Opinion (Spotlight Weekly)

Industries Hit Hardest By Electricity Price Rise

By A.B. THAPA

Over the decades, many countries have generously provided grant assistance for developing Nepal's power sector. This freed the country from the heavy burden of foreign debts that it would otherwise have faced. Project planning was done with great care by following standard engineering rules and practices. Nepal could still develop its power sector on a far bigger scale without heavily burdening the national economy, if matters are handled prudently. This way, we could produce sufficient electricity to meet domestic consumption needs as well as for export at highly competitive prices. Unfortunately, the concerned government agencies are virtually unaware of these opportunities. The power sector is being pushed into a dangerous financial crisis and the situation is worsening by the year. Electricity prices are skyrocketing to cover the losses.

The Nepalese people are reeling under regular sharp rises in electricity prices. Domestic users, however, have an option. They could cut down consumption, although it would not be comfortable. People requiring electricity for industrial use, unfortunately, do not have such a choice. Big industries set up at huge investment generally require power supply at a certain fixed level. The total electricity consumption cannot be lowered without bringing down production itself. Thus, the industrial sector is worst affected by the sharp rise in electricity prices. Many industries could go out of business. The sharp rise in electricity prices should concern the industrial sector. Institutions like the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) must be worried the most. It would certainly be a big misfortune if the FNCCI itself is found to be acting as a catalyst, albeit unintentionally, for the increases.

Excessive Trust In Private Developers Over the last decade, our power development plans have been thrown into complete disarray by foreign developers who were virtually given a free hand. The regulatory body exists merely as a formality. The 60 MW Khimti hydropower plant, the first project in the private sector, has opened a Pandora's box. The project has had disastrous consequences for the economy of the Nepal Electricity Authority (NEA).

The Khimti plant, operating at a very high head of about 650 meters, was seen in the past as one of the most attractive projects for the generation of cheap electricity. The project cost was originally estimated at US$ 80 million. But, astonishingly, it was raised to US$ 140 million to calculate the selling price of the electricity to the NEA. Moreover, it is a virtually incomplete project. A most important component of any hydropower plant is the reservoir for the storage of water at least for daily use to enhance the value of the firm energy. This very important structure is missing in the Khimti project, which is forced to operate at base load. Thus, it would be producing electricity at a constant rate throughout the day and night. Under such circumstances, the true per unit (KWh) value of the Khimti firm power would be half those of Marsyangdi and Trisuli projects.

The Khimti project produces an enormous volume of seasonal energy due to unnecessarily high installed capacity of the power station, which is 60 MW against its firm capacity of only about 18 MW. The seasonal energy procured from the Khimti is completely wasted, though the NEA is made to pay about US $ 9 million per annum for it. To make matters worse, the NEA had to build at its own cost very expensive high-voltage 120 KV transmission lines from Khimti to Kathmandu almost exclusively for the supply of seasonal energy, which would be wasted anyway. Low-voltage transmission lines at far less investment would have been adequate for the transmission of the entire energy.

As far as the NEA is concerned, the Khimti deal was a total disaster. But for the aspirants eager to make a similar deal on their own terms with the NEA, it was just the opposite. Many developers were quick to take full advantage of the Khimti precedent. Some are already building hydropower plants. A few recently got permission to carry out detailed studies. There is virtually a big rush.

Level Playing Field

We are in an age of globalization. The participation of the private entrepreneurs of one country in the trade and development works of other countries has become a common practice. Private entrepreneurs, particularly those from developed countries, do not fail to demand a level playing field to gain ground against their competitors to secure markets for their products and services in other countries. Often the host countries do their best to resist such pressures in the best interest of local entrepreneurs. So far as the power sector is concerned, the private sector has been able to make little headway so far. European countries like France have turned a deaf ear on calls for greater private-sector participation in power development.

