FORUM (Spotlight Weekly)

Whither Nepalese Power Sector

By S.B. Pun

The Past, the Present and the Future : The Past — Cases of What Not to Do It is amazing that the Bhutanese are credited with the saying that if one wants to see WHAT NOT TO DO in any field then ONE MUST VISIT NEPAL! This is very sad indeed but it is definitely NOT UNTRUE. Like many other sectors, our power sector suffered from this classic "what not to do" syndrome. The omnipotent, omnipresent and omniscient World Bank prescribed the bundling of Electricity Department, Small Hydro Board, Transmission Line Board and Nepal Electricity Corporation into NEA in 1985 as a part of the covenant of the Marsyangdi loan. This bundling was prescribed to Nepal at a time when the monolithic empires of the utilities in the developed countries were already showing signs of decaying and cracking up. The appropriateness of this BUNDLING prescription is being questioned when the same doctor now prescribes UNBUNDLING. Then for eight long years we were made to chase the 402 Mw Arun III saga, losing 201 Mw along the way but despite making three huge tariff increases, at the behest of the Bank (60%, 38% and 26%), the near civil contract award to Cogefar, an Italian/French Consortium and the perennial load shedding hardship that the nation underwent, the World Bank found the Arun III "risks too great for Nepal". In 1992 a series of acts, regulations, policies and amendments were brought in, primarily with the Norwegian assistance, to encourage the private developers in the power sector. Even the International Finance Corporation (IFC) lauded Nepal as one of the first countries in the region with such liberalized laws and policies. But one must take due note of the fact that Norway itself had liberalized its power sector in 1991, followed by Finland in 1995 and Sweden in 1996 only; thus indicating that we could have been the traditional first guinea pig in this region! In fact the private developers were so enamoured with our laws and policies that they straight away aimed aggressively for the 144 Mw Kali Gandaki A project. The Asian Development Bank itself had to put the dampers on to our "ignorance is bliss" government. Their appetites had to be whetted with the likes of Upper Marsyangdi, Middle Marsyangdi and West Seti. In the eleven years between the commissioning of Marsyangdi in 1989 and Khimti in 2000, thanks to our Arun-III strategy, a total of a miniscule 25 MW from the 12 MW Jhimruk hydro (Norway's grant) and the 13 MW Duhabi multi-fuel (Finland's grant cum credit) was added to the system. So who exactly is responsible for the nasty load shedding of this decade.

The Present — Our Hydropower Policy and the IXth Five Year Plan's Deities

Our hydropower policy and the IXth Five Year Plan sing hymns principally to the two main deities: i) the private sector financing in hydropower development and ii) the hydropower export to the huge Indian market. Our laws and regulations, thanks to the liberal doses of the foreign consultants, are all geared to make the environment "cosy" to the foreign developers, generally large financially well muscled institutions if not the multinational corporations themselves. With the well indoctrinated belief in the concept of the "level playing field", no effort whatsoever has been made to make the environment equally "congenial" to our own Nepalese developers, by comparison the small "Nanglo pasale".

On the export front, our ministers and bureaucrats have become very adept at quoting the XIVth Electric Power Survey of India wherein by 2010 India's Northern Grid Region is forecasted to be needing an additional 58,000 Mw of which India herself will be developing 37,000 Mw and the remaining deficit of 21,000 Mw is the "natural answer" to our Pancheshwar, Karnali and Sapta Koshi projects. Emperor Akbar the Great had to be ingeniously demonstrated by Birbal that the rice hung at the top of the bamboo pole cannot be cooked with the fire on the ground. Without analyzing the ground realities, we fervently believe that our 22,000 Mw of "rice" will be cooked by the "heat" across the border. If our parliament can enact laws to reduce the risks to the foreign private developers, what can it do to mitigate India's perceived energy security risks? Whereas our policy makers have been perennially eyeing the "power hungry Indian market", in the same manner shouldn't the Indian policy makers eye Nepal's "snow fed water tank" perennially? Unless the all-encompassing issue of POWER WITH WATER and NOT POWER ONLY is thrashed, if need be, on an eyeball to eyeball manner (much in the spirit of the Mahakali Treaty Ratification though definitely NOT with the same result as Bhimsen Thapa's Sugauli Treaty) and unless the DEITY ACROSS THE BORDER gives its blessings then only will the SUN RISE FROM THE WEST. Otherwise, our policies and plans like its MANY predecessors will end up in the same manner as Som Sharma and the pot of Satu — with a single kick, dashed to the ground!

The Future — Public versus Private or Public with Private?

The World Bank in its latest Power Sector Development Strategy for Nepal has stated that the existing status quo is unsustainable due to: (a) lack of transparency in project planning and selection; (b) absence of competition; (c) growing conflicts of interest between entities involved in the sector; (d) cost of electricity reaching the limits of affordability; and (e) growing frustration about the inability to mobilize private and public capital to exploit Nepal's water resources potential and export power to India. NEA is already on the chopping block. It is only the questions of how and when. Tariff Fixation Commission will be empowered more as the regulator. There are talks of stream lining both Water and Energy Commission Secretariat (WECS) and Department of Electricity Development (DOED) with WECS as the policy making and DOED as the implementing bodies of MOWR. Before affecting any changes, an intense internal vetting is required.

The most crucial element in the power sector that requires to be publicly debated and vetted is the need to arrive at a general consensus to the question, "Does the government still perceive the Public Sector as the main "Vertebral Column" of the power sector with the Private Sector playing the supplementary "ribs'" role or will it be vice versa with the Public Sector playing the supplementary role to the Private Sector as the central column?" The government ought to be crystal clear on its vision and communicate this vision to all power sector players.

Look at the vision that our neighbour, India, has entrusted to its National Thermal Power Corporation (NTPC), a wholly government owned generator. NTPC presently operates about 18,000 Mw of power stations. Though this is one fifth of India's total installed capacity, in terms of energy it delivers a whopping one third of India's requirement. By the year 2004, this capacity will shoot to 30,000 Mw thus making NTPC one of the largest generating utilities in the world. Despite the name "thermal", it has already diversified its activities into Hydro (by undertaking the 800 Mw Koel Hydro in Himanchal Pradesh) and wind power with 40 Mw in Karnataka and Tamil Nadu. In NTPC, the Indian Government has a strong creditworthy player that it can rely on if the other private developers (like the American Enron, British National Thermal, French EDF etc.) become too commercial minded. Norway's state owned Statkraft produces one third of the country's total electric energy, forages in Nepal and Laos as the equity partner in the 60 Mw Khimti and the 210 Mw Theun Heun Boun hydro electric projects, both in commercial operation now. Statkraft wants to be well armed with the necessary financial strength to compete with other "foreign players" in the Nordic power field. This is the kind of vision that one should envision for NEA's generation wing and NOT create a STUNTED stooge to be restructured again.

(Mr. Pun writes on issues of water resources)