FORUM (Spotlight Weekly)

Will Our Lights Keep Burning ?

By S.B. Pun

i) NEA Contradiction — GWh Rich but Cash Poor

With the 60 Mw Khimti and 6 Mw Puwa already connected to the grid in April 2000 and with the likes of 14 Mw Modi, 36 Mw Bhote Koshi and 144 Mw Kali Gandaki coming on stream within a year's time, we will have a huge glut of energy. The following NEA projected scenario from the year 2000 to 2005 depicts this:

S. No.	Fiscal Year Ending July	2000	2001	2002	2003	2004	2005
1.	Total Installed Power Mw	334	404	609	609	609	697
2.	Forecasted Peak Demand Mw	349	383	415	447	481	523
3.	Reserve Margin Mw	-15	21	194	162	128	174
4.	Total Energy Available Gwh	1594	1850	2770	2964	2990	3442
5.	Total Electricity Sales Gwh	1208	1344	1475	1607	1752	1908
6.	Additional Electricity Sales to India Gwh	0	0	304	249	129	223
7.	Hydro Energy Spilled Gwh	5	104	576	681	672	834

From 2002 onwards, despite selling India about two to three hundred million units per annum, the Nepalese power system will still have a surplus of five to eight hundred million units per annum though mostly in the wet season. Despite NEA's Time of Day and Seasonal Tariffs, the existing system will not be able to absorb all this huge surplus energy. With BPC and the two private sector developers taking away 652 Gwh mostly on a "take or pay basis" from NEA, this is a hefty 44% of NEA's total energy sales. In terms of revenue this will mean the private sector take a good 38% of NEA's total revenue. Hence, a very contradictory scenario of NEA as an extremely cash poor utility will emerge, despite being megawatt and gigawatt hour rich. The options before us is to: (a) spill it as was done traditionally in the past but as the private sector energy is on a "take or pay" basis, the spilling will necessarily have to be from NEA's plants; (b) sell to India at the prevailing power exchange rate if they agree and have the facilities or be prepared at the terms they dictate; or (c) put in an energy intensive industry fast in Nepal. It is already getting too late and the government has to take the initiative on what is best suitable for the country. Otherwise, one can visualize a scene where it will be the government itself and not the donors who will push to raise the electricity tariff in order to bail out NEA.

ii) Our Tariff - Who Jacks It Up? : On the sensitive issue of our high tariff, we have unfortunately been dwelling far too long on the donors' two main driving covenants, the 6% rate of return on revalued assets and the 23% self financing ratio. It is high time that we ask the donors to conduct an in-depth study on the whole gamut of the tariff, for questions are being asked on the collusion between the government and the donors in tying the hands of the tariff fixation commission, the necessity to base ROR on revalued assets when other utilities around the world base it on historical assets and the high self financing ratio in a tiny system. Of course, much needs to be done at NEA, some of the measures may have to be necessarily painful, to enhance the efficiencies at NEA. But HMGN itself needs to analyze its policy whether it wants a fatter "rajashwa khata" that jacks up the tariff or a leaner "khata" with a lower tariff. The message emanating so far from the government has always been the "fatter khata". Take the case of the government's interpretation of its own policy, "the income tax shall be less than 10% of the corporate income tax which the government imposes from time to time". At a time when this corporate tax was 30%, all believed that this will mean 20% only but the government beautifully interpreted it as 27%, i.e. 10% of 30% less! The policy of the Department of Electricity Development in trying to project the "Tax collector" image is partly responsible for this high tariff. The government brought up the royalty policy in 1992 of 2% and 10% after 15 years but DOED applied this in toto (15 years after the commercial operation date) on all NEA power stations like Trishuli, Sunkoshi, Gandak, Kulekhani etc. that were commercially in operation before 1992. Hence these old projects had to pay the 10% royalty on sales and in 1999 alone NEA paid HMGN a huge royalty of about Rs 40 crores. In the case of the private developers when the lenders walk away in 12 years, the demand that they pay a higher royalty is justified. In the case of the public sectors this policy encourages them to generate less from their older plants and more from the newer plants. There is also the recent 1% royalty on sales about rupees 8 crors now going to the districts that have generation projects. Then there is the 10.25% interest of rupees 130 crores per annum levied to NEA on the soft loan as the foreign currency risks and the social sector support. So it is not the donors and NEA only that are the villains. The government is equally responsible in playing the villainous role in jacking up the tariff. About 25 years ago when the World Bank came to finance the 60 Mw Kulekhani I, its first power project, it was horrified to find out that HMGN levied five Nepalese paisa per Kwh generated as royalty to the utility. The Bank made sure that such royalty lollypops were immediately dispensed with or else no power project. The Bank's philosophy then was that HMGN already levied corporate taxes and the imposition of other lollypops such as royalty will only hike up the electricity tariff that will in turn trigger more hiking on other sectors. The same Bank now hums a very different tune and it is HMGN that is humming the Bank's old tune again into the same Bank's ears. But sadly the old Bankers are all gone and it is doubtful if the new breed of Bankers will sing the old tunes.

iii) The Employer/Employee Enlightenment : Napoleon once said that the army always marches on its stomach. Similarly the power sector of any country marches at the pace that its institutions are CONDITIONED to. The multilateral donors had always wanted NEA to have a large measure of autonomy in its functioning and also stressed that its employees be thoroughly seeped in corporate and commercial cultures. After fifteen years of existence, when this culture began to be manifested by the senior NEA officers questioning in earnest certain government policies, this was perceived as outright anti-government thinking. These officers, who spent more than three decades in the power sector, were deemed to be totally ignorant of who the employer and the employees were; or rather who the rulers and the ruled were! NEA then was severely conditioned to "enlighten" its employees from their ignorance. This much for the preaching on NEA's autonomy!

iv) Change of Too Many Guards: If one were to look at NEA during the last seven years or so then one will note a prolific number of six Managing Directors from ANS Thapa, SB Pun, KC Thakur, DP Banstola, Dr. BN Chalise to the present BB Malla. Khimti's first power purchase agreement was signed in March 1994 by the then MD, ANS Thapa, and the Himal Power Limited General Manager, P Harwood. It was the same Mr. Harwood who signed the second revised PPA, undertook the torturous financial closing, started the multifaceted 8 Km tunnel construction activities, handled the delicate politics of the Jiri/ Palanti road activists, faced the collapse of the surge tank, successfully commissioned the five units from April 2000 and netted the valuable interim energy for Himal Power before the bankers walked in at the commercial operation date in July 2000. In this same period four secretaries and perhaps ten ministers were welcomed in and out of the venerable Ministry of Water Resources. Despite the recent takeover of the General Managership of the Himal Power by Statkraft's own Norwegian, the services of Mr. Harwood, a Britisher, is being retained as the interim advisor for a period of over one-year. Isn't this the way we should "enlighten" our institutions? Sadly our culture has always been the incumbent chief hurriedly leaving through the back door whereas the incoming chief swaggering through the "kalashed" main door with garlands upto his nose. Let us develop a more civilized culture of not only welcoming the new but giving the outgoing one a decent farewell as well.

v) The Bottom Line : Despite all the din and noises about deregulation, re-regulation, public versus or with private, NEA restructuring, the ugly tariff, the new PDF mantra etc. the bottom line in our power sector should always be, "will our lights keep burning?" This is what all of us must always keep asking ourselves. Otherwise, we may take the fast track route to our nearby brother, Bihar State Electricity Board � no light despite the power glut in the eastern grid region!