The participation of the private sector in Nepal's power development has been a complete fiasco. Nevertheless, the concerned government agencies and the FNCCI are still seen relentlessly advocating a level playing field for all in the power sector. They do so perfectly knowing that ultimately the battle would be between the NEA and some foreign company or companies entering Nepal covertly or openly to make a fortune. Past dealings provide ample proof that private developers would not have much difficulty in persuading the authorities to take decisions in their favor and on their terms. Even where the private developers get the job, the NEA is forced to bear the losses on purchase of electricity. The NEA's losses are skyrocketing and are passed to the consumers. The industries, being the biggest users, are the worst affected.

It is the duty of the FNCCI to take every possible measure to protect the interest of the country in fostering rapid growth of industry and commerce. For this purpose, all good opportunities before us, particularly those that can be helpful in completely changing the face of the country at least effort, should not be left unexplored. A few such opportunities in the water-resources sector, which have not yet drawn the full attention of intellectuals in general and institutions like the FNCCI in particular, are described below.

Opportunities To Produce Cheap Electricity

The Sunkosi dam is urgently needed to save the lives and property of millions in our region. The dam would be needed for flood control as would the diversion tunnel to deliver Sunkosi water for irrigation in the Terai. There can hardly be any other substitutes. Under such circumstances, about 4,000 GWh (4 billion units) firm electric energy could be generated at a relatively small additional investment. Such generation cost of electricity could be only about one US cent per unit. We might be able to implement this project on our own without excessively increasing the present level of foreign assistance. An agreement signed between Nepal and India in 1997 endorses India's full support. India has even agreed to provide financial assistance to Nepal to conduct a detailed feasibility study. The imminent Kosi floods threaten both India and Nepal. So Nepal has good reason to expect full cooperation from the government and people of India in providing our country financial assistance to cover sizeable share of the project cost and also in buying surplus electricity at a reasonable price.

The Langtang projects operating at a head of about 1,000 meters and more could produce electric energy at a very low cost. In addition, water in abundant quantity could be supplied to Kathmandu valley for free. If the ongoing Melamchi project is not suitably modified, consumers in Kathmandu would be forced to pay a monthly water bill of about Rs. 4,000 at present price levels unless the government comes out with subsidies. The total firm power generation of the proposed four power stations could be about 2500 GWh and their total capacity 550 MW. The projects could be developed in several stages. All are very high head power stations. At such high head the unit construction cost could be only about US $ 1000 per KW capacity if the high dam cost is not considered. The generation cost of electricity could be slightly over US cents 2 per KWh.

One of the most important components of the Kosi project is the provision of a 165-km navigation canal between Chatra in Nepal and the Ganges near Farakka. This canal will link Nepal with the seaport. Nepal and India have signed an agreement to carry out a detailed feasibility study of this waterway. If the canal waterway is developed in conformity with the perception of the Water and Energy Commission Secretariat, transportation cost based on the experience of the United States could be five times cheaper than railway, and about 20 times cheaper than roadway. The Kosi canal waterway would have exceptionally favorable and far-reaching impact on industry and commerce of our country. The FNCCI should also take an interest in the Kosi navigation canal study. The previous two projects could be implemented in a short period of about 10 years. However, the Kosi canal navigation project would take relatively longer.

Nepal should pursue a policy to exploit our water and other natural resources as far as possible to achieve rapid economic growth that would help to raise the living standard of the common people. Such a policy would provide an unlimited opportunity for the growth of industry and commerce.

Exploitation of water resources alone should not be our goal. We have before us glaring lessons. For example, Bihar, just after the independence of India, was one of the prosperous states. It was very rich in mineral resources. After a half century of widespread exploitation of its vast mineral wealth, Bihar has become the poorest state of India. States like Haryana and the former East Punjab in India, and former West Punjab in Pakistan, have achieved the highest degree of success in raising the living standard of the people because they were able to exploit their water resources for the development of their own regions by building Bhakra, Mangla and other dams.