Hydrocratic dreams - Nepali Times

DAMBAR K SHRESTHA

You don't need to be a Nobel-laureate economist to deduce that Nepal is technically insolvent. Our balance of trade deficit in the last fiscal year (2009-10) amounted to Rs320 billion. It was only Rs216 billion the year before. Our balance of payment deficit during the same period was Rs 2.92 billion. It was favorable by Rs38 billion the previous year.

The business community, renowned economists and the "hydrocracy" argue that the only way out is to export hydropower. Susan Goldmark, the World Bank country director in Nepal, lent credence to this diagnosis by declaring that Nepal's GDP could be comparable to that of Saudi Arabia if we exported hydropower.
Actually, it is because Nepal for the past two decades concentrated on projects to export hydropower that we are suffering an energy crisis in both electricity and petroleum products. This situation will get worse unless policymakers refocus and realign the country's energy policy.

Nepal's famed potential of 43,000 MW will generate 188 billion kilowatt-hours (units) of electricity if implemented at 50 per cent average plant factor (which ranges from 20-25 per cent for storage projects to 65-70 per cent for run-of-the-river projects). Exporting at 5�/unit (the rate for peak-in West Seti power that India's PTC agreed to) will generate a revenue of $9.4 billion/year, which amounts to only 3 per cent of Saudi Arabia's GDP in 2006.

Many people have also jumped to the conclusion that exporting power will mitigate Nepal's balance of payment deficit. Not true. Even at a low ballpark cost of $1,000 per kilowatt, implementing 43,000 MW will entail an investment of $43 billion which is beyond Nepal's means. The only alternative is to build with foreign direct investment which will also mean that almost all of the hydro-dollars will get repatriated from Nepal as return on investment and debt service, except for royalties to be paid to the government (income from hydropower neither attracts income tax nor is electricity VAT-able) and a small amount spent on local salaries, a substantial portion of which will go for expat wages. The operation and maintenance cost of such projects and corporate overheads will also not stay in Nepal. Only three percent of the dollars we generate from exporting hydropower will actually stay in Nepal, and will help ease our balance of payment deficit to that extent only.

A country's economy benefits from value addition due to increased exports. This manifests in favourable balance of trade, triggered by augmented employment as a cascade impact of industrialisation necessary for incremental production for export. But in the case of hydro-dollars, value addition will not be commensurate to export, it will be limited by the quantum of percolation into Nepal's economy. Ninety-seven percent of hydro-dollars flowing out of the economy will not meaningfully add value, and will neither increase industrialisation nor generate employment.

Nepal's priority should be to use hydropower for value addition and to wean ourselves from our dependence on imported petroleum (which aggravates the balance of trade and payment deficit) by electrifying the public transportation system (also generating carbon offset benefits) thereby ensuring overall energy security. We must also aim to supplant the use of animal and agricultural residue and firewood, which cause indoor pollution that reduces the productive life of, mainly, women.

This doesn't mean that hydropower shouldn't be exported at all. But it would be foolish for Nepal to have projects built to export at around Rs2 per unit, and import at over Rs10 just to mitigate load-shedding and perpetuate our dependency on petroleum. The country's best interest will be served by buying electricity at the lowest rate from developers capable of building projects cost effectively, and use the electricity to meet our own demand to supplant non-renewable and unclean sources. Nepal, not the project developers, should export the remaining electricity at premium price, because demand and price in India is highest when Nepal "spills" energy during the monsoon.

Read also:
"Power can be our most valuable export"
From basket case to bread basket, KUNDA DIXIT in DHAKA

See also:
No light at the end of the tunnel, DEWAN RAI and RUBEENA MAHATO

1. jange
You don't need to be a Nobel-laureate economist to deduce that Nepal is technically insolvent.

No. You need to be an accountant to not be able to distinguish between the book-keeping of a company and a national economy.

NT, you are scraping the barrel! Are you really that desperate?? You might as well ask Arthur to write an article!!!

Posted on: 13 MAY 2011 | 11:45 AM NST

2. Sony
मनको लडडु घिउ सङग़ खाउ -चपाउ ।

Talking of exporting electricity at 5c/unit, whereas every private firm in the country is using diesel generator at 35c/unit is an utter nonsense. First priority should be fixing basic electricity supply by removing load shedding.

Posted on: 13 MAY 2011 | 1:31 PM NST

3. Suresh R
Both Gyanenda and Ratna Sansar should just stop whining and engage in this debate only after they both physically contribute to generating some power for us consumers.

Posted on: 13 MAY 2011 | 5:25 PM NST

4. Bimalesh

I shall agree with the author that the foreign investment on hydro power projects solely for the purpose of export would give Nepal less benefit. We should also not day dream about exporting power any time soon in the future when the country is reeling through 20 hours of load shedding. Though, I have to disagree with the author for his solution of letting Nepal (read NEA) export energy rather than project developers. This will be same as the monopoly we have now that is to be blamed for the present power crisis. Even a non Nobel-laureate energy expert would be able to understand that the boom in the energy sector around the globe is because of the free energy market. Generation and distribution of electricity is privatized almost everywhere. There is no reason why this should not happen in Nepal.

The author's argument of selling energy for less and buying it for more is valid. But this should be checked by policy not by monopoly. The power producers should be discouraged to export in such condition not forbided. If there is no VAT in electricity now the government should consider taxing for the export of electricity. If power producers are exporting at Rs 2 and Nepal is importing at Rs 10 then Nepal should offer the producers to buy the energy at Rs 3. And this should be described clearly in the policy and PPA. Let the producers export the energy when there is load shedding in Nepal but discourage them to do so by charging extra energy crisis tax (say 200%) in such situation.

