Opinion (Spotlight Weekly)

Terrible Loss : Upper Karnali Project

By Dr. AB Thapa

It is rumored that the Government of Nepal has already made up its mind to grant permission to the private developer to implement the 300 MW Upper Karnali Mini Project that would preclude the viability of the mammoth 4180 MW Upper Karnali Storage Project against the clear advice of the experts who conducted the feasibility study of this project carried out under the assistance of the World Bank. It can be said with total confidence that the 4180 MW Upper Karnali Storage Project can be regarded as one of the very few large-scale hydropower projects suited to produce extremely cheap peaking energy in great demand across India. Thus Nepal would be forfeited the opportunity to earn in net revenue several hundreds million dollars per annum from the export of the electricity. Government officials are seen to be trying to heap the blame on their predecessors to justify their decision to pave the way to grant permission to private developer to implement the Upper Karnali Mini Project without considering the fact that this project would have disastrous consequences for the Upper Karnali Storage Project. Shall we not be held responsible for this type of action? Are we justified to kill the 4180 MW Upper Karnali Storage Project to keep our words to a private developer? Let us see how other countries acted under far more complicated circumstances. Government of Canada completely backed out from ratifying the Columbia River Treaty ( aimed primarily at implementing the Mica Dam Project) despite the fact that the Treaty had had been initialed at the White House and ratified by the US Senate.

Canada Backed Out of Hydropower Deal

The Progressive Conservatives’ party Prime Minister of Canada John Diefenbaker was a nationalist. He took a firm stand on the Columbia River Treaty between the USA and Canada in defense of Canada’s national interest. The Columbia River Treaty was signed at the White House in January of 1961. Over the course of the following summer, the United States Congress held hearings in connection with the Treaty , which ultimately led to its ratification. In Canada, the approval process was virtually halted. Canada realized after signing the Treaty at the White House that it did not meet the aspiration of the Canadian people. The Treaty effectively remained in limbo. Diefenbaker’s government fell in 1963 election contest with the liberals. Soon after, a new government was formed under the leadership of the Prime Minister Pearson who was regarded politically close to the USA. But he too never compromised on water resources matters in dealings with the USA.. Prime Minister Pearson agreed to step in to ratify the Treaty only after his meeting with the US President at Hyannis Port. In that meeting it was agreed that the Treaty would be implemented in a way which met the Canada’s concerns.

Upper Karnali Storage Project

The Karnali river makes a big loop in its lower reach near a place called Asare. From here the river flows in the southeast direction for about 25 kilometers, after that the river makes a complete reversal in its direction. The river comes back to a point just two kilometers away from its earlier position near Asare. There is a drop of about 150 meters in Karnali riverbed elevations between these two positions merely two kilometers away from one another. There is a good site near Asare to build a high dam with a large storage volume. Such unique feature of the topography on this stretch of the Karnali River makes this river extremely attractive for a large storage project for the generation cheap peaking power. The project to utilize this bend for power generation was originally known as the Karnali Bend Project. Later on the name was changed to Upper Karnali Project.

World Bank Supported Study

The Karnali basin is the first to arouse keen interest in Nepal's vast hydropower development study. There are several attractive sites for the generation of cheap hydroelectric energy in this basin. In early 1960s an agreement was signed between HMG of Nepal and the UNDP for providing assistance to conduct a survey of the Karnali river and its main tributaries culminating in a pre-investment report indicating hydroelectric potential of the river as well as the best sites for hydropower development. The final feasibility report and general basin development report were submitted in February, 1966.

In 1980s further studies of the two projects were carried out under the aegis of the World Bank. They are the feasibility study of the Karnali Dam Project (Chisapani) and the pre-feasibility study of the Upper Karnali Hydroelectric Project ( Karnali Bend Site). Unfortunately, the scope of the Upper Karnali Project study was deliberately made very narrow. The size of the project was scaled down to be suitable to meet the Nepal's internal power requirement completely disregarding its vast potential to generate exceptionally cheap peaking energy for export to India. Thus there are at present two Upper Karnali projects. They are the 300 MW Mini Upper Karnali Project and the 4180 MW Upper Karnali Storage Project. These two projects are mutually exclusive. In other words, it would not be possible later on to build the 4180 MW Upper Karnali Project without sacrificing the 300 MW Mini Upper Karnali Project. Though the Upper Karnali storage project study was not laid in the terms of reference, the pre-feasibility study report has clearly warned the government about the serious consequences if the 300 MW Mini Upper Karnali project is implemented. The relevant excerpt from the WORLD BANK supported Upper Karnali project study report is presented hereinafter.

Findings of Feasibility Study

The World Bank supported pre-feasibility study team must have realized the great importance of the Upper Karnali Storage Project. As a result, the team has virtually disapproved of the 300 MW Mini Upper Karnali project. The relevant excerpt from the World Bank supported study report is presented below that warns us about the dire consequences if the 300 MW Mini Upper Karnali Project is implemented.

