KUNDA DIXIT BLUE POWER: The Kulekhani reservoir, Nepal's only big storage project so far.

Whichever government comes to power, the first thing it will have to start working on will be energy.

In any other country, this would be considered an emergency: Nepal is going through its first-ever monsoon power cuts. This winter load-shedding will go up to 56 hours a week. The generation shortfall will be 35 per cent below demand this December.

Not just this year, Nepal will suffer an average of to 6-8 hours of power cuts a day till 2013 because no new major power generation schemes are coming on line till then except the 70MW Middle Marsyangdi.

The other emergency is Nepal's widening balance of payments gap with India, which reached Rs 96 billion this year because of the higher cost of petroleum imports and falling export. The trade imbalance is expected to grow, and the only way to narrow the gap in the medium term is by launching hydroelectricity export projects immediately.

There will be other benefits from aggressive investments in hydro infrastructure: it will generate tens of thousands of jobs. In their economic masterplan, the Maoists say they want to generate 10,000 megawatts in the next 10 years to meet domestic demand and to export to India. This would require investments at a time when most international companies are wary of doing business in Nepal because of political risk.

Nepal's electricity demand is rising at 10 per cent a year, but could increase if the peace dividend finally spurs economic growth. Domestic investors and community generation schemes could easily add up to 50MW a year. Industry analysts see a role for large foreign joint ventures in projects to export power to India.

They point to the Electricity Act of 1992 that allowed 300MW of power to be generated in six years in the mid-1990s, doubling generation capacity, and say Nepal's new government needs to make a similar breakthrough.

"Ten year ago, no one even wanted to hear about investment in hydropower but now we have investors lining up to put money into this sector," says Gyanendra Lal Pradhan of Butwal Power Company, one of Nepal's new breed of entrepreneurs with stakes in seven hydro projects worth 350MW in pipeline.

"It's simple demand and supply," Pradhan adds, "demand is growing so we need to add supply. But we have to be fast, if we start today we may be able to bring load shedding down to zero in seven years, otherwise this shortage will last till 2016."

The time is right for new investments in hydropower to meet domestic shortfalls and to export to India. The Maoists have expressed a strong commitment to develop the sector, but investors are still wary.

Earlier this year, the government issued licenses to two Indian companies for big budget projects: Arun III (402MW) and Upper Karnali (300MW), both dedicated export projects.

On Monday, the World Bank's soft loan division, the International Finance Corporation announced in Kathmandu that would be financing 25 per cent of the cost of both projects.

The government is re-inviting bids for a storage project on the Budi Gandaki, and a slew of new projects are coming on line that will generate 150MW in the next two years.

The earliest any of the export projects will start selling power to India will be 2015, and that is if work starts right away. The 750MW Australia-Nepal export joint venture West Seti project has been delayed by 10 years and will take another 10 years to be completed.

SN Power is exploring the Upper Tama Kosi II and III (500MW), while NEA, with public shares, is starting Upper Tama Kosi I next year to be completed by 2013.

Some, like Ajaya Dixit of Nepal Water Conservation Foundation, say that Nepal should concentrate on fulfilling domestic demand and promoting value-added industries first before expending time and money on export projects which have long gestation.

"Rather than just sell electricity, it would be better to generate downstream benefits from using electricity," he says, "electricity can be the primary mover of socio-economic progress in Nepal."

Others say meeting domestic demand should go hand-in-hand with exports to India to balance the trade gap. Says Balaram Pradhan of the Nepal Hydropower Association: "We have to produce enough energy for domestic economic growth, but we also need to export electricity to bridge the trade gap."