Nepali Times Asian Paints
Guest Column
If power projects were horses, beggars would ride


Once again, a flurry of news portending the imminent resurrection of late Arun III and other hydropower projects has the media\'s blood racing. The euphoria misses the main point: projects are only a means to an end, which is to provide Nepal\'s industry and commerce cheap and reliable electricity that gives them a competitive edge. Neither the proposed projects nor the manner in which they are being dealt with will lead Nepal to that goal.

If projects were horses, beggars would ride. At $5000/kW (four times higher than the going market rate) the late Arun III was a bad project. But it was, and continues to be, a good site that can be developed wisely to produce cheap electricity. Had the Nepali power bureaucracy and the World Bank\'s consortium succeeded in stemming civil society\'s protest against this project, we would not have seen the half a dozen alternative projects, some of them complete and others nearing completion, that are presently providing more megawatts at almost half the cost and half the time than the Arun III path. Still twice as expensive than it should be, but better than four times.

Nepali rivers, because of good dry season flow and high incline that is effectively a nature-provided high dam. have the potential to provide cheap and clean electricity. That is, only if loans with usurious conditionalities do not fund these projects and the Indian market pays the true cost of submerging Nepali villages. The question is: does HMG have the institutional capacity that can assure all of this?

As the 144MW Kali Gandaki-the last of this breed of foreign-aided projects-nears completion, Nepal is entering a new path of hydropower development, one led increasingly by the private sector. One wonders what this society\'s capacity is to successfully negotiate the route ahead.

Nepal\'s power bureaucracy came to maturity as a rent-seeking feudocracy in the pampered age of foreign aid. The requirement of the new age is a professional civil service capable not just of understanding the engineering but also of navigating through the thicket of international finance, legal fine print and riparian politics. Its track record to date is not good.

Arun III was an example of Nepal\'s water bureaucracy abrogating its responsibility by surrendering to the World Bank. The Mahakali Treaty, on the other hand, is an example of its inability to read legal fine print and advise project-fixated political masters of the day of their implications.

Even though Article 3 of the treaty mentions Nepal and India both having "equal entitlement in the utilisation of the waters of the Mahakali without prejudice to their respective existing consumptive uses", clause 3(b) of the Lohani Mukherjee letter exchanged with the treaty denies Nepal its right over its equal entitlement and also allows India to make exorbitant claims regarding existing consumptive uses. Nepal\'s bureaucracy failed to see this, and the Parliament\'s strictures passed with the treaty are unable to rectify the mistake.

The West Seti is another example of Nepal\'s water bureaucracy incapacity to negotiate a fair deal on a commercial multi-purpose project with water rights implications from storage benefits created by the dam that would, under current arrangements, allow lower riparian free-rider returns. The initial agreement on 7th July 1994 gave "free of cost to HMG Nepal quantum not less than 10% of the generation".

By the time the MOU of 11th May was signed, the free power - in effect a royalty - had been changed to "10% of power or an amount equivalent" and even that would be "deferred till SMEC has sufficient funds to make payments" after paying off other debt participants and operating expenses!

Nepal\'s power system will have a surplus in the immediate future with the completion of the alternatives to Arun III. However, they too are run-of-river projects. Nepal\'s power system sorely needs storage projects in the 100 to 400MW range that can sustain the dry season slack. West Seti should therefore ideally have been developed for Nepal\'s use and not for export. Even if exported, Nepal should have insisted that it receive it's "not less than 10%". i.e. 75 or more megawatts, as peak power for its own use.

Nepal\'s current hydropower policy is simple: hand over to private sector and let them export to India. That it is prone to intractable conflict is not difficult to see, and the slew of new export projects will make it worse.

A more sensible policy path would be to first unbundle the power feudocracy to generate and internally competitive market, much like domestic airlines, and open the space for civil society to question these projects for the justice issues inherent in them.
Export should be placed on the back burne till such a time when the monopsony Indian market gives up its "cost plus" policy in favour of a much fairer "avoided cost" one that is willing to share some of the market surplus generated by Nepali hydropower. And when that happens, all export should be only through the national grid.

Dipak Gyawaii is with the Nepal Water Conservation Foundation. [email protected]

(11 JAN 2013 - 17 JAN 2013)