Nepali Times

A parched man traversing a great hot desert sees an oasis in the distance. Summoning the last bit of strength, he makes a dash across the dunes. He never pauses to consider if it might be a mirage. So it is with Nepal’s hydropower.

Nepal has journeyed through the last decade of load-shedding and a stagnant power sector. India’s electricity market has now appeared as an oasis across the southern border. Nepal has seized upon it like the desperate parched man. Perhaps we ought to pause to consider if it might be a mirage.

In October, Nepal and India signed a historic Power Trade Agreement (PTA) that had been in the making for close to two decades. Consisting of eight articles, the agreement recognises the business of cross-border power trading provides non-discriminatory access to each other’s markets and creates an institutional framework for detailing the operational issues.

The agreement brings closure to a long held assertion that the absence of a cross-border PTA was stalling investment in Nepal’s hydro-power. The idea has always been that the Indian marketplace is the key to hydropower in Nepal: that Nepal’s bountiful rivers (particularly in the wet months) could only be tapped if we could sell it to India.

This belief stems largely from assumptions about the Indian power market that have never been challenged. India still has 600 million people living in poverty, and its imperative is not just expanding electricity supply but expanding electricity supply at affordable rates. Even as it seeks out new sources of energy to fuel economic growth, it must find ways to make electricity accessible to the vast majority of the population that will not always have the capacity to pay for it.

Nepal must be prepared to supply power in a low value market where top dollar won’t always be paid and long term power prices could consistently remain under INR 4 per unit (kWh).

Indian power markets are messy. A decade after the transformative Electricity Act 2003, which unbundled the sector, ushered in competition and opened power trading, many distribution utilities are broke. Their accumulated losses were approximately $11.6 billion in 2011-2012 – all of that incurred within a decade of the restructuring that wiped out all previous losses.

India is now due for another round of major power sector reforms. The Indian power market is not a monolithic whole but a patchwork with success in some pockets and dismal failure in others. Electricity in India is also a dual subject within its federal structure with both the national and state governments share jurisdiction. For instance, although the Electricity Act 2003 was passed at the national level, the states will have to implement many of its key covenants.

This poses a challenge to implementing India’s PTA with Nepal. Implementation will require the engagement of states and entities that are beyond the immediate jurisdiction of the central government. Despite all its promise, the Indian power market remains challenging and few have managed to successfully navigate it. It beckons, but vexes.

Nevertheless, India is one of the fastest growing economies of the world that is desperately in need of electricity. Prime Minister Narendra Modi has announced that by the end of this decade every Indian will have 24x7 power supply. Nepal would be silly not to hitch her hydro-potential to the promise of India.

The question for Nepal is how to approach the promise of the Indian power market. It shouldn’t be, as it is often these days, like the parched man crawling towards a mirage in the desert. We need a calmer, more studied approach, without desperation, recognising that the Indian market is full of paradoxes which in pockets fare no better than our own.

Exploiting Nepal’s hydro potential must begin first by flushing our minds of antiquated assumptions about India’s power requirements. We must take into account our own suppressed demand, and the tarrifs on both sides of the border. We must also factor in the cost regulated water.

We have already spent a decade in darkness. We can’t spend the next merely chasing a mirage of prosperity from exporting electricity.

Bishal Thapa is the vice-chair of the Energy Development Council. This is the first of a series of regular op-eds in Nepali Times by energy experts.

www.edcnepal.org

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