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| Kathmandu, Thursday February 13, 2003 Falgun 01, 2059. |
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Officials rule out power tariff hike
Post Report
KATHMANDU, Feb 12 :
Following the latest approval of a Nepal Electricity Authority (NEA) restructuring plan,
officials rule out any early hike in the domestic electricity tariff. Upward revision in
electricity tariff was one of the major conditions laid down by the Asian Development Bank
(ADB) during the sanctioning of the loan for the country’s power sector over three
years back.
High level NEA and
government sources talking to The Kathmandu Post said that the NEA Board approved the
restructuring and re-engineering plan with the main aim to prevent any unwarranted hike in
domestic electricity tariff under ADB pressure. Nepal’s electricity tariff regime is
already among the highest in the world.
The NEA Board recently
approved the reform plan that seeks to reduce the huge amount of leakage and non-technical
losses that NEA incurs. Containment of such losses is expected to considerably reduce the
pressure to upscale the electricity tariff, a condition without which the NEA would not be
able to meet the financial health standards laid down by the ADB.
The multilateral
lending agency during the signing of the loan for the Rural Electrification, Transmission,
Distribution and System Reinforcement Project had asked the NEA to maintain its
self-financing ratio (SFR) at 23 per cent, rate of return (ROR) at 6 per cent and debt
service coverage ratio (DSCR) at 1.2 percent.
All conditions under
the present circumstances are virtually impossible to meet given the poor financial state
of the state-owned power monopoly. As of now, the NEA has SFR at 6.2 per cent, ROR at 1.3
and DSCR at 2 per cent. Above all, the non-technical loss stands at a whopping 23 per
cent.
The principal financier
to Nepal’s power sector has welcomed the NEA plan. "The ADB welcomes the reform
programmes formulated by the NEA. If properly implemented, such a plan can certainly help
reduce pressure on tariff," said Dr Richard Vokes, Country Director, ADB-Nepal
Resident Mission, talking to The Kathmandu Post.
However, much would
depend on the assessment of the NEA’s restructuring plans by the ADB. A mission from
the ADB headquarters in Manila is due to visit Nepal in March to assess, among others, the
institutional restructuring plan of the NEA. The mission comes in part in response to a
recent Manila visit by an NEA official.
Executive Director of
NEA Dr Janak Lal Karmacharya during his Manila visit had floated NEA’s reform plans
in the hopes of convincing the multilateral lending agency to review and revise the ADB
conditions attached to power financing, especially that on tariff. In the past two years
alone, the NEA has hiked tariff first by 25 per cent and then by 10 per cent.
"The ADB is ready
to revise the conditions. It is for the purpose that a mission is coming,"
knowledgeable government officials claimed, adding that the ADB is even positive on the
NEA’s request to prevent any future tariff hikes. "The ADB is convinced that the
implementation of the NEA’s plans would be enough to prevent tariff hikes," a
high level official at the Ministry of Water Resources said.
"The NEA’s
restructuring would help reduce, to a considerable extent, the system and technical
losses. Once the restructuring plan comes into implementation, the ADB should not
pressurise the NEA to hike electricity tariff," said the government official
preferring to be unnamed.
However, though the ADB
officials concede that the latest plan could reduce the strain on the need to hike tariff,
much would depend on its implementation. The picture would be much clearer only after the
mission carefully studies the NEA plans. The ADB has also offered NEA for a Technical
Assistance (TA) project that is due for May.
"The Technical
Assistance would help the NEA to move forward with its reform programmes," said Dr
Vokes. Among others, the TA would help in maintaining the financial health of the NEA
through management reforms and formulation of dry and wet season tariff adjustment
mechanism.
The NEA’s
ambitious restructuring plan includes the launching of the NEA distribution centres across
the country. The NEA Board also decided to review the tariff structure at the beginning of
each fiscal year on a scientific and rational basis, which officials believe would help to
lower tariff considerably.
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