Cover Story (Spotlight Weekly)

HYDROPOWER
Crisis On The Horizon

Although the country currently enjoys around 650 million units of surplus power, the nation could plunge back to the uncertain and load-shedding ridden days of late 1980s and early 1990s in a few years’ time as there are no projects worth their name currently under construction apart from one big project, which has also landed into controversy. With the biggest project under construction – the 70 MW middle Marsyangdi – getting delayed and even uncertain, the power projects in the pipeline may not be able to cope with the energy demand that is rising at the rate of 10 percent

By SANJAYA DHAKAL

Middle- Marsyangdi project site : High Expectations

People who remember the black-outs and load-shedding of yesteryears have a reason to worry. Thanks to inadequate planning and misplaced priority, in the next few years’ time, the country could face similar situation.

Torn between advocates of mega projects and indigenously built medium ones, the power sector has been unable to find the correct combination to the satisfaction of the both.

When the multinational contractors of the 70 MW strong and Rs 12 billion worth Middle Marsyangdi project unilaterally decided to terminate the civil works last week, it sent a chill down the spine of officials of Nepal Electricity Authority (NEA), the government utility.

The middle Marsyangdi, currently is the only big project under construction and it carries a lot of hopes and expectations. “We are concerned with the latest development, but we are also committed to complete the project at the earliest,” Janak Lal Karmacharya, managing director of the NEA said.

Years Ahead

Apart from Marsyangdi, there are two other projects that are in the pipeline - Kulekhani III (40 MW) and Chameliya (30 MW). However, they are not going to be completed any time soon because they are to be financed by donors and undertaken by the government. “In the next ten years, we don’t see considerable projects coming in operation. Either the Upper Karnali (300 MW) or the Upper Tamakoshi-Rolwaling (250 MW) should come to fill this gap. However, these two projects cost at least US$ 500 million each and cannot easily materialize as our experiences show. Each of them will take at least six to seven years to complete. As such, there are no medium sized projects in the pipeline that can be completed in the next few years,” said Gobinda K.C., general manager – generation, of the Nepal Electricity Authority (NEA). (see box)

The planned and proposed projects of the NEA in the next one decade do not include any mega projects apart from middle Marsyangdi. “Most of the projects are of small or medium size. And construction of even those smaller ones have not started,” said K.C. Compare this with the energy demand rising at the rate of 10 percent per annum and one will see a bleak future ahead.

“The delay in the middle Marsyangdi could impact on our energy scenario, which are changing pretty fast. If we don’t generate around 50 MW of additional power every year, we will not be able to cater the demands,” said Santa Bahadur Pun, former managing director of the NEA.

At present, the total installed capacity in Nepal is around 606 MW. The peak demand for this year is 470 MW and the energy demand is rising, on average, by 10 percent. According to NEA’s load forecast for Integrated Nepal Power System, in 2006, the peak demand will cross 630 MW. In case the middle Marsyangdi does not complete by then, the country will face power shortage. And even if the Marsyangdi comes along, the peak demand will rise to 750 MW in 2008, 864 in 2010 and so on. Quite clearly, the country needs to continue adding power to its system to keep up with the demand.

“Looking at the power projects planning at the moment, I see a dark future ahead. Currently, the projects like Budhi Gandaki (600 MW), Upper Karnali (300 MW) and West Seti (750 MW) are in the priority. None of them are targeted at domestic consumption. The NEA does not seem to have its separate project planning. Its priorities have been overshadowed by that of the government,” said Rajendra Dahal, editor of Himal fortnightly and prominent writer on water resources. “I see that Nepal will fall into the similar trap as was experienced in late 1980s and early 1990s.”

Hydro power projects cannot be constructed overnight. They require tedious and time-consuming studies and equally lengthy period of construction. “As such, the hydro power projects need to be planned and put in place in chains. By calculating energy demand, new projects have to be implemented one after another without a gap,” said Dahal.

