View Point (Spotlight Weekly)

33 Years of Indo-Nepal Power Exchange and YET ?

Need for Critical Rethinking on Nepal’s Export Strategy

By SB Pun

A. Nepal’s Xth Five Year Plan:

Nepal’s Xth Five Year Plan (2002 – 2007) has the following target, strategy, policy and work plans for the export of power to India:

* Initiatives will be taken to export 22,000 Megawatt electricity generated from the development of Pancheshwor, Karnali, and Saptagandaki multipurpose projects. (Note: Is this Saptakosi instead? It is a bit puzzling that while the Xth Plan mentions Saptagandaki, the DPR for the Saptakosi cum Sunkosi-Kamala Diversion is jointly under preparation by Nepal and India.)

* Electricity will be generated through bilateral and regional cooperation and in keeping with the abundance of production capacity, export of electricity will be encouraged.

* In order to increase electricity exchange between Nepal and India, inter transmission link will be developed to connect with India’s electricity grid.

* Electricity will be imported and exported as per requirement by consolidating the bilateral inter-transmission lines.

B. Indo-Nepal Power Exchange:

i. Background:

Despite the 1954 Kosi and the 1959 Gandak Agreements, the first ten-year tenure Power Exchange Agreement between Nepal and India was initialed only in October 1971. This was when Nepal’s 50% power entitlement under the Kosi Agreement (initially 10 Mw but later scaled down to 6.8 Mw due to generation reduction at the Kataiya hydel station) was availed to Biratnagar, Rajbiraj and Dharan. In spite of the barrage and water impoundment being entirely in Nepalese territory, Nepal, in contrast to India-located Tanakpur’s 70 million free units, bought this Kosi power at IC Rs 0.10 per unit. At the same time, the Indo-Nepal power exchange rate at the various border points (Bhadrapur, Sirha, Jaleshwar/Janakpur, Gaur, Birgunj/Raxual, Bhairawa, Krishnanagar, Koilabas, Nepalgunj, Mahendranagar etc.) was also pegged at IC Rs 0.14 per unit at the 33 Kv voltage level. Subsequent to the first meeting of the Indo-Nepal Group on Exchange of Power at New Delhi in January 1988, a new tariff “effective from January 1, 1988 would be at the rate of 60 paise per unit, both by UPSEB and BSEB pending the decision by the two Governments. The tariffs suggested are for 33 Kv supply. For 11 Kv supply a surcharge of 7.5% would apply and for supply at 132 Kv, a rebate of 7.5% would be admissible. The tariffs are in Indian currency.” An annual escalation to the tune of 8.5% was also agreed. This 10:14 ratio with an annual escalation tariff has been maintained by the two countries to this date. The 2003 tariff for Kosi Power stands at IC Rs 2.11 per unit while the Power Exchange rate at other border points is IC Rs 3.18 per unit.

ii. A Decade of Power Exchange (1994 – 2004):

Year: 1994 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ‘04 Total

NEA Export: 51 40 87 100 67 64 95 126 134 186 139 1089

(in million units)

NEA Import: 103 114 73 154 210 232 232 227 238 150 186 1919

(in million units)

Kosi Tariff: 0.97 1.05 1.19 1.29 1.40 1.52 1.65 1.79 1.95 2.11

(in IC Rs.)

PE Tariff: 1.36 1.47 1.67 1.81 1.97 2.13 2.31 2.51 2.72 3.18

(in IC Rs.)

Note: The 2004 figures are provisional, subject to final audit. The Kosi and Power Exchange tariffs are at the 33 Kv supply level with a surcharge of 7.5% for 11 Kv supply and a discount of 7.5% for 132 Kv supply for the Power Exchange points.

Source: NEA’s Annual Report:A Year in Review and Finance &Accounts Department

The above chart clearly indicates that in a decade, Nepal imported 1919 million units, twice as much as it exported, 1089 million units. Bhutan exported about 1,800 million units to India in a single 2003/04 fiscal year alone. With the commissioning of Kali Gandaki A, the export component began to exceed the import component from year 2003. However in 2004, the import again exceeded the export when India refused to take Nepal’s power because, according to her, it was too expensive. Due to transmission line constraints at Hetauda supposedly by our Court’s stay order, Nepal was forced to take India’s power for its eastern Biratnagar region at a time when its own system “spilled energy”. The tariff has within a decade increased about two and a half times to IC Rs 2.11 (NC Rs 3.38) per unit for Kosi power and IC Rs 3.18 (NC Rs 5.09) per unit for other power exchange points. This is at a time when the average selling price of NEA for 2004 is about NC Rs 6.64 per unit, boosted largely by the three big IPPs (Khimti 60 Mw @ Rs 5.65, Bhotekoshi 36 Mw @ Rs 5.67 and Chilime 20 Mw @ Rs 5.32 per unit). India presently buys Chukha and Kurichu power at IC Rs 1.50 and IC Rs 1.75 per unit respectively.

