NEPAL: AMBASSADOR'S MEETING WITH NEW FINANCE

C O N F I D E N T I A L SECTION 01 OF 02 KATHMANDU 001257

SIPDIS

DEPT FOR SA/INS
DEPT PLEASE ALSO PASS USTR - WTO ACCESSIONS/CKLEIN
LONDON FOR POL - GURNEY
NSC FOR MILLARD
GENEVA FOR USTR

E.O. 12958: DECL: 07/02/2013
TAGS: PGOV PREL PTER ETRD EINV NP
SUBJECT: NEPAL: AMBASSADOR'S MEETING WITH NEW FINANCE
MINISTER

REF: KATHMANDU 0902

Classified By: AMB. MICHAEL E. MALINOWSKI. REASON: 1.5 (B,D)

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SUMMARY
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1. (C) In a June 29 meeting with the Ambassador, Finance
Minister Dr. Prakash Chandra Lohani said that the Government
of Nepal (GON) is preparing for another round of negotiations
with the Maoists and making some headway in persuading
political parties to join the new government. He said that
while all parties may accept the need for social and
political change in Nepal, questions remain about the exact
nature of the change needed and how to manage it. He
welcomed USG proposals to provide technical assistance to the
GON on WTO accession and undertook to look into the
contractual dispute between a U.S. investor and the Nepal
Electricity Authority. End summary.

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PEACE TALKS
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2. (U) Accompanied by DCM Robert Boggs and newly arrived
USAID Mission Director Donald Clark, on June 29 the
Ambassador called on newly appointed Finance Minister Dr.
Prakash Chandra Lohani. Lohani, who received his MBA from
Indiana University and his PhD. from UCLA, has also been
named to head the Government of Nepal (GON) team to negotiate
with the Maoists.


3. (C) According to Lohani, the two-man GON team has
already held two quiet, informal meetings with Maoist
representatives outside the glare of the media. He remarked
that the Maoists recently have been "fairly aggressive" in
their claims that the GON is backtracking on commitments--for
example, the 5-km restriction for the Army (Ref A)--allegedly
made by the former GON team during the two previous rounds of
dialogue. Since there was no written record kept of either
round, reconstructing what was said has been difficult,
Lohani said. The new team has met with former GON
negotiators Ramesh Nath Pandey and Narayan Singh Pun,
however, and has concluded that the GON did not agree to the
5-km restriction.


4. (C) Before embarking on a third round of dialogue, the
GON is in the process of working out basic, non-negotiable
long-term goals, Lohani said, which thus far include the
integrity of the nation, progressive social change, and
"saving the nation from plunging into further chaos." In
their discussions with the Maoists, the GON team has proposed
putting aside the controversy about the 5-km restriction for
now, to which the Maoists provisionally agreed, Lohani
reported. Maoist distrust of the GON persists, however,
Lohani observed, adding that the insurgents fear that "we're
trying to outwit them." At the same time, the security
forces worry that the Maoists may be planning to break off
negotiations with a series of devastating surprise attacks as
they did in November 2001. Despite this mutual mistrust,
Lohani described himself as "cautiously optimistic" about the
peace process, but added that he remains worried by Maoist
activism--specifically, continued extortion, conscription and
training--during the ceasefire.

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GON SEEKS PARTY PARTICIPATION FROM
"INSTITUTIONS," NOT "INDIVIDUALS"
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5. (C) Lohani said the two-man GON negotiating team had been
kept small to allow room for representatives from other
political parties, should they decide to join the government.
The GON wants all the political parties to work together in
order to make elections possible, he asserted. While
second-rank leaders seem more flexible about compromise than
their leadership, the GON has given up the idea of trying to
"break people out" of party ranks to join the Cabinet, he
said. The GON now realizes that persuading individuals,
rather than the institutions themselves, to join a Cabinet is
neither productive nor desirable.

6. (C) The GON is gradually making progress toward this
goal, Lohani reported. The parties are beginning to realize
that their street protests are not working and that only the
Maoists are benefiting from the poisonous political
atmosphere. "Our arguments are having an effect," he
asserted. The incestuous nature of Nepali domestic politics
helps in this regard, he observed. Since "everyone is
related to everyone else" and Kathmandu is so small, rival
politicians still have ample opportunity to meet socially and
discuss otherwise sensitive matters amicably.


7. (C) He indicated that there is a certain amount of
hypocrisy among the parties as well. Even though politicians
"talk a good game" about democratic ideals, as soon as they
get into power they immediately abandon this idealism and
insist on conformity with the party line. Nepali political
parties use democracy more as a campaign slogan than as an
operating principle, he charged. While all parties accept
the idea that the Nepali political system is "too centralized
and feudal," there remains substantial debate about how best
to reform it. Although the current system is unsatisfactory,
the Westminster system is "too formal for us." Most
mainstream politicians seem to agree tht basic change to the
political system is needed, but disagree about the degree of
change needed, as well as how to manage and channel such
reform, he concluded.

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TRADE AND INVESTMENT
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8. (SBU) The Ambassador underscored USG support for Nepal's
attempts to accede to WTO, but noted that substantial
progress still must be made before accession is likely. The
USG has offered the GON technical assistance on both customs
valuation and sanitary and phytosanitary measures but has yet
to receive the written requests needed before such aid can be
initiated. Lohani promised to ensure that the necessary
request letters are sent soon. The Ambassador also asked for
Lohani's assistance in helping to resolve the outstanding
contractual dispute between the Nepal Electricity Authority
(NEA) and the Bhote Koshi Power Company, in which the U.S.
company Panda holds a majority share. (Note: As Finance
Minister, Lohani sits on the NEA Board of Directors. End
note.) Some progress toward resolving the dispute amicably
had been made at the behest of former Water Resources
Minister Deepak Gyawali, the Ambassador said, but since the
June 4 Cabinet change the efforts seem to have stalled.
Lohani undertook to give his attention to the matter. Lohani
also promised to waive the customs duty on ten electric
vehicles produced by REVA, an Indian/US joint venture.

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COMMENT
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9. (C) Lohani is a thoughtful and engaging interlocutor who
is friendly toward the U.S. We welcome his observation that
attempting to lure away individual second-tier leaders from
the recalcitrant parties could backfire. Sources in contact
with the Maoists report their suspicion that the new
government and negotiating team will attempt to revisit
concessions already made--or purportedly made--by the
previous GON team. Whether or not GON negotiators made the
5-km concession as the Maoists claim, we believe that
controversial issue should be walked back.

MALINOWSKI