Abhiyan: It is said big energy projects are more expensive and Nepal would benefit more from small power plants.
Sandip Shah: That's not completely true. Small, medium and large-scale projects all have their roles. For example, small hydropower projects can bring electricity to remote areas outside the national grid while medium projects can meet domestic and industrial power demand. But none of these can store water and generate power when water levels in rivers go down.
So why do we still have power cuts?
The only reservoir project for hydropower is Kulekhani. All the others are 'run-of-the-river' types. In winter, when the demand for power is highest, the flow in the rivers goes down and power production is reduced by half. In the monsoon, these schemes run at their optimum capacity but our transmission capacity is not up to mark and can't handle all that power. To solve both problems we need medium-scale storage projects in the 150-500 megawatt range and aim for 30 percent excess capacity to ensure system stability and upgrade the transmission system.
How come with all our hydropower potential, electricity in Nepal is the most expensive in the world?
Our projects are located in remote areas and expensive access roads are part of the cost. State-run plants are built with soft credit from donors but the government is charging a high interest rate to the companies running them and that cost is passed down to the consumer. Also, in such projects we have to accept consultants, contractors and expensive equipment according to the wishes of the donors. The contractors also set up cartels and this drives prices up. Private power producers operate with a business outlook but the investment needed to generate power in the early stages of the project is high. They also have to hand back the plants to the government within 30-40 years even though the average lifespan of a project is 75-100 years.
Why aren't local banks investing in power projects?
Hydropower projects are highly capital-intensive and beyond the scope of the Nepali capital market. Because of the limits to banking liquidity and Rastra Bank rules, banks can't invest in more than one project of up to 50 megawatts in size simultaneously. In the absence of a more liberal investment regime, foreign capital is necessary.
Are outside investors in hydropower getting disillusioned?
Nepal still isn't on the international investment map. Investors are worried about the country's rules and their laws, which change all the time and there is an erosion of confidence because of poor implementation of policies and non-adherence to contractual obligations. NEA is the main buyer of power but there are all kinds of other players: the Ministry of Water Resources, Electricity Tariff Regulatory Commission, National Planning Commission, Electricity Development Board, etc. Because their responsibilities aren't clear, there is duplication and even triplication. NEA must be made autonomous and profit-oriented. If the Minister of Water Resources remains NEA chairman, there will be political interference. The board must be turned into a purely professional body.