NATIONAL 9 (Spotlight Weelky)]

Where Is The Market?

A US company applies to get survey license of Arun III. But will India buy Nepali electricity?

By BHAGIRATH YOGI

Managing Director of EurOrient, a Los Angeles based company, Ron Nenchimia looked quite confident last week. After applying for the survey license of the 402 MW Arun III hydropower project, Nenchimia said if things went their way, his company would start construction of the project by next year. And, where is the market? "Obviously, it is India," he said.

The 201 MW Arun III project (also known as `Baby Arun') was aborted six years ago after the World Bank, which had supported it for nearly 10 years, decided to pull out of the project amid protests from the environmental groups.

"We have got a lot of power projects in India. So, it will not be difficult for us to enter into Power Purchase Agreement (PPA) with the prospective Indian buyers," said Nenchimia. He would do better by taking lessons from the West Seti case.

Arun river : Waiting to be explorted

The Snowy Mountain Engineering Corporation, an Australian company --that has received permission to develop 750 MW West Seti hydropower project, is yet to enter into a PPA with Indian buyers even after nearly four years.

Nepal and India initialed the Power Trade Agreement (PTA) in 1996 with a view to facilitate private power developers to sell the electricity generated in Nepal to Indian State Electricity Boards. But due to differences of opinion between the ruling and opposition parties on whether it should be ratified by a simple majority or two-third majority, Nepali Parliament is yet to endorse the agreement. "We are trying to develop a consensus among different political parties and hopefully, will get it endorsed by the Parliament within this on-going session," said Khum Bahadur Khadka, former Minister for Water Resources.

Though the domestic demand for power is estimated to be growing at nearly 10 percent per annum, Nepal will have to find buyer for its excess electricity. And, due to geographical proximity and technical reasons, India stands as a monopoly buyer for the power generated in Nepal.

According to studies, power deficit in northern India (bordering Nepal) stands at 9,600 MW and is expected to grow to 20,800 MW by 2010. India buys about 90 percent of power generated from 336 MW Chukha hydropower project in Bhutan at about 1.6 US cents per KWh. Bhutan has already started construction of 1020 MW Tala and 45 MW Kurichhu hydropower project with Indian assistance, and 60.8 MW Basachhu hydropower project with Austrian assistance. When these projects get completed in 2004, Bhutan will have a total installed capacity of 1470 MW of hydropower. By then, Nepal will, however, only 609 MW of power (up from present total installed capacity of 319 MW). Under the 50 MW power exchange agreement, Nepal and India are trading at 4.5 US cents/KWh at present. While Nepal's average tariff at present stands at 9.3 US cents/KWh, average tariff in India stands at less than half (that is, around 4.2 US cents/KWh).

Moreover, with Indian priority in Nepal being water, not power, Nepal will have a hard time to sell its excess power to her southern neighbor. Experts, however, say if the power trade agreement is concluded now then the IPPs will have options to design and generate power as per the need of the market. "In that case, the cost of production per unit of power could drastically be reduced thereby making it feasible to sell Nepali power to India," says Rajendra Dahal, a journalist specializing in water resources. "But India is yet to treat IPPs, who want to invest in Nepal, with equal warmth in its domestic market. The problem is that India still looks at Nepal's water resources from conventional security point of view, not from an economic sense."

Whatever be the future scenario, it is obvious that cracking open the Indian market will be crucial for inviting foreign investment in developing hydropower in Nepal.