HYDRO-ENERGY FOR NATIONAL DEVELOPMENT
ELECTRIFICATION AND RURAL DEVELOPMENT

Binayak Bhadra

Modernization of agriculture and promotion of cottage and small-scale industry form the essential elements of a strategy for the transformation of the hill and mountain economy of Nepal towards a more sustainable state. The generation of off-farm employment and off-farm income is seen to be more desirable than expanding subsistence farming activities. It is often observed in hills in Nepal, that, many off-farm activities reduce dependence on the forests and diminishes the dangers of ecological imbalance resulting from over-exploitation of forests.

The provision electricity, does provide a new impetus for sustainable rural development through infusion of modern technology and new skills; and it results in higher labour productivity.

Although not obvious, it is noteworthy that, decentralised hydro-power can be very well integrated with the rural development process, and can be an effective input in inducing agricultural diversification, and rural industrialisation processes. The effect of rural electrification can be dramatic, provided the complementary institutional and technological hurdles are overcome. The on- farm income generation and off-farm employment generation potentialities can only be exploited if a set of local level institutions are created and sustained. In the local institutions, for example, self-help groups are needed, to bring savings and investment to the micro-hydro plants; and user groups can disseminate the cash-crops related technologies.

So a rural electrification initiative is needed, which is rightly designed to overcome these institutional hurdles, through a participatory process (eg Rural Energy Development Program initiative of UNDP). It is seen that the local funds, for investments in micro- or small-hydro can be generated through this process. On the technology front, the innovation and adoption has to be also there. HMG/N should promote Research and Development on the basis of demand or need, at the local level.

Similarly, hydro-electricity inputs can be a catalyst in the initiation and sustainability of many cottage industries and transport systems in Nepal. The challenge is to integrate rural energy sources, such as small and micro hydro, with the (rural) agricultural diversification process. For example, it is possible to have hydro-electricity used for irrigation, and food milling and processing, so that it is used for productive means beyond lighting. Many cottage industries, such as cloth weaving have lost to imported items, largely because of higher cost of home-spun clothes. These products, or similar "new products", can be made more competitive by providing electric looms, specially for the production of wool and silk products of the local area, such as "pashmina" or "tusser silk", which have greater appeal to the tourists. Vegetables are possible during off-season if water is made available, through lift-and-drip irrigation, and this can bring cash income very quickly to the households.

Dynamics of Rural Demand

The decentralized nature of small hydro-power sources, and the electricity demands emanating from scattered and diffused settlements in the hills and mountains, indicates that both generation and distribution of small hydro electricity be localized in small clusters. This points towards the evolution of a number of decentralized and small-scale utilities in both the private sector and community forms. These electrified villages/clusters are most likely to be nucleus or growth center for marketing, small-scale industries, tourism, communication, health, education, legal and administrative services. In short, urbanization in the hills and the mountains will be promoted through the rural electrification and small hydro-power development. There are further possibilities in this direction of urbanization, with the development of small towns and urban center in the hills, which will make it possible to provide various services to larger population at lower delivery costs.

The transformation of the subsistence agricultural communities into townships specializing in agro industries based on horticultural/livestock activities and /or tourism and other off-farm activities, seems to be likely, with rural industrialization through rural electrification, provided other infrastructures such as roads/bridges, ropeways and telecommunications are provided. It may be re-emphasized that, such a transformation would entail a more sustainable type of development, in terms of optimal utilization of forest, land and water resources. Small hydro-power development therefore can contribute positively towards the preservation of the environment in the hills. The major hurdles are however likely to crop up from the institutional side.

The promotion of private sector participation in the development of small hydro-power, requires the provision of a "safety net" for the private and community investors, primarily because of the long term nature of the projects. For example, lack of an effective and operational, legal and legislative framework for the generation, transmission and distribution of hydro-power and establishment of water rights, can drastically reduce the rate of private sector investments in small hydro projects.

The existing Electricity Act allows for the development of up to 1000 KW of small hydro power project with out license, although there may be a need to get a license anyway on account of ensuring the use right of the water. It is clear that, in many areas, the water use conflicts are already manifest or are likely to manifest in the near future. Similarly, the existence of the so called "third party access to the grid" , will go a long way towards promotion of hydro-power investment in Nepal, by facilitating access to markets for the many independent power producers envisaged to emerge due to the Electricity Act.

Although, the prospects of rural development induced through rural electrification appears promising, the question at hand is:

To what extent have rural electrification helped rural development and rural industrialisation in the past? If not, why not?