Posted on: 13 MAY 2011 | 5:37 PM NST

5. Arthur
The ridiculously low rate quoted for export of peak power from West Seti to India presumably reflects corrupt agreements.

Storage hydro is the only practical means of storing electricity to meet peaks and should ONLY be sold at peak rates which are naturally much higher than baseload rates.

BECAUSE any pricing that is not corrupt will cost much more for peak storage hydro than for any baseload generation it is quite natural to export the expensive peak load power even while importing cheaper baseload power (and only using a smaller part of the storage hydro for local peak load power, but not for baseload power).

BTW Nepal is not just "technically" insolvent. About two-thirds of its development budget relies on donors. Failure to develop results from the sort of corruption that sells peak load electricity for only 5 cent per unit (kw hour) plus kickbacks for the hydrocracy.

Posted on: 13 MAY 2011 | 6:03 PM NST

6. Chandra Gurung
Ratna,

Please do us a favor and tell us how many times have you been in any official capacity to influence the policy making related to hydro in Nepal? In NEA, in ministry, in cahoot with ministers?

Second, I have a hunch that if you disappear to an island in pacific, we will probably have a better chance of getting electricity in our country. You just oppose everything, as you have done all your life. And the dangerous thing about you is you make money while nation rots in darkness.

Third, stop opposing everything. Forget about hydropower projects, we need a nuclear plant first to provide base energy and hydropower can act as a supplier during the peak hour. Period. People like you should be limited to being munshi of a local trader, which is what you are good at.

Posted on: 13 MAY 2011 | 9:52 PM NST

7. who cares
i just read a few paragraphs of this column.

i am wondering, why has this person been posting the same article with similar reasoning again and again? it looks to be that he has been trying to hypnotize the mind of idiots.

china sells their industrial good to the entire world. and how much electricity they consumes? 200k MW?

shall we ever be able to supply our industrial goods (if we shall ever be in that kind of position) to quarter of the world so that we would be able to utilize 43k MW of our electricity potential (some say we have around 150k MW capacity)? that day, china, india and other suppliers will loose their share.

india loose their share means, they will have surplus electricity and wont been needing our electricity.

the cost of production of hydro power is increasing every year- both due to the cost of production as well as global warming (we will soon loose natural reservoir- winter snow)?

and cause of the persons like this fellow, we are loosing time and money. and the worst is, persons like this is only helping radicals and violent gangs.

and also, no one should forget that it will take years to complete projects and rough calculation says that the needed power for our national consumption will be complete before those projects meant for export. so why are you creating unnecessary noise?

Posted on: 14 MAY 2011 | 10:50 AM NST

8. Nirmal

You don't want to eat at a buffet because there are many foods on your way, too many people, you eat too much and you are so full that you are fed up. In this case could you say so, dear writer?

These kinds of write-ups has become so stuffy that I prefer to open "the window" by following:

1. Stop doing geo-political blackmailing, but cash the geo-strategicness.

2. Industrialise agro-forestry activities for people in the country first. INDUSTRIALIZATION requires many things, make a check-list and see whether we can fulfill the demand of the agricultural sector.

3. Engrave in our brain: internal consume unless the very concept is clear between "wise people".

I'm just exasperated with the kind of "Hydrology" overeaten in the market, although it's true that many people are kept busy with some money as well. Please, keep writing on what we really need and do not be so much concentrated on what we've been told. Knowing oneself is the biggest deal one can do ever, I know it but at least we can try, can't we?

Posted on: 14 MAY 2011 | 11:30 AM NST

9. ASP
Guys, read the article's title and its byline before you criticize.

At the high level, the writer is simply making the point that export of hydroelectricity is not going to solve Nepal's trade and balance of payment deficit

However, where the writer does go astray in making that point is that he contends that the only means of financing hydropower projects is through foreign direct investment, ignoring the important historical role that multilateral and bilateral foreign aid and grants have played in the development of this sector in Nepal.

Also, the writer simply takes it for granted that income from hydropower is non-taxable, without making a case for the need for and absolute possibility of levying tax on any export income, in addition to royalty.

My humble opinion is that whether Nepal should focus on generating hydropower for export or internal consumption is a matter of timing. On the short term, the focus should be on generating hydropower for internal use and then, in the long run, export the surplus.

Money to fund hydropower development is the least of the problem for investors and the government. The challenge is the lack of security, threat of violence to workers and damage to infrastructure. At the present moment, the government is incompetent in meeting that challenge.

Posted on: 14 MAY 2011 | 11:26 PM NST

10. I wonder why Ratna Sansar miss the fact that after leasing petiod, I am not sure 30 years, the project is fully owned by the government and 100% revenue comes to the government . It is deliberately ommitted to mislead the readers.

Posted on: 19 MAY 2011 | 7:03 AM NST

11. jange
# 10. I wonder why Ratna Sansar miss the fact that after leasing petiod, I am not sure 30 years, the project is fully owned by the government and 100% revenue comes to the government . It is deliberately ommitted to mislead the readers.

Good point.

This seems to be the current strategy/philosophy of the government. In much the same way as someone who owns an expensive piece of land in the centre of Kathmandu but does not have cash might lease out the land to someone for xx years to build something which then reverts back to the landowner at the end of the lease.

Whether that is a good strategy or whether it is better to borrow money to build it yourself or use your children's school fees to invest in it or whatever is what needs to be considered. Risks and benefits either way. The authour has chosen to present the beneficial aspects and ignore the risks.

Posted on: 19 MAY 2011 | 1:32 PM NST