Opinion (Spotlight Weekly)

World Bank, PDF And Government

By Dr. AB Thapa

It is reported in local newspapers that the World Bank has very recently decided to grant US $ 75 million in loan to Nepal to provide fund to private hydropower projects It should be noted that in the past the international donor agencies like the World Bank and the Asian Development Bank had provided generous assistance in development of our country’s water resources. Such assistance greatly helped our country to commence the activities to improve the living condition of the ordinary people. We were regularly receiving valuable advise in course of the implementation of the projects. We were cautioned in time whenever it was found that we were going to make mistakes. However, in recent years Nepal’s ability to handle even small water resources projects is in sharp decline. International donor banks too are not seen to be seriously concerned to ensure that the water resources projects are properly planned and implemented. As a result, almost all hydropower projects implemented by private developers under power purchase agreement ( PPA ) are becoming a great liability to our country. It is hoped that the power development fund (PDF) earmarked for private hydropower projects would not prove to be a bait to cripple the Nepal Electricity Authority (NEA) by siphoning off its entire earnings.

Government Totally Incapable

Until now our government’s performance in handling private developers of hydropower projects has been extremely shocking. Concerned government departments seem to be totally incapable of performing their duties. They endorse whatever the private developers propose. There is nobody from the government side to check the works of the private developers at the site. As a result, in case of the Bhotekosi Project the concerned Department and the Ministry came to know that the installed capacity of that hydropower project had been raised from 35 MW to 45 MW completely defying the power purchase agreement only after the completion of the construction works. Government learnt about it, when a claim was lodged by the private developer with the government to compel the NEA to buy extra power to be generated entirely during the monsoon season which is going to be totally wasted.

Nobody Verifies Project Costs

It is alarming that the government is not seen to be concerned to verify the estimated cost of the project submitted by the private developers to determine the purchase price of the electricity. Let us take the case of the 60 MW Khimti Hydropower Project already built by a private developer. It is a very attractive hydropower project because it is planned to operate at an extremely high head of about 650 m. The power tunnel is not too long. On an average the per unit investment cost of the hydropower project of the size of the Khimti Project operating at such a high head would have been slightly over US $ 1,000 per KW. The Khimti Hydropower Project, like the Marshyangdi, Kaligandaki and other projects, does not have expensive hydraulic structures to store water to operate the hydropower in full capacity in evening hours when the demand for electricity is at the peak. As a result, it would not have surprised anyone if the unit investment cost of this project had been even below US $ 1,000 per KW. According to the feasibility study report of this project prepared by the NORPOWER, the estimated cost of this project was about US $ 60 million. Thus the NORPOWER estimated that the unit investment cost of this project would be only US $ 1,000 per KW. It came as a terrible shock to everyone to learn that the private developer succeeded in forcing our government to accept that the estimated cost of the Khimti Project would be US $ 140 million ( or US$ 2,350 per KW) for the calculation of the selling price of the electricity to the Nepal Electricity Authority. The Asian Development Bank had provided loan to the private developer through our government. It indeed surprised us how the private developer could ridicule the ADB experts involved in Khimti Project appraisal.

The ADB Concern In Decline

The Melamchi Project could be the next casualty of the Asian Development Bank’s feeble supervision. People want to know why the Yangri and Larke rivers especially reserved for augmenting the Melamchi flow in very near future had to be leased out to private developers to build hydropower projects.

The UNDP supported feasibility study report of the Melamchi Project explains that around the time 2011 the total system demand for water supply ( in Kathmandu valley) is expected to reach the total supply from in-valley surface sources and Melamchi. Thereafter the next stage of the development of the Melamchi will be required. This entails diversion from the YANGRI and LARKE rivers that flow to the east of the Melamchi. Water would be diverted by tunnels to a point upstream of the Melamchi intake. The total length of the delivery tunnels is expected to be over 12 kilometers. The Larke and the Yangri are the main tributaries of the Indrawati River. After the diversion of the Yangri and Larke rivers into the Melamchi there would hardly be any flow in the upper reach of the Indrawati River during the dry season.

It confuses every common man to understand why it was allowed very recently to lease out the Indrawati River to private developers to build a cascade of hydropower projects in all probability with the tacit consent of the Asian Development Bank. One hydropower project is going to be completed very soon and the others are at the planning stage. Concerned agencies at the policy making level in the government and the Asian Development Bank deeply involved in Nepal’s power sector should be able to explain the rationale behind the decision to lease the Indrawati River to private developers to build a cascade of hydropower projects. Couldn't we find some other suitable rivers any where in Nepal to be leased out to private hydropower developers?

Why Hydropower Component was Dropped?

There exists a big potential to generate cheap electricity by using the diverted flow of the Melamchi River The elevation of the Melamchi intake weir is 1715 m and the inlet to the treatment works near Sundarijal is 1409 m. Thus there is an enormously big gross head of 306 m. The UNDP report has clearly stated that the net increment in investment ( the cost of the powerhouse located near Sundarijal with electromechanical equipment) needed to implement the hydropower element is relatively small as the intake headrace tunnel and penstock are already in place for conveying water to the treatment works. According to the feasibility report of the Arun-3 Project operating at a head of about 300 meters ( same as the Melamchi Hydropower ) the cost of electromechanical equipments and power station civil works is only about 30% of the total project cost. The UNDP study has concluded that it would be worth constructing the hydropower and it could make a contribution to reducing the cost of drinking water to Kathmandu. The UNDP report explains that even before the diversion of the Yangri and Larke rivers the total annual generation of the Melamchi hydropower would be 60 GWh and out of it the firm power generation would be 40.5 GWh. The Melamchi hydroelectricity generation would have been close to 50% of the annual generation of the Kulekhani No.1 hydropower project. After the diversion of the Yangri and Larke the electricity generation of the Melamchi hydropower plant would be further increased. It surprises anyone to learn that the Melamchi hydropower component has been dropped. The Asian Development Bank should seriously look into this matter to find out why the power component of the Melamchi project was allowed to be dropped despite the fact that the UNDP report has concluded that the power station would be worth constructing and could make a contribution to reducing the cost of drinking water to Kathmandu residents. It is still not too late to reintroduce the hydropower component if there is not strong justification for the hydropower component to be dropped.

World Bank Must Be Concerned

The Kosi river development has emerged as the most important task before us requiring immediate attention of the whole country. The Kosi river is now on the verge of shifting to the east far away from its present course. The peoples of Nepal and India are heading for a natural disaster of an unprecedented scale. Provision of dams in the drainage area with very big storage volume is the only lasting solution to the Kosi flood problem. It is the opinion of the renowned experts and scientists involved on the Kosi study. In 1997 an agreement was reached between India and Nepal to take up urgently Kosi development studies. Astonishingly, about one year later the World Bank approved loan to conduct the feasibility study of the Dudh-Kosi Dam Project turning a blind eye to the fact that the Dudh-Kosi Dam Project and the Kosi Dam Project are mutually exclusive. Moreover, the Dudh-Kosi Dam Project would have significantly reduced the irrigation and power benefits to be accrued to Nepal from the Sun-Kosi Dam Project. About two years later even tenders were called to lease out the Dudh-Kosi Dam Project to the private developers.

Handling of the Dudh-Kosi Dam Project is one of the funniest episodes. It proves that our government organizations are totally incapable to deal with private hydropower developers. Similarly it indicates that the World Bank should not abandon its obligation to be on the watch for mistakes in planning and implementation of our water resources projects. It is very important to ensure that the PDF money earmarked to provide financial support to private hydropower developers would not be spent to preclude projects critical to our country’s future needs.

(Dr. Thapa writes on water resources)