PROF. DR. KAMAL RAJ DHUNGEL
We must learn from the past to shape the future. A number of hydro-power projects were constructed with varying generation capacities through internal and external capital. The lesson from the past is that there are three choices to mobilize capital to harness hydro-power potentiality –internal, external and both. Endowed by immense hydro-power potential—most of which remains untapped primarily because of the dearth of capital, Nepal is struggling with the electricity crisis. Large hydro-power projects need huge investment. This calls for the mobilization of capital which is crucial and critical to move up. Still, there are debates and confusions on the model to work with that can exploit untapped hydro-power in an efficient and competitive manner.
Domestic capital mobilization involves the local people’s initiation which can play an effective role in creating a positive attitude and policy implications. Willingness and pressure from the local level could change government attitude and policies towards mobilizing domestic resources and force the government to proactively take up such projects. However, there is the financial hurdle. Where would the capital come from? Because of high cost in producing hydro-power energy (one MW of power amounts to two million US$), it questions the practicality of starting large power projects. Some of the noted financial institutions are rich and sound. They are waiting and looking for an investment opportunity that depends on safe, sound and secure policies to materialize for investing their unused funds.
Upper Tamakoshi hydro-project (456 MW), which is still under construction, is the best successful example of this model. The local people’s initiation has played a vital role in mobilizing the necessary capital internally to construct the project. Employees Provident Fund, Nepal Insurance Company, Citizen Investment Trust and Nepal Telecom along with the government of Nepal are the major investors in this project. In addition, people of Dolakha have contributed 10 per cent share. The successful implementation of this project has created optimistic attitude which previously was thought difficult.
Overseas capital mobilization is the second model. Foreign investors would be reluctant to invest for two reasons – huge production cost and lack of the market to absorb the electricity generated. This makes hydro-power industry uncompetitive compared to other forms of energy production. Bangladesh, India and Pakistan are the probable markets. Independent trade can exist between Nepal and India but is difficult to exist with Bangladesh or Pakistan due to the proximity and would only be possible if India allowed to use its territory to construct transmission lines. Given this reality, India is the main player to expand the market for electricity if generated in Nepal through third country developer. If India is positive either to buy electricity or provide access to sell it in other countries, Nepal no doubt would be able to mobilize overseas capital in a competitive basis. Having said that, we should also learn from the past that foreign investments can have lots of strings attached. Two projects under operation – Khimti and Bhotekosi were foreign endeavors. Investors handed them over to Nepal with a financial plan determined in US$. Appreciation of dollar has made the project more expensive over time. Such risks should be minimized when making power purchase agreements.
Regional cooperation is another model. A high level regional body can be formed to harness the hydro-power of the entire region with the participation of countries of the region especially Bangladesh, Bhutan, India, Nepal and Pakistan. This body will look after the cost, price, market feasibility, production site and its feasibility study, sources of investment etc. This model will be more effective particularly for mobilizing national, regional and international capital needed to harness region’s hydro-power potential.
The fourth model is to mobilize Indian investment. This could take various forms. Cost sharing would be the first form of investment model. Under this, benefit and cost share will be distributed equally. Both participating countries will have equal ownership that provides them the right to use the electricity at their own discretion. They can sell electricity at the prevailing market price at home and foreign market.
Entire Indian investment constitutes the second form implying that Nepal will have zero investment but the right to ownership on some fraction of generated electricity and equity in return for its land and water use. The size and extent of ownership depends on the power of diplomatic bargaining. For instance, Upper Karnali and Arun III are in the pipeline. Nepal will receive 12 per cent of electricity and 27 per cent of equity from the Upper Karnali hydro-power project.
The provision of access roads and transmission lines to/from project construction sites are pre-requisites to increase competition in the electricity industry. Competition in turn can lower the cost and price of electricity and expand both domestic and foreign market for its consumption. Nepal’s hydro-power sector remains to be not competitive due to the lack of these pre-requisites, which Nepal fails to realize.
Source : The Himalayan Times