WATER RESOURCE

New York-based lawyer, Jenik Radon, teaches international business and investments at Columbia University. He is a regular visitor to Nepal and was in Kathmandu recently to consult with the constitution-drafting committees. He spoke to Nepali Times about managing Nepal's natural resources.
Nepali Times: Despite being blessed with water resources, Nepal has not been able to exploit this to raise living standards. As someone who's worked in Nepal, and taught international investments and business, why do you think that is the case?

Jenik Radon: Water resources are not a fungible global asset. It is not like oil that can be sold throughout the world. It is like gas which is more of a local product to be sold domestically in a nation and to neighboring nations through an integrated pipeline system. For example, Quebec sells electricity to the state of New York. But that sale was the result of a well thought-out water resource development program in Quebec.
Nepal needs to develop an overall strategic plan for national water resource development. Then it needs a business team that will market and sell it to prospective purchasers. In short, Nepal has to see itself as being in business, and has to treat the subject as such. This means that it needs to create a national water resource development company that functions as any private company does, subject to regulations.
So the main reason Nepal has not succeeded in commercialising the usage of its water resources is that there is no strategic business plan and no national business office to implement it. Nepal needs to think and act commercially with respect to water resources and not view water resource development simply as a political issue.
One mental block in Nepal is the fear of being cheated in a future deal. How can we tackle this?There should be no mental block. Commercial negotiation is a skill. For example, Georgia, a country smaller than Nepal, engaged my services to negotiate a multi-billion dollar oil and gas pipeline transaction. The way to remove this block is to realise that professional assistance is globally available. With such support, you build a team, and since water is a national asset, the team keeps its work transparent. Nepal needs to realise that it does not have to engage in such complex transactions alone, but can acquire the necessary professional assistance globally.
What are some of the issues that a nation must be careful about when negotiating international deals on the usage of natural resources?Agreements for the development of natural resources are very complex. This is evidenced by the fact that there will be many agreements and that they will be long.One issue is price. Is the price that is agreed upon now increased or adjusted over time? It should be flexible to provide for negotiated and predetermined price adjustments. Nepal will need to develop a risk mentality-it captures increases in the downstream prices but may have to accept decreases if the market collapses. So the first major issue is to realise that water resource is part of a supply chain and the value of the water resources needs to be considered accordingly. As water resources contracts and development are long-term, it can never be forgotten that such contracts must be flexible to adjust to the invariable changes that will occur over the lifetime of thecontracts. People who live in the area of natural resource development must be treated fairly and must also be compensated. Further, if the developer of natural resources does not abide by its commitments there must be an effective legal way to enforce obligations.
The penalty provisions of a contract must be strong. For example, if a company violates environmental regulations, certainly repeatedly, it should its license. Accordingly, the issues range from price to enforcement. They are many and they must all be negotiated.
What lessons from Estonia and Georgia are relevant for Nepal today?There are many lessons. Commercial undertakings must be pursued professionally with a team that combines many different skills, including international lawyers and local expertise. In addition, they must be based on strategic policy and plans. Third, there must be a realisation that if international companies wish to enter into agreements, that's because you have an asset. This means you need to be fully aware of the assets you have and their value. And such knowledge should give the confidence to go forward. In sum, you need a strategy, which is a vision and outlook based on facts, policy, tactical implementation and openness so that you have the support of your nation. Estonia and Georgia did that. Nepal has a valuable resource and it must mobilise local and international skills to commercialise it.