However, the government does not seem too worried. “The government only makes policies and programs. It is up to the NEA to construct the projects. In our calculation, the Kaligandaki will cater to our demands till 2004 or more after which Middle Marsyangdi will come along. The NEA has made plans for more projects,” said Bishnu Bahadur Thapa, spokesperson at the Ministry of Water Resources. “Besides, there are few projects which will be constructed under the recently agreed Power Development Fund (PDF).”

Right Track

The successful completion of Chilime (20 MW), Modi (14 MW) and Piluwakhola (6 MW) have shown the light for Nepal’s future power scenario.

Gobinda K.C. believes that constructing indigenous projects with internal resources are the best alternative available. “That is the right track for Nepal,” he said.

Agrees S.B. Pun. “Definitely, we have to focus on indigenous projects. But this does not mean that we should not go for mega projects. Depending on time and tide, appropriate projects, big or small, have to be chosen,” he said.

After former deputy prime minister Shailaja Acharya advocated for small hydro power projects, there was a tremendous response from the private sector as well. “The momentum started by projects like Chilime needs to be kept up,” said K.C.

According to K.C., the NEA currently has a sufficient pool of experts and technical manpower to construct projects up to 100 MW. “There is a lot of internal capital available if one looks for it seriously. The internally-built projects will be sustainable as well as cost-effective,” he said. The indigenous projects will reflect the real cost of electricity and help bring down the current level of electricity, which is said to be one of the highest in the region with US cents 9.9 per unit.

Besides, as most projects in Nepal are run-of-the-river type, the country faces acute shortage of power in winter season when rivers run dry. Storage projects, therefore, are vital to act as stop-gap.

Another expert Dr. Ananda Bahadur Thapa adds that in order to cope with the rising demand and to deal with the fluctuation in peak demands, all hydropower projects should give attention to pond system. “This will help them generate even in lean period. Currently, there is no congruency in demand and supply. The planning should focus on the load patterns at different times and season,” said Dr. Thapa. “The value of power at peaking time is greater and planners must look into this aspect.”

Experts and officials, interestingly, seemed to agree that at the moment, the dream of exporting power to India and earn money is nowhere close to materialization. “If we dream of having foreign investors come here to build power and then export it to India, then we should forget. India has, time and again, displayed its intention against such idea,” said an expert.

The recent understanding to develop Upper Karnali (300 MW) and Budhi Gandaki (600 MW) between officials of India and Nepal also suggest that India may be willing only to buy power on its own terms like it does from Bhutan. “In such a situation, it would wiser for us to concentrate on increasing our own domestic consumption and leave the idea of exporting for future when environment might change for the better,” said the expert.

Conclusion

At present, the country has different major hydro projects with the strength of 389.15 MW and one 70 MW project is under construction. The Power Purchase Agreement has been signed with different Independent Power Producers. At present the strength of existing IPPs total 141.08 MW while IPP projects with the strength of 7.1 MW are under construction. The existing small hydro projects have the strength of 12.55 MW. There are six different diesel power stations with the combined strength of 56.75 MW. The per capita electricity consumption stands at meager 150 KWh. The domestic consumption accounts for over 95 percent of total power consumption.

According to NEA, 18 percent of the total population is connected to its grid. It serves nearly 900,000 consumers throughout the country’s 75 districts. The National Planning Commission (NPC), however, says that around 40 percent of the populations have access to electricity. “The NEA only calculates based on meters it fixes on households. But in reality, one meter is found to be shared by a number of households. By taking this into account, we have said that 40 percent have access to electricity,” said Dr. Ram Hari Aryal, joint secretary at the NPC. Dr. Aryal, who looks after energy sector, said that the Tenth Plan aims to expand the access to electricity to include 55 percent of the total population. Likewise, it plans to cover 12 percent of population under the Alternative energy.

In order to achieve the lofty targets, the authorities, however, need to go ahead with reform initiatives as well as tirelessly engage in construction of new and feasible projects so as to be able to cater to the rising demands. Only through the barrel of power projects can the country achieve industrialization and economic prosperity.