C. Existing High Voltage 132 Kv Power Exchange Links:

The major player in any power exchange is, of course, the high voltage transmission links. The existing three 132 Kv Indo-Nepal links developed over the years in the following entirely different context:

i. Gandak – Ramnagar BSEB 132 Kv Link: Under the Gandak Agreement, the 15 Mw Gandak power house in the Nepalese soil evacuated its entire power to the BSEB grid through the Gandak-Ramnagar 132 Kv links as there were no links within Nepal. The Agreement stipulated that the “ownership and management of the Power House” would be transferred to Nepal only “after the full load of 10,000 Kw at 60 percent load factor has been developed in Nepal from this Power House.” The Asian Development Bank, ironically, hastened this handover process in the late 1981 when the Bank commissioned in 1979 its First Power Project in Nepal, the 132 Kv Gandak-Bharatpur-Hetauda transmission line. This also happens to be the first 132 Kv high voltage transmission line to be built in Nepal. Generation-wise centrally located, this Gandak-Ramnagar link has been Nepal’s main flagship in exporting about 25 Mw of power to India. In fiscal year 2002/’03 after the commercial operation of the 144 Mw Kali Gandaki A, this link exported over 113 million units which at IC Rs 2.73 per unit netted in a valuable IC Rs. 29.5 crores to Nepal’s coffers. Sadly this has now whittled down to about 7/8 Mw just to keep India’s eastern canal power house synchronized to Nepal’s system.

ii. Duhbi – Kataiya BSEB 132 Kv Link: This second 132 Kv link was also a multilateral off-shoot when the World Bank’s Power Sector Efficiency Project, precursor to the aborted Arun III, executed the 132 Kv Duhbi – Bhantabari transmission line in the mid 1990s. Despite having the Indian companies Tata Consult and Indian Railways Construction (IRCON) as the Bank’s consultant and contractor, it was an uphill task to have the 3 Km Bhantabari – Kataiya 132 Kv line constructed in the Indian territory. However, once commissioned in 1996, this Duhbi – Kataiya link has been a saviour for Nepal’s eastern region, plagued both by load shedding and poor voltage. India, no doubt, was also a beneficiary of this link. In fiscal year 2001/’02 in the pre-Kali Gandaki A operation period, it exported 142 million units to Nepal notching up a revenue of about IC Rs. 32 crores. Even in the post-Kali Gandaki A operation period, this link continues to be India’s major export point all because of Nepal’s own default in not expediting the Hetauda bottleneck.

While on the subject of Kataiya/Kosi power, Nepal needs to bear in mind two very important issues: a) Nepal’s entitlement of 10 Mw of Kosi power at the “concessional rate” should be fully utilized. Last year’s statistics reveal that Nepal availed only about 9 million units of Kosi power when at full load factor this could mean a valuable 87 million units. India, therefore, has been from the first Power Exchange meeting in 1988 consistently pressing for the Kosi Power tariff to be made at par with the higher power exchange tariff. b) Nepal needs to undertake “due diligence” on Article 6 of the Kosi Agreement where “HMG will receive royalty in respect to power generated and utilized in the Indian Union at rates to be settled by agreement hereafter: Provided that no royalty will be paid on the power sold to Nepal.” For the last 33 years since the commissioning of the Kosi hydel station, Nepal has not received, or for that matter even claimed, any royalty for the electricity generated on Indian soil through the water impounded entirely in the Nepalese territory.

iii. Tanakpur – Mahendranagar UPSEB 132 Kv Link: This 132 Kv link is the most recent one and is the outcome of Article – 2 item 2 (b) of the Mahakali Treaty: “In lieu of the eastern afflux bund to the Tanakpur barrage, at Jimuwa thus constructed, Nepal shall have the right to: a supply of 70 millions kilowatt-hour (unit) of energy on a continuous basis annually, free of cost, from the date of the entry into force of this treaty.” Though the treaty was signed and ratified in 1996, the necessary Tanakpur switchyard and the transmission line materialized only in 2000, with each country building in its own territory the required portion. The one major hitch of this Free Tanakpur power for Nepal is that, because of the link’s radial mode of operation, Nepal cannot utilize All the 70 million units. Statistics reveal that in fiscal year 2004/’05, Nepal may utilize only 52 million units, that is 74% of the allotted free quota.

