Nepali Times
Economic Sense
The Power to privatise


The price of power in Nepal (both political and electrical) is number one in the region. We have the most unreliable electricity supply in the Subcontinent (barring perhaps North India) and with assistance from international funding agencies, we are guaranteed that it is expensive.

With Nepal\'s abundant hydropower, electricity should be cheap. But the cost of power reflects bad planning and bad management on the part of successive governments and donors.

A utility company that can boast of employing the highest number of employees per megawatt (MW) of electricity tends to find raising tariffs a better way to pay for itself than rationalising costs. To supply 300MW we have over 9000 employees: a staggering 300 people per megawatt.

The question everyone asks is: why should power tariffs be increased by 30 percent when losses from leakage and theft continue to hover at around 35 percent? Just cut the losses so that the overburdened Nepali consumer does not have to pay more. If a landlord goes broke should the tenant be asked to pay higher rent?

Like hundreds of goats that get slaughtered during Dasain, the government and the Asian Development Bank need a scapegoat to cover up for their inefficiency. And they have found instant, popular targets in the private power producers.

Private power investors were asked to move in to fill the post-Arun III power shortfall crisis. They took big risks investing in a country that is not rated, and a customer that is financially unsound. Private producers are not donors, they need returns on their investment. If commercial borrowing costs were to be added to projects like the soft-loan funded Kali Gandaki A, its output would cost one and half times the price private projects sell their power for At this rate, Nepal may not see another private power developer coming in for another five years. Who are the developers going to sell to? There is no legal framework for export to India, and the domestic customer feels it is already in an over-supply situation. Then you start treating private producers like licensed dacoits who have come to rob Nepal of its foreign exchange. It\'s a wonder they haven\'t all left.

True, the tariff issue has political ramifications. And the Nepal Electricity Authority has been burdened over the years with too many consultants brimming with impractical solutions. The money that has been spent on consultants in the past 15 years could have easily built a medium-sized power project.

Nepal\'s confusion over its power policy is as old as our democracy. International, bilateral and multilateral agencies are partly to blame for imposing their conflicting priorities on us. We were once forced to plan for Arun III and nothing else, then Arun III got cancelled so we decided to allow only private companies in generation, but now bilateral agencies are throwing in money to build public projects.

We take years to ratify an agreement signed for power trade agreements, and then we go begging to the ADB to dictate to us rather than try to commercialise the power sector. Why not unbundle the NEA to separate Generation, Transmission and Distribution companies? Then you can privatise distribution to provide reliable electricity at reasonable rates. The government can play the role of a regulator and just own the national transmission grid.

We have a Water and Energy Commission, a Ministry of Water Resources, a Department of Electricity Development and Nepal Electricity Authority, all controlled by the government. It is time for the government to do all Nepalis a big favour and get out of utilities for good.

(11 JAN 2013 - 17 JAN 2013)