Powering Nepal

At last, there is some good news from Nepal in the energy sector. On September 18, the Cabinet approved a Power Trade Agreement (PTA) with India as well as a Project Development Agreement (PDA) with GMR, the Indian sponsor of the planned 900 MW hydroelectric power plant to be built on the upper reaches of the Karnali river. Subsequently, the PDA for Upper Karnali was signed on September 19. This deal, for the first time, provides objective evidence that Nepal will undertake the power investments that many observers, including the World Bank, have seen as Nepal’s best chance for transformative progress in the near term. September 2014, therefore, may be remembered as a turning point in Nepal’s development history.

Late in coming

Getting to this point has not been easy. For decades, Nepal has missed its opportunities to develop its enormous hydroelectric power potential estimated to range between 40,000 and 80,000 MW. To date, the country has realised less than 900 MW of this potential. With power supply far below the demand generated by Nepal’s 26 million citizens, Nepalis have been forced to adapt to power outages that can last as long as 18 hours a day during the winter when river flows drop sharply and the actual power output falls as low as 300 MW. And it is not only most households that live in the dark, but schools, clinics, hospitals, markets and businesses also need to rely on private diesel generators to meet the power demand.

It hardly needs to be said that manufacturing industries cannot get a real start in Nepal while the country lacks reliable and affordable modern energy. Moreover, without manufacturing industries, Nepal cannot provide jobs to young Nepali school graduates with living wages inside the country. Due to lack of opportunities at home, about six million Nepalis are now working as guest labourers in India, the Gulf, and Southeast Asia. Powering Nepal will enable Nepali entrepreneurs to build stronger businesses and create jobs at home. Likewise, ancillary industries can also supply products to the enormous and fast-growing markets of Nepal’s two mighty neighbours, China and India.

Reasons for delay

How can it have taken so long for Nepal to begin to tap into its enormous energy potential when the benefits are so obvious? There are many reasons. But some of the most powerful involve a few false but widely-believed myths about the power sector in Nepal.

To begin with, many Nepalis believe that power trade with India is not in Nepal’s interest. Nothing could be further from the truth. Given Nepal’s climate and mountainous topography, it can only generate large amounts of hydropower during the summer as the monsoon rains and glacial melt in the Himalayas provide the strong river flows needed to drive power-generating turbines. Under these circumstances, building a power plant only makes sense if surplus power generated in summer can be sold somewhere. And neighbouring India, with its voracious power needs is the obvious market. At the same time, in the dry winter months, Nepal’s generation capacity drops to about one-third of its peak output. The least expensive way for Nepal to meet its power needs then is to import surplus power from India. (Although many Nepalis are not aware of it, Nepal already imports several hundred megawatts of electricity from India on a continuous basis to help fill the current generation shortfall.)  The PTA with India is thus critical to making investment in the sector viable. Besides, the power trade is a win for India and a win for Nepal.

Secondly, many people, both in and out of Nepal, believe that hydropower generation will destroy Nepal’s environment. This is also not true. The power plants, currently planned, are almost all ‘run-of-the-river’ projects, which divert part of a river’s flow through underground tunnels to drive the electrical turbines before returning the water to the river. While any infrastructure involves some alteration to the natural landscape, the alterations required by this sort of a power plant are fairly modest: roads, low dams at the tunnel intake, the tunnels, the power plant itself and various ancillary facilities. But, there are no high dams and no huge water impoundments. Moreover, when one compares the environmental footprint of a run-of-the-river hydropower plant with a nuclear plant, or a coal-, gas- or oil-fired plant—which are the only other ways to provide the baseload power that can sustain a national power grid—the attraction of clean and renewable hydropower is plain to see.

Bright future

Lastly, for many years, many Nepalis believed that the Government of Nepal should and could develop the country’s hydropower resources without outside assistance. Decades of failure to get these investments have shown that this is also an erroneous belief. While it is true that the Nepali government is developing a 456 MW plant on the Tamakoshi River, it does not have the capacity and it cannot afford to build all the power plants that the country needs. It costs about Rs 200 million or more per MW to build a power plant. So it would cost Nepal at least Rs 1,000 billion to produce 5,000 MW of electricity. That is a huge bill for Nepal—for what is in the modern world a modest amount of energy for a population of 26 million—and it will not be possible for the public sector to pay all of it. Moreover, large hydropower plants and widespread electrical grids are very complex pieces of infrastructure, which require a high level of technical skills and knowledge that do not exist in the public sector. Fortunately, both the money and expertise can be found in the private sector which is actively financing and building power plants with the latest technical specifications all over the world. Nepal needs to join other countries in tapping that international interest, which the GMR deal shows, already exists in Nepal.

After much effort and discussion to build a consensus across the political spectrum in the last few days, the Government of Nepal was finally able to get past these old myths and get some critical power agreements across the finishing line. The World Bank Group, which has been working with the Investment Board, Nepal Electricity Authority, the Ministry of Energy and the Ministry of Finance, to help Nepal get to this stage, is pleased to see this progress and ready to provide more support, including any help to introduce needed reforms in energy utilities and to provide financing for other large-scale projects under development, including the 216 MW Upper Trishuli project as well as the Upper Karnali project. This may be the start of a much brighter future for Nepal and its citizens, especially the poor.

– Zutt is the World Bank’s Country Director for Nepal

Source : The Kathmandu Post