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The politics of power

Tuesday, March 27th, 2012

Photo credit: Ratan Bhandari

Three weeks ago, Energy Secretary Balananda Poudel was transferred by the government, then 24 hours before the West Seti deal, legal officer Rajendra Chhetri was also transferred and last minute amendments were made to the Electricity Regulation.

These events raised red flags in the parliamentary committee on Natural Resources which then told the Ministry to put the entire West Seti project on hold.

The 750MW reservoir project is bigger than the country’s current total installed capacity which totals 700MW during the rainy season and comes down to 250MW in dry season with the decline in water levels. The government was planning to implement the project by taking a soft loan from China’s Exim Bank.

The committee’s intervention has helped expose the inconsistencies in Nepal’s energy acts and policies as well as the lack of coordination between different ministries and departments.

Coordinator of the committee Gagan Thapa told Nepali Times, “We found that until now, the projects were being handed over on an ad hoc basis. We felt this was the right time to correct such malpractices and establish a proper system. We have requested the government to give us time to study the details of the project.”

However, Energy Minister Posta Bahadur Bogati is not pleased with the interference and warned that obstructing the agreement with China’s Three Gorges Corporation (CTGC) would put off foreign investors and jeopardise Nepal’s interests. Some officials even went as far as calling the committee members ‘anti-development.’

The project become even more embroiled in controversy this week after Finance Secretary revealed that the Energy Ministry signed the MoU with CTGI without informing the Finance Ministry.

But Joint Secretary at the Energy Ministry, Arjun Karki who signed the deal on behalf of the government explains, “It is just an understanding between two parties involved in the dialogue, not a legally binding document.” Karki says the document clearly states that it will be effective only after concerned authorities endorse it.

The Ministry further clarified that the agreement was reached as per clause 35 of the Electricity Act 1994, which gives the Ministry power to enter into a contract for generation, transmission or distribution of electricity with any company on behalf of the Nepali government.

However, it is interesting to note that the new Electricity Act bill, which has been in limbo for the past six years, stipulates that projects above 25MW go through competitive bidding process. Even the Investment Board Act 2010 requires hydro projects with capacities of 500MW to undergo bidding process.

Past experiences from Bhotekoshi and Chilime projects have shown that the government has not been smart enough while entering into power purchase agreements (PPA).

During the Bhote Koshi project US companies like Panda and Harza used their political clout to force NEA to purchase thespillover electricity.NEA, which had done PPA for the purchase of 36MW refused to buy additional 9MW.

The issue reached the US senate and as a punitive measure, the US government decided to cancel the quota of Nepali garments that it purchased to support the country’s economy. In the end, coercive diplomacy forced the government to buy the spillover electricity.

The state also lost millions of dollars due to appreciation in dollar prices. One of the recommendations made by the parliamentary committee advises the government to specify that it will not bear the burden of changing dollar price.

Former Secretary of Water and Energy Commission Secretariat Somnath Poudel who drafted the country’s Ten Years Hydropower Development Plan in 2009, is skeptical about relying on foreign enterprises. “May be the West Seti dam will resolve the energy crisis, but we are also be handing over control of our country’s energy to a foreign company which will control more than 60 percent of country’s total electricity generation by 2020,” he says.

But Former NEA chief ,Uttar Kumar Shrestha disagrees and says there is no point protesting against foreign investment as long as the country does not use its own resources to finance mega projects, “It is a huge project and I believe NEA has done its cost-benefit analysis which is reflected in the PPA.”

The good news for the West Seti is that unlike Arun III, all political parties agree that the project is in the national interest and is essential if we are to battle chronic energy shortage in the country. There are few who say that the project will spark another turf war between India and China competing for Nepal’s hydro sector.

The intervention by the committee has certainly raised some difficult questions which must be answered to make the energy sector transparent and systematic in the long run. Committee member Abhisek Pratap Sah says, “Initially people thought we were against development, but now they understand our position and agree that we made the right decision.”

Dewan Rai

See also:

About time, #595
No light at the end of the tunnel, #541

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