“In The Next Ten Years, We Don’t See Considerable Projects Coming In Operation”

— Gobinda K.C.

Gobinda K.C. is the General Manager – Generation, at the Nepal Electricity Authority (NEA). A veteran at the NEA, K.C. shared information about current power projects and future scenario with SANJAYA DHAKAL. Excerpts:

What are the current projects undertaken by the NEA?

The on-going projects include the 70 MW strong middle-Marsyangdi, which we had previously tried to bring in operation in 2004 but now has been delayed. It is expected to complete in 2006 or 2007 now. Other pipeline projects include Kulekhani III (40 MW) and Chameliya (30 MW). These two projects are to be financed by donors and, therefore, needs to be undertaken by the government. Because of these reasons, the efforts to construct them could take time. So, in the next ten years, we don’t see considerable projects coming in operation. Either the Upper Karnali (300 MW) or the Upper Tamakoshi-Rolwaling (250 MW) should come to fill this gap. However, these two projects cost at least US$ 500 million each and cannot easily materialize as our experiences show. As such, there are no medium sized projects in the pipeline that can be completed in the next few years.

The energy demand is said to be rising at 10 percent. So, can this rising demand be met with the existing power projects?

Well, right now the Kali Gandaki has made us power surplus. This will continue for one or two more years. Then, if the middle Marsyangdi completes in 2006, it will further help us to meet the demand for another two years. After that, we could face shortages. Particularly, we could face power crisis in winter season when the demands will be at the peak while the water reservoirs will shrink. Even if the two mega projects are started, they will take six to seven years to complete. Clearly, we could be heading to a power crisis of sorts.

Do you see the possibility of the load-shedding then?

We cannot rule this possibility out. Perhaps we might be able to increase our supply by running diesel plants or importing power from the Indian side.

In the event of apparent delay in the middle Marsyangdi project, what impacts do you think are likely in the days ahead?

Well, Kali Gandaki will cater to the demands till 2006. So, if the middle-Marsyangdi does not complete even within this period, then we will definitely have to feel the impact.

How much power are we exchanging with India currently?

Looking at our power system, one can find that while demand for power is more in the eastern parts, the supply lines lie in the western ones. Therefore, due to the incongruity in the transmission system, we are forced to import power from India. For instance, at peak demand in Biratnagar city we are compelled to import power from Indian side though we may have surplus power because our transmission is not up to the mark. At present, there is a provision of 50 MW of power exchange between the two countries.

NEA has successfully completed project like Chilime (20 MW) indigenously. Has it any plans to expand this experiment?

I personally think that if we are allowed to pursue this line, the present problems may not have surfaced. For instance, say if we presently have the installed capacity of around 600 MW and our demand is rising by 10 percent per annum, we need to have at least 60 MW projects coming in operation every year. We can do this by mobilizing our internal resources and technical capabilities. Whether by NEA alone or by its joint venture with private sector, such projects can be constructed. This has been made amply clear by the successful completion of Chilime (20 MW), Ilam (6 MW) and Modi (14 MW) projects. Besides, when constructing these projects on our own, we do not have to face any kind of conditions or pressures that are commonplace when building projects under foreign assistance. Unfortunately, after the Chilime came into operation, we have not been able to plan any other similar projects and the technical manpower that was involved in the project is just sitting idle. We should have been able to take advantage of their skills. I believe that this is the best track for us to move ahead. In fact, there is no better and sustainable alternative to this. The 144 MW strong Kaligandaki is generating 840 million units of electricity every year and these projects, together, are generating 200 to 250 million units. It proves that we can fulfill our domestic demands even by pursuing such indigenous projects.

Are such indigenously built projects sustainable?

