Mar 4, 2017- Nepal Electricity Authority (NEA) is mulling over introducing different sets of tariff during different seasons and time of the day to prop up the ailing financial health of the loss-making state-owned power utility.
NEA is planning to raise power tariff during peak electricity consumption hours of 7 am to 9 am and from 5 pm to 8 pm by installing smart meters in households. Also, NEA is considering on raising tariff during dry seasons when electricity generation falls due to depletion in water level at the river basins.
“These initiatives will increase revenue collection of NEA and improve its financial health,” NEA Managing Director Kul Man Ghising told the plenary session on ‘Energy and Industrial Infrastructure: Steering Nepal’s Economic Transformation’ held on the sidelines of the Nepal Investment Summit 2017 on Friday.
NEA incurred net loss of Rs11.8 billion in the last fiscal year. NEA suffered losses of similar extent in the previous years as well due to “disparity in power purchase cost and revenue generated through sales of electricity”.
NEA spent Rs24.2 billion to purchase electricity from private hydroelectric power projects, and India in the last fiscal year. This cost is 75 percent of its revenue totalling Rs32.2 billion in 2015-16.
This cost is likely to go up in the coming years due to hike in electricity demand. But this hike is not always transferred to electricity tariff, according to NEA officials, which is making the size of the hole in the power utility’s balance sheet bigger.
The Electricity Tariff Fixation Commission increased electricity tariff by 19 percent on an average in July 2016. This hike is expected to raise NEA’s revenue by Rs5 billion in the current fiscal year.
But this tariff revision came after four years. The tariff commission had previously raised electricity tariff by an average of 20 percent in 2011-12 after a gap of 11 years.
The delay in tariff revision, on the other hand, is preventing NEA from raising price of power that it purchases from private producers of hydroelectricity.
The Ministry of Energy recently introduced the Power Purchase Agreement Guideline, offering Rs12.40 per unit to developers of reservoir-type hydropower projects during the dry season. The power purchase rate for such projects during the wet season has been fixed at Rs7.10 per unit.
The Energy Ministry has also fixed the rate for peaking run-of-the-river projects at Rs10.55 per unit during the dry season and Rs8.40 per unit during the wet season. Run-of-the-river projects with installed capacity of more than 100MW, meanwhile, have been offered Rs8.40 per unit during the dry season and Rs4.80 per unit during the wet season.
These rates, according to the ministry, will be raised at the rate of 3 percent annually for a period of eight years. These rates are yet to be approved by NEA, the country’s sole buyer of electricity.
“The initiative taken by the Energy Ministry is commendable,” Li Yanfeng of Power China Resources said. “But the initial tariff and escalations are not attractive because of Nepali currency’s devaluation.”
Nepali rupee has been depreciating by over 3 percent per year for the last one decade, signalling high foreign exchange variation risk in the country. This means foreign investors, such as Yanfeng, who bring in convertible currency, like the US dollar, to make investments here, are losing money every year while converting rupee-denominated earnings into dollar.
To minimise this risk, the government has recently introduced a provision that allows NEA to purchase energy from foreign-funded projects in US dollars for a period of up to 10 years. This provision was introduced to facilitate foreign investors to repay the debt acquired from financial institutions abroad.
“But 10 years is barely enough to repay the credit,” said Yanfeng, adding, “The government should create a mechanism to share risk emanating from foreign exchange variation once the foreign debt payback period is over.”
Also, the government should shorten the period and process of acquiring various licenses and play a true facilitator’s role in acquiring private and public land required for projects, said Harvinder Manocha, chief operating officer of GMR Energy, the developer of 900MW Upper Karnali Hydroelectric Project.
Source: The Kathmandu Post