D. Proposed Three High Voltage 132 Kv Power Exchange Links:

In anticipation of the surplus power from the Kali Gandaki A power plant, Nepal requested India during the Third Power Exchange Committee (PEC) meeting in July 1997 at Delhi for the increase in the quantum of power exchange from 50 Mw to 150 Mw. The Fourth PEC meeting at Kathmandu in 1998 “after examining various proposals/formulations, suggested the following 132 Kv single circuit lines on double circuit towers:

i. Butwal (Nepal) - Anandnagar (UP): 31 km in Nepal and 45 km in UP

ii. Birgunj (Nepal) – Motihari (Bihar): 25 km in Nepal and 45 km in Bihar

iii. Dhalkebar (Nepal) – Sitamarhi (Bihar): 23 km in Nepal and 40 km in Bihar”

The meeting also mentioned that these lines could be operated only on radial mode. It was only in January 2001 at the Sixth PEC meeting at Kathmandu that “The Indian side conveyed that the government of India had agreed in principle to enhance the quantum of power exchange between the two countries from 50 Mw to 150 Mw.” In the same meeting while Nepal requested India to expedite the construction of the three agreed 132 Kv links, India stated that “it would be desirable that all aspects including commercial arrangements be finalized and settled between the two sides expeditiously.” Nepal, keen to export its surplus power, pre-emptied itself by embarking on the construction of the 132 Kv Butwal-Sunauli line in its territory through its own resources. It has now transpired that the construction of the 45 km Sunauli-Anandanagar link in India’s territory is subject ONLY to the finalization of long term commercial arrangements between the two countries. Non-finalization of commercial arrangements now means that Nepal’s Butwal-Sunauli 132 Kv link would suffer the same ignominious fate that the World Bank financed Birgunj Dry Port faced for over three years.

E. Conclusion:

i. Evolving Power Market in India: Thus, after finally emerging, in more than a decade, from the import mode to an export mode, Nepal now finds that the prevailing power exchange practice with India would need to be “restructured”. At the recent 2003 track two Indo/Nepal meeting on the Mahakali Treaty, Nepal took the “avoided cost”-principle stand, as stipulated in the treaty, on Nepal’s portion of the 3,240 Mw Pancheshwar power. India, however, sounded Nepal that she is adopting the more modern “Availability Based Tariff with the Merit Order Despatch” mode of system operation in India. Theoretically, this means Nepal bidding out daily its electricity prices in the “spot market” to the Indian Load Despatcher who would then inform where Nepal exactly fits in the que/slot and then await for dispatch instructions when to run its power plants. This is clearly not an India of the early 1990s with a near deplete foreign exchange reserves and a near stagnant economy. The Government of India’s mantra then was “expensive power is better than no power”. It is in such an environment that the likes of Dahbol/Enron came to raid. Ms Rebecca Mark, the Enron executive in India, has been reported by the Indian media as having said that Enron spent several millions dollars “to educate the Indian Parliamentarians”. A decade later, the India of early 2000 is totally different. With a comfortable foreign exchange reserves and an economy growing at an all time high of 8.2% in 2003, India is buoyant and upbeat. The government’s original mantra has now changed gear to “No power is better than expensive power.”

ii. India’s River Linking Project: It is in such an arena that Nepal’s Power Export Mantra would need to be reviewed carefully. Nature has very graciously provided us with the perennial glacial-fed Himalayan rivers. So far Nepal has been, unfortunately, suffering from the complex that its water cannot flow anywhere but India and that its power can not be sold to anyone but India – the hostaged syndrome. There is, however, a new scenario unfolding in the Indian subcontinent. The over half a billion populated Gangetic basin is already water stressed and by 2020 it could well turn into a water scarce region. To address this looming water scarcity, India is seriously contemplating launching its ambitious IC Rs 5,600 billion River Linking Project. The main flagships of the Himalayan component of this River Linking are the large storages in Nepal that our Planning Commission has, unwittingly, identified as power export projects: Pancheshwar, Karnali, Saptakosi etc. Without these storages in Nepal, India’s River Links would get very little water or none at all in the dry season, the times of dire need.

iii. Trading our Storage Jewels: Thus Nepal has been availed a unique opportunity to come out of the “hostaged syndrome” : that water flows down to India and India has other alternatives to hydro power. Nowhere in the Indian subcontinent is the complementarity of water and power stronger than in the Gangetic belt. There is, hence, the urgency in Nepal for a critical and balanced “rethinking” on its long term 22,000 Mw of power export strategy to India. The consistent “piece-meal approach” with India on all water resource projects need to be replaced by a much broader policy framework wherein Nepal decides how, when and for what to “TRADE our Storage JEWELS” if the need at all arises. This is for our political masters to decide. But the Nepalese first want PEACE at Home before the Masters begin to trade out the jewels!

(Pun writes on water resources)