Views of a Nepali Economist

The following op-ed piece was published in Republica on February 12, 2018. The direct link is here. 

Are we prepared for federalism?

By: Mukesh Khanal

There is a war brewing in Canada that has lessons for federal Nepal.

The war is between two Canadian provinces: Alberta and British Columbia. Alberta is one of the world’s largest producers of petroleum. Alberta is also landlocked, which means it needs access to British Columbia’s Pacific Ocean shore to ship its petroleum products to Asia and beyond. There are two ways to send Alberta’s petroleum to British Columbia: by train or through a pipeline. Pipeline is the easiest, quickest, and safest way to transport all that petroleum. The federal government approved that pipeline, and investors were ready to build it. However, the province of British Columbia decided last week to stall the pipeline from being built, and made Albertans angry in the process.

Like Nepal, Canada is also a federal republic, and significant powers are decentralized to the provinces and municipalities. This decentralization of power allowed British Columbia to throw a wrench on the pipeline project, a project of national importance. Although the federal government has the final say and authority over projects of national interest, British Columbia was still able to maneuver a tactic to stall the construction of this pipeline for years, as the battle drags in the courts.

British Columbia knows it will lose the case in the courts, but court cases drag on for years. During that period, British Columbia is hoping that investors will be frustrated and pull out from funding the pipeline project. It does not seem to care that this action hurts thousands of Albertans—fellow Canadians—who rely on the petroleum industry for jobs and livelihood. In response, Alberta decided to hurt the jobs and livelihood of thousands of British Columbians by banning the import of wines from British Columbia. In response to that response, British Columbia has vouched to respond in kind. So, there is now a full-on trade war between provinces within the same country.

So, what does this have to do with Nepal? The lesson here is that, as a federal republic, just like Canada, Nepal should prepare for such outcomes in the near future.

Policy makers in Nepal anticipated such incidents when they were designing the map of our federal provinces. They were very explicit in their demand that Province 3 be extended all the way to the Indian border to touch India. They argued that a single Madhes province with all 22 Tarai districts would be too powerful, and would take other provinces hostage in exchange for access to India. This is why Chitwan ended up in Province 3. This is also why the demand for One Madhes, One Pradesh, comprising all 22 Tarai districts, was not met.

Our new Constitution has provisions for the establishment of a National Natural Resources and Fiscal Commission to deal with potential inter-provincial disputes regarding natural resources distribution and environmental impacts as a result of natural resources development. There are several ongoing hydropower and community forestry related conflicts in Nepal. The Commission supposedly is responsible for handling these conflicts. However, if a 150-years old matured federal republic like Canada still experiences inter-provincial trade war due to natural resource issues, can we be confident we will not experience the same?

Kathmandu avoided its India-access confrontation with Madhes by incorporating Chitwan into Province 3. However, Provinces 4 and 6 have no access to India in the south. There are several other issues on which our new Constitution is not very clear. What happens if we decide to develop a national railway line from East to West? Will that require the approval of every province? What happens if a province bans beetle nuts from Province 1 for “health reasons”?

More importantly: What happens if a province pulls a “Catalonia”?

Catalonia region recently declared its independence from Spain, which was an unconstitutional act. Like the Spanish Constitution, the new Nepali Constitution also clearly says that the President shall dissolve a provincial Council of Minister and the Provincial Assembly if the provincial government engages in an act that is seen as having a serious effect on Nepal’s sovereignty and territorial integrity. Fresh provincial elections will then be held within six months.

However, what happens if the same party that led such an act while in government wins the next election and forms the provincial government again? This is what happened in Catalonia, where the party leading the dissolved government won the elections again and will be governing again. What if this new government engages in the same act? Do we keep dissolving and then re-electing the same government again and again? Our constitution is not clear on this matter.

The Canadian example shows that in a federation, a project of utmost importance to one province could be stalled by legal but selfish maneuvers of another province. The federal government will then have no option but to take the province to court. However, court battles could last for years, while investors could flee the project and kill it. The Catalonia example shows that the federal government and the federal Constitution can only go so far to keep a renegade province in check.

So, the question is: How prepared are we?