On 15 October 2001, the cabinet approved a new hydropower development policy for Nepal. The document does indicate some understanding of the weaknesses and challenges facing the sector, but it is a cumbersome labyrinth. What we needed was a lean and dynamic policy statement.
But more seriously, clause 6.11.4 of the policy document cunningly attempts to bypass Article 126 of the constitution that requires a two-third majority ratification of resource sharing treaties if it is of a long-term and serious nature. The clause states: "Permission to implement large multipurpose reservoir projects will be granted by HMG through this policy itself. However, the question of sharing of natural resources is outside of this policy's framework."
So, with this policy (which has been approved by only the cabinet and has not been presented to the parliament for a simple majority approval) Nepal's water bureaucracy has sought to empower itself to be able to license Karnali to an Enron-equivalent, upper Karnali to an NGO without financial credibility, or Sapta Kosi to a government company set up by the lower riparian, ignoring the parliament as well as clause 126 of the constitution. What is even more alarming is how our elected representatives, especially the opposition parties, have chosen to remain silent.
It is positive that clause 6.15.2 states that the monolithic Nepal Electricity Authority (NEA) will be unbundled into three organisations to independently handle generation, transmission and distribution. This, however, is an admission that the merger of Nepal Electricity Corporation and HMG's Electricity Department under donor pressure in 1985 was a mistake. A look back at history tells us how a few astute power bureaucrats of the Electricity Department manoeuvred to have themselves deputed to the Ministry of Water Resources instead of the NEA and thus undercut HMG's stated policy of having one power utility.
A decade later this group was able to resurrect the department as the Electricity Development Center, which is now a full-fledged department (EDD) in contravention of certain provisions of the NEA Act. Now, through this policy, the EDD not only hopes to break up its rival, the NEA, but to create three new bureaucracies with full HMG control: a regulatory office, a study and promotion center and a management body (clause 16.5.1).
We already have the EDD, the existing Water and Energy Commission and other paraphernalia within the Ministry of Water Resources. Still, the power bureaucracy is on an empire-building spree that is breathtaking in scope. Village and district governments are denied any meaningful role in power generation, distribution or regulation as per the local self-governance act. This has opened up the possibility for severe conflict in future.
What's more, the last clause in the document (6.16) states: "HMG can, as per felt needs, build and operate hydropower projects by itself or with friendly countries and development agencies through treaties or agreements". This single Freudian slip undercuts all the platitudes in the policy document regarding encouragement to private investors. Most Nepali acts have similar escape clauses that essentially say that no matter what is written in the document HMG can jolly well do whatever it likes.
Those who want to discipline others must first learn self-discipline. By keeping the institutional framework opportunistically fluid, this policy document diminishes investor confidence, especially of Nepali investors. Genuine foreign investors will be convinced about investing here only if Nepalis themselves are investing in hydropower development.
In a multiparty democracy, policy is made by political parties who legitimise their policy commitments through elections and have them implemented through the bureaucracy. In this fabled kingdom, however, things are back-to-front: policy is made by a clique of self-interested bureaucrats who manage to get it implemented through politicians that do not read. A government bureaucracy cannot say, "We are working as per policy." What it must say and do is, "We are working as per the law." This policy document is an attempt to override the constitution as well as existing legal regime without going through the parliamentary process of changing laws and regulations.
The power sector in Nepal needs serious reform, for which this unwieldy policy document will not be of much help. What we need are just four points stated with firm political will:
1. Nepal's hydropower will be developed with the objective of ensuring Nepali industry and agriculture competitive advantage by providing them cheap and reliable electricity.
2. To produce and distribute this electricity, instead of a single government monopoly, a pluralistic, all-inclusive institutional framework will be adopted which will support the private sector in generation through transparent competition and maximize the participation of local self-governance units in distribution. The transmission grid will be maintained as a national electric highway under government ownership and regulation, but open to all.
3. The primary responsibility for reaching 85 percent of the population that still has no access to electricity will lie with the national transmission grid that HMG will develop and maintain. It will be this national grid which can trade excess electricity with neighbouring countries under the "avoided cost" principle.
4. If a Nepali or foreign investor wishes to export electricity to the Indian market, it will be encouraged under the following policy regime:
a) Export of electricity from a run-of-river project through the national grid will be seen as not constituting an "all-encompassing, serious and long term" resource-sharing matter as seen by clause 126 of the Constitution.
b) For a storage project, if all the regulated water can be used within Nepal, if the displaced population is less than one thousand, and if the electricity export will be done through the national grid, then it too will be deemed to be of a simple nature not requiring a two-thirds approval by parliament.
c) For a hydropower project with a large reservoir which wishes to export independently outside the national grid, the investor must apply to the government stating clearly the export price as well as the royalty it proposes to deliver. The government can permit the investor to survey and investigate such projects, but they will only be in relation to projects where HMG has come to some understanding with India regarding downstream benefits, and the modality for sharing them. The application, which must be accompanied by all supporting documents, will be placed before parliament for approval by a two-thirds majority by the government together with what HMG proposes as royalty, tax as well as social and environmental mitigation measures.
The only other matter that the government needs to state firmly is that it will place before parliament amendments to the electricity acts and regulations to match the four policy commitments stated above. There is no need for a cumbersome and conflicting policy document of fifteen pages with multi-score clauses that belong more properly in an act or regulation.
(Dipak Gyawali used to be board member of NEA and resigned over the Arun-3 in 1993. He is a member of the Royal Nepal Academy of Science and Technology. A version of this article appears in the current issue of Mulyankan, Magh 2058.)