Power to India- Nepali Times

People in Bhutan must have felt magnanimous after reading the Times of India (ToI) article on June 20, 2009 that read: 'Bhutan PM pledges power aid for India'. For a tiny country like Bhutan to be able to 'aid' its giant neighbour India must be a thrill. Advocates of the Bhutan model in Nepal are also salivating at the possibility of wielding immense power (not electricity!) over India by exporting hydropower, in the hope that control will be in Nepali hands.

Of course, they will have forgotten that India will circumvent the possibility of Nepal controlling the flow of power by demanding that they get to ensure the 'security' of such projects, with Indian security personnel. The Karnali Chisapani project, meant to generate 10,800MW, was shelved in the mid-70s by the then Nepali government for this very reason.

These people have their collective heads in the sand for a couple of other reasons. Bhutan's example illustrates a few ground realities. Kuensel online, Bhutan's national English-language news portal, reported that "contrary to existing notions, a new study says it is economically more beneficial for Bhutan to supply power to its industries than export to India." The report details findings from the Bhutani Ministry of Economic Affairs and the royal audit authority, which note that the government makes a profit of Nu 64 million if it exports electricity to India, compared to a profit of Nu 152.8 million from tax receipts if it supplies 15 major national industries. Economic Affairs Minister Lyonpo Khandu Wangchuk was reported to have said, "Electricity is the only plentiful raw material that can be used by our industries to compete with external competitors by value adding on reasonably priced power." Ministry Secretary Dasho Sonam Tshering reportedly alluded to Norway, which "also used its hydropower to initially bankroll its industrial development through power intensive metallurgy and fertilizers".

The export-oriented model of hydropower development in Bhutan has threatened its own industrial development. As early as 2008, Zeenews.com reported that "a severe power shortage may hit Bhutan in view of new industries readying up to kick start operations even as India is banking on borrowing electricity from the Himalayan country by 2020." Bhutan Power Corporation Limited is reported to have confirmed this. Kuensel online echoed this anxiety in February 2010, suggesting setting up captive thermal power plants and in May 2010, even calling for the import of electricity from India.

Due to the unique geopolitical relationship between India and Bhutan, the three hydropower projects built so far, with a total capacity of 1,416MW, are owned by Bhutan but funded by India as a 60 per cent grant and a 40 per cent soft loan. But this 'inter-government model' has been found wanting by the Indian Government of late. The ToI last year noted that "The power ministry is getting the jitters over venture models for setting up hydel projects committed to Bhutan, with a view emerging that the amount of investments India will have to make at one go till 2020 under the present inter-government arrangement may adversely affect our budgetary provisions."

According to records of a recent meeting called by Indian power sector officials, India is committed to projects in Bhutan of 10,000MW by 2020. This will require fast-track investment of Rs 500 billion at
Rs 45 billion per year till 2020. The Indian Government, therefore, is endeavouring to drastically reconfigure the model so future projects are built with 70 per cent loan and 30 per cent grant. According to Kuensel online, the Bhutanese government has not yet agreed to this.

Under the current model, Bhutan seems to be profiting even by exporting power at a dirt cheap rate. But once the financing modality is turned on its head, the benefits to the Bhutanese economy will shrink by a magnitude. By exporting power, furthermore, it is condemned to remain underdeveloped.

For Nepal, with a population of 28 million, to reach the same level of 'gross national happiness' achieved under the current India-Bhutan inter-government model would require India to finance 52,864MW of electricity. Unfortunately, India is already experiencing financing fatigue after its relatively small investments in Bhutan. It's time for the hydrocracy in Nepal � the politicians, policymakers, planners, bureaucrats, and intelligentsia who deal in hydropower � to acknowledge the ground realities and grow out of their short-sighted, juvenile vision for Nepal's hydropower future.

Ratna Sansar Shrestha is a water resource analyst

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'Nepal is not Bhutan', RATNA SANSAR SHRESTHA

1. chandra Gurung
I wish Ratna was an impartial, fact driven professor, but he is not. He is a vested interest. He himself has invested in some projects, and has benefitted from existing project. I intended to make this reaction not a ad hominem attack, and I hope I don't look like doing so. The reality is criticizing Ratna is often futile. He tends to be wrong from A to Z, and there is no point in criticizing him piecemeal.

Posted on: 27 AUG 2010 | 3:23 PM NST

2. RatnaGlobal
RSS says:

"Unfortunately, India is already experiencing financing fatigue after its relatively small investments in Bhutan."

Which India are you talking about? The state of India or Indian investors? In either case, as an accountant you should have known that there is no such thing as 'financing fatigue'. There is only looking around for the right time and right conditions for investment that give returns.