There has been generally, lack of industrialization associated with the rural electrification in Nepal (Aitken et al., 1990). The same conclusions are also available through the experience in hills of India (Joshi, 1986). The disappointment with the performance of rural electrification in this regard may be well understood, however, there are a numerous set of factors which are noted to be responsible for lack of rural industrialization despite the presence of rural electricity. It is now clear that electricity is a necessary but not a sufficient condition for rural industrialization. Perhaps, rural industrialization can happen easily only after rural agriculture becomes commercialized through agricultural diversification, because, end-use diversification is not strong until commercialization and agricultural diversification takes place. The later may work through the surplus and savings accumulated and applied locally.

End-Use Diversification

There are limited end-use opportunities for utilizing the hydro-electricity, apart from use in lighting. In a recent case study (carried out for ICIMOD, in the far-western district of Baitadi) the load factor of Surnaiya Gad small hydro project was only 10% after two years of commissioning (RECOS,1993). There are also other problems associated with the inception, formulation and management of small hydel and turbine mills, which makes these projects fail. Many of these problems, such as lack of proper maintenance of equipment's and water canals, can be expected to be resolved gradually with more experienced and technically competent entrepreneurs coming to work in small hydro arena. However, lack of integration with production processes requires a modification of the approach, involving greater participatory methods, for generation of "demand" for electricity, directly or indirectly.

The main constraint seems to be limited purchasing power of the potential consumers, who have yet to take advantage of electricity to enhance their income and employment. The chicken-and-egg stasis is real, and the provision of technical information, and credit facilities, is often quite effective in enhancing diversification of end-use. Interventions are needed to break the chicken-and-egg stasis, as indicated below with a properly designed integration of small hydro with the rural production and distribution system and a complimentary set of investments in rural infrastructure, and above all the creation of local institutions for promoting these through participatory processes.

Rural Industries and Off-farm Employment Generation

The agricultural diversification and specialization, can lead to demand for irrigation and transportation services. The opportunities for agriculture based rural industries also expand with agricultural diversification. The provision of motive powers in these services and industries create demand for hydro power. However, as has already been pointed out, the expansion of transport, communication and marketing infrastructures (warehouses, storage facilities) is a highly complementary intervention on the part of the community, and local government.

The viabilities of rural industries and employment generation are not always guaranteed if local consumption and demand alone are considered. It has been pointed out else where, that existence of transport and marketing facilities often times play a critical role in making a success of these enterprises (Bhadra, 1995). The case studies of turbine mills and micro hydro installations indicate that, often times, hard nosed economic analysis has been replaced by excessive enthusiasm on the part of both entrepreneurs and credit institutions (RECOS, 1993). Such unchecked enthusiasm of course ultimately leads to unnecessary pessimism about the finance/economics of small hydro technology, and probably does more harm in the longer term. It may be noted that sound project formulation demands creativity on the part of the entrepreneurs and financiers alike, in identifying the initiatives needed on both supply and the demand side.

A diverse set of end-uses, needs to be designed, such that the small hydro scheme becomes viable, in economic and financial terms. It should be noted that for a given level of initial outlay/investment in small hydro scheme, the cost price of a unit of energy, (i.e. Rs./KWH) is inversely proportional to the load-factor or capacity utilization. In the short run with excess capacity therefore, the more energy is used, the cheaper its sales-price, is likely to be (primarily because the unutilized capacity has already been paid for). Thus in managing the supply and demand for electricity, a good degree of flexibility remains in promoting use of electricity in non-lighting applications.

Cottage Industries

Role of rural electrification in enhancing cottage industries can not be over emphasized. For example, it is clear that hand looms are no longer competitive with respect to machine made imported textiles, although mechanized looms probably are still competitive. So in envisaging a textile industry in rural areas, it would be important to take this into consideration, and see if small hydro/ rural electrification can contribute the rural industrialization process. Similarly food processing, metal working, dying, paper-making, saw milling and wood furniture making, electrical, electronic and a host of other industrial processes are possible candidates to be integrated with small hydro development.

Rural Transportation and Communication

The small hydel development can very well complement the development of electric road transportation, such as trolley buses, or electric rope-way transportation. The later is more attractive for areas where roads are either uneconomical or undesirable (as in trekking and recreational areas). The load factor improvements can reduce the selling price of small hydro electricity. Communication sector also benefits from small hydro.

Irrigation through Hydro Electricity

Use of electrically pumped irrigation during the day and during the night during the off-peak times are beneficial, specially in the context of cash crop development through provision of irrigation water (e.g. sprinkler for cardamon growing in Ilam). The cost advantages are high, for already electrified areas, especially if one compares electric pump with the diesel/ kerosene type of installation. In remote areas, in the hills with large porter transportation, small hydro are quite cost effective compared to diesel/kerosene pump sets in terms of operation and maintenance costs and also in terms of the initial outlays.

Paper presented by the author at s seminar organized by NEFAS/FES/CASC, last year on November 24, 2002

Headline | 5 Question  | Editorial | 2nd Impression | International | Past