Opinion (Spotlight Weekly)

NEPAL ELECTRICITY AUTHORITY: Misleading Report

By Dr. AB Thapa

Very recently the Nepal Electricity Authority (NEA) has published its annual report 2003/04 which has been presented in full detail in newspapers such as “The Kathmandu Post”. The report gives a very gloomy picture of the NEA. It is stated in the report that the NEA registered a net loss of NRs. 1.78 billion despite the fact that the electricity tariff of the NEA is one of the highest in our region. Most of the NEA revenue went towards payments to IPPs (private developers). About 43 percent of the total revenue generated was utilized in purchasing energy from IPP’s and about 30 percent to pay the HMGN in the form of interest, principle and royalty. The cost of operation and maintenance of the NEA operated power stations is about 9 percent. The NEA is perfectly right in pointing accusing finger at the IPPs. But it would be wrong to conclude that the burden of interest and principles levied by the HMGN on external loans would have even slightly contributed to worsening of the NEA’s financial situation. The fallacy of the argument about the excessive burden of the repayment to clear the HMGN loans is revealed if the NEA report is slightly scrutinized. In reality the present financial problems of the NEA are mainly of its own making. The NEA was warned of the dire consequences of careless handling of the IPP projects a long time ago. Water and Energy Commission had even circulated a proposal suggesting an alternative plan that would have been eight times cheaper by comparison with the Khimti, Bhote-Kosi, Indrawati type hydropower projects.

A Big Confusion

During the past financial year, according to the reporting of the NEA, the electrical energy available for use within the NEA system totaled 2381.496 GWh. This comprised of 1345.654 GWh obtained from the NEA’s own hydropower plants with a total installed capacity of 389 MW, and similarly 840.275 GWh purchased from the IPPs owned hydropower plants with a total installed capacity of about 141 MW. These data explain that on an average the NEA owned hydropower plants had been running for only 3460 hours in a year whereas the IPP hydropower plants ran for 6000 hours. As a rule of thumb, the hydropower plants with a small storage reservoir to regulate the river flow on a daily basis according to the need for water to meet the peak energy demand are expected to run on an average for about 5000 hours or slightly less in a year unless the number of the average operating hours in a year has to be decided from some other specific considerations. In case of the hydropower plants without a storage pond to regulate river water on a daily basis, the installed capacity is decided solely on the basis of the availability of guaranteed river flow all the year round ( it is usually 90% probable discharge) since such plants would not be able to operate at higher capacity to meet the demand for peaking energy that would have required water supplies to the turbines in excess of the daily available guaranteed river water flow. This scenario would certainly change and we would have to adopt installed capacity in excess of the firm capacity if we are in need for seasonal energy.

It is really frightening to note that at present all IPP hydropower plants ( with the exception of the Chilime Hydropower) without any storage pond to regulate river water on a daily basis are perhaps having installed capacity three times greater than the firm capacity ( in case of Khimti Project the installed capacity is 60 MW whereas the firm capacity is only 18 MW). As a result, they are generating enormously large surplus seasonal energy , which is totally wasted. A brief analysis of the NEA report would raise fear in the mind of all sensible people that the NEA could soon become bankrupt if the present laissez-faire hydropower development policy is allowed to be continued The followings are some of the main concerns.

NEA Forced To Shut Down Its Power Stations

The NEA might be shutting down partially or fully many of its own hydropower plants for a considerable length of period each year particularly in wet season to receive electricity purchased from the IPP owned hydropower plants. As a result, the NEA owned hydropower plants are operating each year on an average less than 3500 hours.

Who Checks Electric Meters

The yearly average operating period of 6000 hours of the IPP owned hydropower stations is somewhat too high because the installed capacity of such hydropower plants is several times greater than the firm capacity. As mentioned earlier, the installed capacity of the Khimti Project is 60 MW despite the fact that the firm capacity is only 18 MW. It appears all the more doubtful since some of the IPP owned hydropower stations have to be completely shut down for a long period each year to divert water for irrigation. Moreover, during the wet seasons the Bhote-Kosi, Indrawati and Khimti rivers would be heavily laden with sediments. As a result, the hydropower stations drawing water from those rivers would have to be often shut down to flush out the sediments that would, to a considerable extent, curtail the electricity generation.

