Power generation in South Asia: Crucial role of private sector

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    The government should act more effectively to attract the private sector‚ and provide the necessary support services including necessary subsidy with strong and effective monitoring mechanism to make power developers responsible and accountable

    Electricity crisis hits the economies of the South Asian region pretty hard. It creates a bottleneck to achieve the desired and anticipated level of economic and social progress. These economies have failed to attain the anticipated economic growth rate due to power crisis. Electricity is the key factor for economic development. Its service works like a dose of medicine to a patient who suffers from a particular disease to achieve higher economic growth rate. Technology makes labor and capital more efficient and productive. Hence, in turn it helps to undertake large scale production. This facilitates the production of goods and services at low cost. The technology, on which the production efficiency depends, is based on the adequate, reliable and affordable supply of electricity.

    Electricity consumption is one of the most important indicators of economic development. Higher the electricity consumption the better is the level of economic development. Electricity consumption indicator is used to identify a country whether it is a developed or an underdeveloped one. It is because higher level of electricity consumption means a wider consumption of goods and services. It implies that the association between electricity consumption and economic growth is direct and positive. This means that high economic growth

    rate depends on the reliable supply of electricity and vice versa.

    Countries of the South Asia are rich in various sources of energy. Bangladesh and Pakistan are rich in natural gas. Their main source of power is natural gas. Nepal and Bhutan are rich in hydropower. India represents the big economy of the region and an emerging economy of the world. It has huge land mass that contains all sources of power. But the extent of availability of the source of energy is mixed so is the source of power. More than 70 per cent of its power has been based on coal.

    For the purpose of attracting private sector investment, South Asian countries have liberalized power industry with an aim to produce adequate electricity to meet the growing demand. By this action, the power sector emerges as a new business area for private sector investment. In response to the action, a number of power producers have emerged and are involved in power generation by mobilizing private sector capital. But, their involvement in power industry varies by country and by source. But, the rate of participation is encouraging. Only Bhutan is an exception. Bhutan’s power supply is based on hydropower. The private sector involvement in power generation varies in the rest of the South Asian countries. Pakistan occupies the first place with 49 per cent followed by Bangladesh with 46 per cent, Sri Lanka with 34 per cent, Nepal and India each with 25 per cetnt share of electricity generation.

    It shows that power generation activity is dominated by the government. The private sector involvement seems effective in countries like Pakistan, Bangladesh, and Sri Lanka where power generation is based on thermal plants. There is no private sector share in power generation in Bhutan, where source of power is water. It indicates that independent power producers are more attracted in power development where the source is based on coal and oil rather than water. Nepal has only 25 per cent share of power generation. The low and high rate of involvement is determined by the source from which the power is generated. The hydropower takes a long time to accomplish in comparison to other source on which the power generation depends. So, the return from the investments in hydropower might be low on the one and long gestation period on the other.

    In Nepal, the role of the private sector in hydropower development is encouraging. Within a short span of time covering 10 to 15 years, private sector involvement in hydropower is really encouraging and enthusiastic. One third of the existing power has been generated from the hydropower projects constructed with the investment of the independent power producers. The trend of investment was significant in the 1990s, but the pace has slowed in the 2000s. This has resulted in power shortage. and there is a huge gap between the demand and supply creating extended load shedding.

    If the public sector is incapable of making investments in hydropower projects, it should create friendly environment to increase private sector involvement. The way the government has stepped up to develop hydropower is not striking. It has accumulated a large number of applications and issued licenses. Is this any evidence that the government is really motivated and committed to develop hydropower? In my opinion, it is a necessary condition but not sufficient enough. The issuance of licenses does not ensure private sector involvement. Private sector involvement is primarily motivated by the high rate of return. Investors’ expectations on return may be slow and that makes them reluctant to invest because of the longer construction period.

    The government should act more effectively to attract the private sector, and provide the necessary support services including necessary subsidy with strong and effective monitoring mechanism to make power developers responsible and accountable.

    Source : PROF. DR. KAMAL RAJ DHUNGEL/The Himalayan Times