiveness to a considerable extent. At least Rs. 1.6 million in additional revenues per district can be raised by charging Rs.0.50 per cu.ft as the price of the resource. For resource pricing, initiation will be taken to adopt a system of extraction permits for each extraction zone (location), identified and recommended by the respective district IEE/EIA reports. Rural road construction will continue to be a priority at the local levels in future. It was revealed that heavy equipment based construction have started to substitute the traditional labor based and green road construction technologies in Nepal. Both technologies have their respective plus and minus points. Labor based technologies are considered environment-friendly and pro-poor with economic returns of 30% more than equipment based technology, but the technology is awfully slow and expensive. On the other hand, the heavy equipment based technologies generally have exactly opposite characteristics. Equipment based roads, can give good results, if planned properly. Wherever possible a combination of both approaches should be used (equipment based technology are cheaper and faster while the labor based technology are more sustainable and pro-poor). Nepal is highly affected by climate change. Climate change policy was formulated in 2011 to minimize the existing effects and likely impacts in different ecological regions—from the Southern plains to the middle hills and to the high Himalayan Mountains in the north, and their peoples, livelihoods, and ecosystems. To address the issues, efforts have been made from policy to institutional levels. Prior to the 15th Session of the Conference of the Parties (COP 15) to the UNFCCC, held in Copenhagen in 2009, the Government of Nepal organized a Cabinet Meeting at Kalapatthar, near the base camp of the Mount Everest, and issued the “Kalapatthar Declaration.” A Memorandum of Understanding was signed by 14 donors and development partners to support Nepal on climate change activities. The Interim Constitution of Nepal (2007) and Three-Year Interim Plan (2008-2010) have also addressed the issue of environmental management and climate change. Towards institutional front, the Government of Nepal established the Climate Change Management Division in the Ministry of Environment (MoE) in 2010. The MoE prepared the National Adaptation Programme of Action, which was endorsed by the Government on 28 September 2010. Local Adaptation Plans of Action (LAPAs) are being prepared to implement adaptation programmes. To coordinate climate change activities and implement collaborative programmes, a multi-stakeholder Climate Change Initiatives Coordination Committee (MCCICC) has been formed with representation from relevant ministries and institutions, international and national nongovernment organizations, academia, private sector, and donors. It is evident that institutional, collaborative and programmatic activities have been expanded to address the issue of climate change in recent years. Efforts to mobilise funds to implement the programmes on climate change are under way. Issues In the sand, gravel and stone sub sectors, declining pro-poor stance of the sand, gravel and stones (SG&S) sub-sector and no pricing administered for the most recently explored natural resources is considered as the major challenges for its effective management. The occurrence of spatial poverty is demonstrated by the fact that 30% of the country's 3915 VDC are yet to be linked to the road network and hence the development and expansion of road infrastructure in rural areas is obviously a consensus priority for local development across the country. In, Nepal, there are broadly two main road construction technologies in use for rural road construction, operation and maintenance: labor based and equipment based. Labor based technology (green road) has been gradually replaced by equipment based technology (non-engineered road) over the last 10-15 years with use of heavy equipments like bulldozers and excavators. Much of the climate change response within the Third Year Plan appears focused on Natural Resources Management including forests, agriculture, water and energy. However, there is no coherent definition and classification of climate change and climate change related expenditures. One of the most significant issues is how Nepal can meet the ambitious target of delivering and spending 80% of its adaptation finance at the local level. Strategies In order to increase the revenue from sand, gravel and stones, provision of environmental assessment tools like Initial Environment Examination and Environment Impact Assessment shall be employed strictly. In addition, mechanisms for SG&S resource pricing and permits for extraction shall be established. Moreover, part of the SG&S-derived revenues shall be plough back as investments in source river protection and addressing need of poor, women and impact communities. Whenever and wherever possible a blend of labor based and equipment based technologies shall be used for rural road construction to harness positive features of each technology. Cheaper and faster from equipment based technology and sustainable and poverty reducing from labor based technology. Climate change impacts the whole economy and broad range of sectors that needs to be taken into account. In this regard, climate resiliencies program shall be integrated into all aspects of national development through adopting integrated planning and budgeting schemes. Reform Process Policies are being formulated to enforce the provision of returning at least certain SG&S revenue to river ecosystem maintenance and investment in uplifting well being of SG&S impacted communities. Towards reforming investment in road sectors, local body's capacity and influences shall be strengthened to adopt environment friendly rural roads, pricing and ensuring benefits to deprived communities and deliver climate finance using a cross-sectoral approach. Similarly, reform process shall be initiated through strengthening capacity of local bodies to make them able to manage 80% of climate finance (currently estimated to be about 40%) and securing the right structures at the local level to ensure that the flow of climate finance reaches the most vulnerable communities. The government shall support inclusive green income and employment opportunities for poor and climate vulnerable groups whose health and livelihoods mostly depend on performance of natural resource management. In this regard, a possible starting point would be to integrate climate change, environment and poverty as an indicator of, or a component in, the Minimum Condition and Performance Measures (MCPM). Moreover, focus will be made to develop and implement integrated planning approaches for forestry, agriculture, irrigation, and energy and disaster mitigation as a means to adapt to climate change at the local level.