Posted on: 27 AUG 2010 | 6:54 PM NST

3. Arthur
There is no contradiction between producing hydro electricity for export and needing electricity for local industry.

It would be quite normal to export hydro electricity at high prices for peak power, spinning reserve, and operational reserve (and perhaps load following), all of which benefit from big storage damns. Such high priced power would not be used to supply "baseload" which does not need expensive storage and can be produced more cheaply from coal or nuclear thermal plants.

Such lower priced "baseload" electricity could be provided locally or by import from India, using revenue from the high priced hydro exports (and only consuming the amount of expensive hydro power actually needed locally for similar peak load, spinning reserve etc purposes).

The same transmission lines which export hydro power at peak times could import baseload power from India at offpeak times.

India (and perhaps Bangladesh) are essential as customers for big hydro power export projects. Power Purchase Agreements from Indian wholesale market or equivalent are essential for any financing and construction.

But that certainly does not imply that either finance or security must be supplied by India. There could for example be Norwegian system management, North American finance, Chinese construction management and Nepalese labor and security as well as Nepalese ownership and sovereignty. India might play some of these other roles, as it does in Bhutan, but its only essential role is as a customer with a power purchase agreement.

Also to be factored in are revenue from other benefits of storage damns - eg flood control during the rainy season, irrigation and reliable potable water flows during dry season. The importance of appropriate pricing of these benefits to India as well as Nepal make it undesirable as well as unnecessary for India to be responsible for management or finance.

There is nothing "unfriendly" about simple relations of customer and supplier. Ideas of the supplier "controlling" the customer are equally absurd. The only control is the power purchase agreement which has to be satisfactory to both sides as well as financiers etc.

Posted on: 28 AUG 2010 | 4:10 PM NST

4. A disenchanted Nepali

The approximate cost of commissioning 52,864 MW from green field hydropower projects in Nepal at todayï¿½s price of US$5 million/MW (approx) would be more than $260 billion, which in turn could potentially generate a kickback (commission) of $13 to 26 billion (at 5 to 10% of the construction cost). Do Nepali people really believe that the Nepali politicians can agree on divvying such large loot, when they cannot agree on sharing the kickbacks from substantially smaller loots from machine readable passport printing, Melamchi project, purchase of aeroplane for NAC or electing a Prime minister?

There is no point in salivating at the mutually beneficial Bhutan-India relations, when the basic problem lies with the greediness of Nepali politicians, be it madhesis, royalist, kangressis or Maoists. It appears that in the end it is all about fighting for the largest share of the loot pot, never mind that without a consensus no one gets the loot! This might be a blessing in disguise!!

Perhaps the Nepali analyst/journalist should focus on highlighting these fundamental issues rather than trying to guess the potential hydropower generation to the last MW or building the proverbial "castles" in the air or debate about scenarios that will never take place. At this rate, Nepal will continue to compete for the most under developed and corrupt country status in order for the politicians to divvy the loot from international aid, which apparently increases with the population, poverty and backwardness.

Posted on: 29 AUG 2010 | 3:07 AM NST

5. sammy
Khai k khai k....!!!

Posted on: 30 AUG 2010 | 5:30 AM NST

6. layman
Now, Nepal have to think about Global Warming also because for a loan repaying time if all glacier have melted, how would Nepal have paid all its principle and interest.

Posted on: 30 AUG 2010 | 12:29 AM NST

7. Ratna Sansar Shrestha

Dear Editor

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Referring to the term 'financing fatigue' I had used in my article in Nepali Times, 'Power to India' (NT # 517) RatnaGlobal has asked 'Which India are you talking about? The state of India or Indian investors?' He has gone on to say that "there is no such thing as 'financing fatigue'. There is only looking around for the right time and right conditions for investment that give returns."

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I had used the term in the context of of the level of 'gross national happiness' reached by Bhutan under 'inter-government model' under which 60 per cent of the project cost is availed to Bhutan by India as grant and the remaining 40 per cent as soft loan. It wasn't used to indicate financing fatigue with all types of financing configurations. After implementing 1,416MW under this model Indian 'power ministry is getting the jitters' as ToI reported last year. Therefore, Indian Government is endeavoring to drastically reconfigure the model so future projects are built with 70 per cent loan and 30 per cent grant.

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This is clear indication of India experiencing financing fatigue with regards to 60:40 model. Conversely, India seems to be prepared to further invest if the model is turned on its head by drastically reducing the portion of grant from 60 percent to 30 and increasing loan to 70 percent from 40. However, this change will substantially increase debt service burden and at the same time pull down gross national happiness index by a magnitude. Moreover, no attempt was made in my article to imply that Indian private sector too has reached financing fatigue which will be evident if the article is read carefully.

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Ratna Sansar Shrestha

Posted on: 06 SEPT 2010 | 1:58 PM NST