Maybe, two decades ago when there were no possibilities of building such indigenous projects as we lacked internal capital source, technical manpower, skills and expertise, the foreign-assisted mega projects sounded good. But now the situation is different. We can build projects up to 100 MW on our own and successfully design, construct, supervise as well as maintain them. Furthermore, such projects could be built in minimum cost and would reflect the real cost of generating hydropower. There will be no strings attached and we can select our own contractors, materials, machineries, so on and so forth. We have thousands of rivers and streams and we can choose best among them to construct such projects. Though, we have reached into PPA with some institutions to construct small projects of 10 to 12 MW, they have not moved ahead yet. And another important point is that, we can also provide dedicated supply to India from such projects. We can build particular projects keeping in mind to provide dedicated supply to India and earn money from that. This will help us in our balance of payment.

What is the total annual revenue of the NEA?

At present, the annual revenue is around Rs 12 billion. Out of this total, we have to pay Rs 4-5 billion to the Bhote Koshi and Khimti projects alone.

What do you say about the concept of imposing seasonal tariffs to provide relief to consumers?

Well, this is a good concept. In rainy season we can run our power-houses in full capacity while demand shrinks. We can encourage industries to obtain power at cheaper rates during the period. I don’t see much impact on the domestic consumption but we can encourage seasonal industries that can utilize maximum power in rainy season. However, we must not forget that the current surplus is temporary.

Does NEA have plans to upgrade its power projects?

That is a constant process. We regularly maintain and upgrade power projects. In fact, the latest modern technologies are much more efficient and by just changing some turbines from the old projects, we can also increase generation by some extent.

What do you think about the possibilities of exporting power to India?

We already have a power exchange treaty though which we are exchanging around 50 MW of power. I think if commercial enterprises, on both sides, are allowed to exchange power, that will be more effective. If it is left to the governments, then I don’t see much happening. The debate on power export to India has not changed much in the last thirty years that I have been here. In fact, it may not be wise for us to expect India to just buy our power because many issues could be involved here. There is, indeed, acute power shortage in India and we could help them with the supply. It is said that they will need additional 100,000 MW of power by 2010. There is also another natural benefit to us – when they face peak demand in summer, we can run our powerhouses more efficiently due to increased discharge in the rain-swollen rivers. But environment has to be made conducive first for the exports to materialize.

What do you think had been the impact of cancellation of Arun III project in 1995?

It was huge. The hydropower projects act as catalyst for development. As the project site was located in eastern Nepal, the region could have benefited a lot in terms of road access, power supply and increased industrialization. I think those who advocated for the cancellation of Arun III should realize what blunder they committed. Right now eastern region is the second most energy consuming region (with 100 MW of demand) after Kathmandu valley. This could have changed had the Arun been constructed. A whole lot of scenario could have changed.

“Elected Representatives Are More Enthusiastic To Do New Things In Their Areas”

— Sanjaya Adhikary

SANJAYA ADHIKARY, National Program Advisor of the LGP/PDDP, has more than five years of experiences of managing decentralization related programs. Following the lapse of more than one and half years the government has appointed leadership at the DDCs, Municipalities and VDCs level. Adhikary spoke to SPOTLIGHT on various issues. Excerpts:

How do you see the appointment of chairperson and members at the local bodies in the context of decentralization efforts? Will it help to run the development programs in the rural areas than earlier?

Under the local bodies run by the bureaucrats, the Local Development Officers (LDOs) were, due to the absence of local democratic governance, not only implementers of local development programs but also the decision-makers. Since the LDOs are not elected, they are not mandated to be directly accountable to the rural populace. With the nomination of the new DDC chairperson and vice-chairperson, the situation, under the present context, appears to be better and it will help if and only if service delivery can be improved at the most needy areas. It should, however, be a temporary arrangement and local elections should be held soon.

Since the government has said that this is a temporary phenomenon, how do you think will other development partners respond to it?

The government has said that this is a temporary phenomenon and it will hold local elections soon. But the key question is how "soon" is that soon. Does the state have the luxury to wait till the point of no return! Looking at the country’s situation, one does not tend to believe that soon is will be too soon. A year ago, the Government expressed similar commitment but the local bodies are still without their elected representatives. I think, the role of the development partners, in this critical juncture, is to support development efforts at the local level by taking proactive development response in the most needy areas while advocating for the need of democratic governance mechanisms and processes.

