Navigating Challenges in Nepal’s Quest for Electricity: An Interview with IPPAN Vice President Ananda Chaudhary

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The government aims to generate 28,500 megawatts of electricity within 12 years. However, there’s a lack of a clear strategy to meet this target. Each year, approximately 33,660 individuals are employed across various roles to generate a thousand megawatts of electricity. Achieving this goal by 2035 could generate an $88 billion revenue. Yet, complex government procedures, land acquisition, and compensation distribution issues are posing significant hurdles. Bhabanath Pyakurel of Nepal Samacharpatra delves into the electricity sector’s challenges in a conversation with IPPAN Vice President Ananda Chaudhary.

Ananda Chaudhary Vice President (Independent Power Producers Association – IPPAN)

Can Nepal achieve its goal of producing 28,000 megawatts of electricity by 2030?

Solely relying on Nepali investment won’t suffice. At around $200 million per megawatt, foreign investment becomes crucial. IPPAN’s concerns need resolution, including reducing bank interests, ensuring investment in hydropower generation, and facilitating external funds through the National Bank. Addressing social and environmental issues is paramount. The Ministry of Forestry’s new issues delay projects significantly, taking over a year for tree cutting and replanting. A conducive environment for domestic and foreign funds is imperative.

What are the challenges hindering investment?

Discrepancies between pre-construction and construction guidelines, lack of coordination between ministries like Hydroelectricity and Forestry, and the Nepal Electricity Authority’s failure to tackle social issues hinder progress. The private sector could handle transmission lines if delegated. To achieve the 20,000-megawatt target, progressive electricity laws are necessary. The government’s approach to project selection and licensing dampens private sector enthusiasm. Long-term policies matching the longevity of hydropower projects are crucial for attracting foreign investment. Mitigating currency risks is essential; Nepal should hedge against them. The current hedging mechanisms aren’t enticing to foreign investors.

How can currency risk be managed?

Hedging can mitigate risks, but foreigners are unwilling to bear additional costs when the product price and expenses are fixed. Nepal’s project costs exceed those in India, complicating matters. The current hedging treaty guidelines aren’t satisfactory to foreigners. Sharing currency risk between Nepal and foreign companies is feasible but limited.

Can the private sector construct transmission lines?

The private sector is capable and has already demonstrated it by building over 20 kilometers of transmission lines. Unlike government entities, the private sector faces fewer obstacles in this regard.

Have India’s cross-border guidelines deterred foreign investment in Nepal?

India’s guidelines restrict electricity trading with nations lacking power trade agreements. Nepal, Bangladesh, and Bhutan have such agreements. Bangladesh and Bhutan can invest and purchase electricity, while others can’t. Foreign investment from countries not bordering India is plausible. China can buy electricity, leveraging technology despite geographical constraints.

Will India purchase electricity?

India has proposed buying 10,000 megawatts over a decade, yet it’s pending parliamentary approval. Nepal’s hydropower remains under India’s influence until a legal decision on the purchase.

Allegations suggest favoritism towards foreign investors over domestic ones. Is this true?

I disagree. Facilitating foreign investment, especially with global institutions’ involvement, is separate from biased treatment. Accessibility is critical; a broad reach isn’t problematic. Not all foreign investors necessarily bring benefits.

Recent projects faced natural calamities. Shouldn’t exhaustive studies precede construction?

Climate changes have amplified sudden heavy rains, deviating from anticipated patterns. Initial oversight occurred in study reports, evident for the past 2-3 years due to changing weather. Strengthening projects is vital, despite increased costs. The government’s pledged financial support hasn’t materialized, hindering progress.

Allegations of investors abandoning projects post-construction exist. How valid are these claims?

Rumors exist, but investor abandonment should be investigated by the Nepal government. Personal guarantees and loan obligations prevent premature project exits. Institutional oversight should focus on rectifying issues rather than creating obstacles.

How can project costs be managed?

Despite reduced construction costs, other expenses have escalated, like imported materials due to fluctuating dollar rates. The focus should shift towards selling electricity amidst increased risks of floods and landslides.

What defines Power Trade?

Power trade involves buying and selling electricity. Currently monopolized by the Nepal Electricity Authority, global practice involves both public and private sectors. Legal recognition of power trade in Nepal remains pending, limiting domestic and international selling capabilities.

When transmission line issues persist, how can power transmission occur?

Transmission lines are vital infrastructure. Despite challenges in some corridors, preparations should commence beforehand. Selling electricity can prompt necessary infrastructural improvements.

Is the Nepal Electricity Authority struggling to manage electricity?

While direct incapacity isn’t acknowledged, government support is crucial. Empowering traders to sell unsold electricity boosts overall efficiency.

What distinguishes project construction in Nepal from other countries?

Higher costs, inadequate infrastructure, and inflated material prices define Nepalese projects compared to other nations.

What’s the investment and return scenario for Nepalese ventures?

Investments of around Rs 20 crores per megawatt have yielded returns for several projects. However, some remain unprofitable. Easing loan access can propel progress. Around 10 projects are yet to break even, indicating underlying challenges.

 

Source : Translated from Samacharpatra (NewsofNepal)