“Even when assuming that the KR 1 A run-of-river project ( small 300 MW Upper Karnali project) is a sunk cost, it will be seen that a single large power plant (4180 MW) associated with the major storage project is less costly than the combined cost of smaller plant at the same location (3532 MW) and a second power plant at the foot of the storage dam ( 408 MW) discharging directly into the KR 1A run-of-river project head pond. Based on this assessment, it appears that the later development of the major hydro storage project at Site KR 1 ( mega Upper Karnali Project) would cause the KR 1A run-of-river project to be effectively discontinued. There may be limited opportunity for secondary energy generation during the periods of spillage”.

Royalty from the Upper Karnali Storage Project

Nepal might be able to get easily up to 50% of the total power in royalty from the private developers if they are properly briefed about the impressive advantages of this project. By comparison with the Karnali Chisapani Project the firm head of the Upper Karnali Project would be almost two times greater. It can be derived based on Stage A Optimization Study Data of the World Bank financed Karnali Project Study report that per KW installed capacity construction cost of the Upper Karnali Storage Project could be only about 70% of such cost of the project at Chisapani. It need not be explained that the firm power generation of the Upper Karnali Storage Project operating at two times bigger head would also be two times greater from the use of same volume of regulated flow of the Karnali by comparison with the Karnali Chisapani Project. In terms of energy production the generation cost of per KWh firm energy of the Upper Karnali Project could be only about 40% of such cost of the Karnali Chisapani Project. Thus, Nepal would be justified to require that the private developer pay about 50% power in royalty because such royalty would still be less than the total additional generation solely from the use of the topographical advantage without involving further investment.

The total generation of the Upper Karnali Project could be about 10,000 GWh. Nepal could get about 5,000GWh in royalty. At present there is a big surge in demand for peaking power in India. The generation cost of such power as explained below could be about US Cents 12 per KWh. The amount in royalty from the developers could be as high as US$ 400 million per annum if it is assumed that the electricity would be sold at a price of only US Cents 8 per KWh.

Power Market

At present India is experiencing an acute shortage of peaking energy. At the beginning of the Eight Plan, the total peaking shortage was 20% whereas the energy shortage was only 9% of the total power generation. The thermal and nuclear power stations are suitable to supply electricity to meet the base load demand of the system. It is not economic to use them to supply peaking energy. Gas turbines can be used to meet the peak load demand because of low specific investment costs and quick start up. However, the efficiency is limited due to the high exhaust gas temperature of the turbine.

India is making every effort to improve the hydrothermal mix for ensuring better system operating condition. However, the share of hydropower in the overall power generating capacity has steadily declined since the last few decades. The share of the hydropower in the overall power generating capacity was 50.6% in 1963. But few years before it has come down to only 25.66%.

India Desperate For Peaking Power

Most of the good sites for the hydropower development have already been developed in the Northern India. At present India is implementing even those hydropower projects that possess unusually difficult and challenging features and such projects can be hardly considered feasible even for being developed to cope with moderate peaking demand. One of such projects could be the 1500 MW Nathpa Jhakri project , which was few years back under construction in Himanchal Pradesh. The 27.4 km long headrace tunnel of this project , which has a diameter of 10.15 m, is said to be one of the longest in the world.

There are even now several good sites for hydropower development in the North-Eastern India , which have not as yet been used. However, such sites are at locations far away from the load centers. As a result, the Government of India in recent years had to embark on a plan to develop the pump storage schemes

Pumped storage schemes are provided for the generation of peaking power, even though there is a net energy loss in the system because more energy is consumed in pumping than can be produced by the turbines. The cycle efficiency of a pumped storage plant can usually be between 60 and 70 percent. It implies that such a plant consumes about three units of electricity to produce only two units during the peak hours. The cost of the peaking energy produced by a pumped storage plant will have to take into account the investment to be made in the construction of the pumped storage plant. The per unit capacity investment cost of a pumped storage plant can be comparable to the cost of a similar hydropower located at a favorable site. The total per KWh generation cost of peaking power produced by pumped storage plant could be about US Cents 12 if it assumed that procurement price of the thermal energy would be about US Cents 5 KWh and the operational cost of only the pumped storage plant will be about US Cents 4.5 KWh.

So far 56 major pumped storage schemes with a total installed capacity of 94,000 MW are reported to have been identified in India. Already few pumped storage schemes such as the Nagarjun Sagar (700 MW), Kadampani (400MW), Kadana (240MW), Panchit (40MW), Paithan, and Ujjani are either in operation or under various stages of construction. Bids were being evaluated some years ago by the West Bengal authorities for a civil work contract for the 900 MW pumped storage facilities at Purulia on the Ayodhya hills. Three other pumped storage facilities of similar capacity are being planned. The pumped storage at Sardar Sarovar (1200 MW) and Tehri (1000MW) are planned for construction in near future.

In Conclusion

It is intended to draw the attention of the concerned Government agencies and various institutions involved in Nepal’s water resources development to terrible loss to the nation if it is allowed to implement the 300 MW Mini Upper Karnali Project.

(Dr. Thapa writes on water resources)