FORUM (Spotlight Weekly)

Hydro-Power Development, Nepalese Style

By SANTA BAHADUR PUN

The 500 KW Pharping hydro-electricity plant of 1911 vintage together with the 640 KW Sundarijal plant of 1934 were Nepal’s first public-sector ventures; although in the true sense they cannot be called public as their services were confined entirely to the sprawling Rana palaces and their court functionaries.

The Morang Hydroelectric Company, with its 1,600 KW Sikharbas plant on the Chisang Khola, was established in 1939 to power Nepal’s first large industry, the Biratnagar Jute Mill. The major shareholders of this company were, of course, the ruling Ranas and their favourite officials. The Sikharbas powerhouse was truly an indigenously designed and built plant with turbines from Zurich and generators from New York, commissioned in an incredible record time of 3 years in July 1943 when the Second World War was raging at its peak.

Padma Sundar Malla, the man behind Morang Hydro, is the father of Nepalese hydro projects. The Birgunj Electric Supply Company, with about 100 KW of diesel engines, was established in 1949 and, again, the major shareholders were the Ranas. The 300 KW diesel-operated Dharan Electric Supply Company was the first private company in the true sense. It was established in 1964 with a number of real public shareholders and a loan provided by Nepal Industrial Development Corporation (NIDC). The main man behind this company was, again, Padma Sundar Malla.

From Dharan, this private sector fervour was kindled in far-west Nepalgunj, with the establishment of the 300 KW Bageshwari Electric Supply Company by Bishnu Prasad Upadhyaya with an NIDC loan. The governments at the time never felt the need to promote these people and provide guidance and succour when needed. The officials strictly adhered to a ‘hands off’ policy where private participation even in infrastructure projects like power was concerned.

Morang Hydro’s request for a loan to reconstruct a part of a washed-away head pond and Bageshwari’s request for capital injection to repair its diesel engines fell on deaf ears. One must not forget the Butwal Power Company — not in the present incarnation but in its original form — with the 1 MW Tinau and 5 MW Andhi Khola hydro plant. The tireless father of these two plants is the Nepalese/Norwegian, Od Hoftun, who deeply believed in mobilizing local resources and labor.

But they were all knocked and rolled over by the righteous virtues of the public sector as espoused not only by communism and socialism but also by multilateral institutions like the World Bank. This era of private-sector participation in the Nepalese power sector is dead and forgotten. Very few have very little memories of what I believe was the golden period of Nepal’s power sector. This was an era when domestic capital mobilization and indigenous capacity building — which we talk about so much these days — really took place.

Public Sector Attempts — Bilateralism With the advent of the East-West Cold War after the Second World War and the emergence of a third front, the Non-Aligned Movement, bilateral politics dominated the scene. The political wooing of nations started and Nepal was no exception. The 2.4 MW Panauti hydroelectric plant came in 1965 and was the pioneer bilateral plant built with Russian assistance. The Americans and British financed the 66kV double-circuit Balaju-Hetauda-Birgunj transmission line, a number of substations and 11kV ring main in Kathmandu, the 4.2 MW Hetauda diesel plant and four 500 kW diesel plants in Kathmandu.

India assisted with the 1 MW Phewa and 21 MW Trishuli hydro plants in 1967. China, not to be outdone in this wooing competition, followed up with the 10 MW Sunkosi hydro plant in 1972 and later the 1.5 MW Seti hydel plant. The charm of bilateralism had a magnetic appeal: roads, powerhouses and transmission lines being built free on grants. Yes, there were a few political pills to swallow but we generally considered ourselves zamindars, to be fed free lunches.

Most of us engineers unwittingly became glorified clerks acting as mere liaison officers of the projects and signing on the dotted line. We totally failed to read the writing on the wall, that one day we would have to pay heavily for these free lunches. Around 1973, the then prime minister Kirtinidhi Bista did read that writing on the wall and officially declared that the 14 MW Devighat hydel plant, cascade to 21 MW Trishuli, would be built entirely with Nepalese labour and resources. Despite this declaration, we preferred to take the easy free lunch route again with India constructing Devighat. When the bilateral wooing period was over, we fell for the other charm of multilateralism.

Public Sector Attempts — Multilateralism Multilateralism definitely has its charms: hundreds of millions in dollar-denominated loans, grace periods of about eight years, comfortable maturity periods varying from 23 to 40 years, nominal service charges not exceeding 1 percent plus commitment charges of about 0.5 percent. We, Nepalese, felt that this was manna from heaven, not to be questioned at all. With a strong multilateral donor in the lead, other benefits like grants and soft loans accrued from other bilateral donors. Nepal fell head over heels in love with this mechanism.

But after three decades of operation in the power sector with the likes of Kulekhani, Marsyangdi, Trishuli/Devighat Upgrading and the aborted Arun-III, the honeymoon phase was over and things looked quite sour. First the donors were unhappy. They complained that, despite pouring in billions of dollars, there were hardly any trickle down effect to the real poor people; there was no impact on poverty alleviation as manifested by the stark 45 percent of the population wallowing below the poverty line; also there was no progress in making transparent dealings but instead an increase in rampant corruption fueled by political chaos.

As the recipient, Nepal was equally unhappy: its power sector in shambles with acute load shedding, extremely high tariff and the belated realization of the impact of the strings of conditionalities it happily put its signature on, the donors’ total grip on the country’s macro-economic activities and the regular prescriptions in the form of structural adjustment programs. In our honeymoon fervour, Nepal forgot the virtues of domestic capital mobilization and the domestic capacity building. It is in fact the donors, not us, who wanted our attention to be focused on those forgotten virtues. This made someone recite the Nepalese proverb "A woman is not a woman unless she has given birth to a child, and a man is not a man unless he has built a house". In the Nepalese power sector, there was not a single ‘man’ — a man of the likes of Padma Sundar Malla and Od Hoftun.

Private Sector Prescription — Liberalization and Privatization In four decades, Nepal has completed the full circle and come back to where it had started — the private sector. The US and British utilities, despite never being cash strapped, were nagged by one big problem, i.e., a very low growth rate of 1-2 percent in its power sector. This apparently meant no additional jobs not only within the utilities but also for the associated engineering firms, the equipment suppliers and the construction contractors.

Growth meant job opportunities for all. The case in our part of the world is quite different. It’s not only the utilities but also the countries themselves that are cash strapped. Our objective of deregulation is to create an environment whereby the IPPs will bring in the precious private resources for developing the power sector.

The Asian and Latin American economies are booming though some hiccups are felt with the Asian meltdown. Our load growths are continually in the double digits. It is this load growth, it is this job opportunities that the IPPs, mushrooming in the developed western countries, are eyeing in the vast emerging markets of China, India, Brazil and even Nepal. The evolving role of the multilateral institutions from the lenders to the public enterprises to the facilitators to private investment is a recent happening.

In essence, this is the new mantra prescribed by the World Bank for Nepal in its new alternate energy strategy, the Power Development Fund. Acts and regulations were and are being rewritten to attract the private sector. The hard realities of attracting foreign investors is that repayment will have to be dollar denominated, tariff suitably escalated and non-payment of dues fully counter guaranteed by the government. This is the pill we must take to strengthen our power sector. In this process, how much resources and labour we develop will depend entirely on us.

Pun writes on water resources issue.