It would not be a great surprise if the meters to register the supply of electricity from the IPP hydropower stations might not be in perfect order. Needless to say that such meters should be periodically checked and certified. Past experience has shown the NEA’s poor record of keeping the instrumentation in good condition. When the Kulekhani High Dam was on the verge of collapse in 1980s due to geological problems, at that time it was found that many of the instruments set up during the construction period to monitor the future movements of the dam body were hardly functioning.

A Scenario Without IPP Hydropower

What would have happened now if we did not have any of the IPP owned hydropower plants? The NEA owned hydropower stations alone would have generated about 1940 GWh per annum if it is presumed that they operate 5000 hours each year. Similarly the NEA owned thermal plants with a total installed capacity of about 56 MW would have generated about 150 GWh if it is presumed that they would be operating on an average 3000 hours each year. If we would have purchased about 300 GWh electricity( perhaps about 75 MW in capacity) from India ( in the year 2002 it was 238 GWh ), the total electricity available for use would have been about 2390 GWh which is equal to the availability of electricity for use last year within the NEA system. Similarly the total capacity in the system would have been about 520 MW against the last year’s peak demand recorded at 515 MW. It implies that the electricity procured from the IPP owned hydropower stations is now almost totally wasted. In other words we are paying almost in vain Rs. 5.32 billion (or 43% of the NEA revenue) to purchase electricity from the IPP owned hydropower stations.

Future Load Shedding

The IPP owned hydropower plants are not going to be helpful to the NEA in future also to mitigate crisis of power shortage when the demand for electricity further increases. The total present firm capacity of all the IPP owned hydropower stations might be only about 60 MW during the critical dry season months when the demand for electricity is the highest despite the fact that the present total installed capacity is about 140 MW. As a result, the real total generating capacity in the system would be only about 505 MW( excluding procurement from India) which is less than the maximum peak demand recorded at 515 MW last year. Thus in the coming winter reason load shedding would be inevitable if electricity is not imported from India.

Can We Export Seasonal Energy?

It is quite unfortunate that some of our friends in the Government are placing high hopes on export of seasonal energy to India to promote IPP projects. We should beware of such misleading perception. Our own study of the Upper Karnali Project carried out with the assistance of the World Bank explains that the value of our seasonal energy to Indian system to displace temporarily fossil fuel could be only about 10% of the value of the firm energy whereas the cost of energy transmission to India ( wheeling charge) could be somewhere around 15% of the total value of the mostly firm energy based on the recent agreements reached between various states of India. Thus we would be incurring a loss by exporting seasonal energy if special circumstances did not warrant India to buy such energy at a fairly high price.

Have We Engineers No Shame?

Very recently the NEA is about to take a fatal decision on the 300 MW Upper Karnali Project that would be extremely harmful to our nation and it would also be a big shame on all Nepalese engineering community. We, in engineering profession, would be seen to have misled the country to take such decision by holding back the true findings of the 300 MW Upper Karnali Project study carried out under the aegis of the World Bank that warns us of the dire consequences if this project is implemented.

Nepal is now facing problems of convincing the international donor community to lend annually about US $ 500 million in the years ahead to launch development works for poverty reduction. It would certainly surprise us to learn that the 4,000 MW Upper Karnali Storage Project alone could provide Nepal annually about US $ 400 million in royalty to our country immediately after the completion of the project construction, despite the fact that this project is far smaller than the Karnali Chisapani Project. It can easily be seen that the Upper Karnali Storage Project is certainly the best among the projects identified so far in Nepal for the generation of cheap peaking power.

The Nepal Electricity Authority is soon going to decide to implement the 300 MW Mini Upper Karnali Project that would displace the 4,000 MW Upper Karnali Storage Project. ( Please read the article “NEA Killing Goose Laying Golden Eggs” - SPOTLIGHT May 21, 2004) The 4,000 MW Upper Karnali Storage Project and the small 300 MW Mini Upper Karnali Project yielding very limited benefits are mutually exclusive. Thus, the Nepal Electricity Authority is about to kill the goose that lays the golden eggs. However, it is hoped that the NEA would carefully go through the Upper Karnali Project study report and refrain from taking the disastrous decision to implement the small 300 MW Upper Karnali Project that would also have portrayed all of us as utter fools in the eyes of foreigners.

(Dr. Thapa writes on water resources)