You have been working with the local bodies for a long time. How do you find differences in working with elected representatives, civil servants and nominated representatives?

There are major differences in working with them. By definition, democratically elected representatives are accountable to the people and they have to invariably listen to the voices and development priorities of their constituents. When oriented effectively, I have experienced that, they are more enthusiastic to undertake meaningful development initiatives. They are more concerned to opening avenues for positive change in the lives of local people. Since the future of elected representatives is determined by their voters, they would like to see that they win hearts and minds of the local people through responsive development work and thereby get reelected. Working with bureaucrats mean that they are accountable to their higher officers rather than to the people that they intend to serve.

Don’t you think the nominated representatives can bring certain change?

The nominated representatives certainly can bring changes and deliver improvements to services through greater citizen participation. Since they are also locals they know the local situation and they can get the development moving at the grassroots. More importantly, they can take this situation as the challenge of their lifetime and demonstrate what they are capable of doing.

At a time when the situation is deteriorating in the village level, how does your organization implement the programs?

The on-going conflict has adversely affected effective implementation and monitoring of local development programs and the pace of development has indeed reduced. At the same time, the conflict has also opened new avenues for development thinking and practice. There is now a heightened understanding on the part of many development practitioners to design and implement conflict sensitive local development programs that can provide benefits to underprivileged rural poor. For that to happen, the local development programs have to retuned to working "on conflict" and not ignore conflict. PDDP/LGP has been reoriented towards "do not harm approach" to maximize "connectors" and minimize "dividers". A total of 100 new VDCs have been added in the remote districts of the Mid and Far-west regions to squarely address some of key issues of conflict.

Don’t you feel difficulties in implementing the programs?

There are, of course, many challenges to effectively implement the programs at the local level. But the program is more driven by the earnest commitment of our local stakeholders and of the mobilized communities to take development into their own hands. Achievements made and experiences gained by the program in the sixty districts have enabled the program to face the challenges positively and move development process forward.

What types of problem are you facing?

Well, the greatest problem is the fear from the possibility of the impending attack. This has resulted in low mobility of local staff in the conflict-affected areas, which has resulted in reduced monitoring of program-supported activities. Moreover, the reluctance of professional bureaucrats to work in the remote parts of the country is well known. While the greatest need for development response is in the conflict sensitive areas, the institutional and human resource environment is not conducive there. It is an unfortunate situation.

Do you have any new programs for DDCs?

The program has been supporting to enhance institutional and management capacities of DDCs for more than five years now. The increased capacities have enabled the DDCs to be more responsive towards their mandates and also be accountable to their rural population. In the absence of locally representatives in the DDCs, the program has been consolidating its achievements and focused on system maintenance of DDCs rather than on newer activities.

You have been running one of the successful participatory development programs for the decentralization and poverty alleviation in the rural areas. How is it functioning right now?

The program has been guided by a three-pronged approach to participatory and people-centered local development. First, shifting decision-making closer to the poor communities by devolving authorities to local bodies helps poverty reduction as long as resources and capacity building accompany new responsibilities. But that is only one third of the package. The other, which is very important, is mobilizing the poor communities to organize themselves into self-governing local institutions to advance their interests, prioritize their development needs, access development resources and held local bodies accountable.

How does your program help to upgrade the capacity of local bodies?

Well, the program has come a long way in capacity building of the local bodies. While capacity building package initially consisted mainly of planning and monitoring tools and information systems, the program now uses a "business model" to enhance capacity of local bodies. The model has seven components consisting of strategic management, information management system, working processes, organization and culture, human resource development, financial management, and coordination and linkages. I see a significant change in how many DDCs now manage their mandated functions and services with increased effectiveness and efficiencies when compared to before - say five years ago. It is irony that while they have now the improved systems, tools, processes and experiences in place what they don't have is the democratic political/institutional set up at the district level to make greater use of the developed tools for improved service delivery. I hope our leaders realize this soon and re-institute democratic governance processes.