Troubled Waters


    Narayani_River (Small)The government is firmly moving ahead with its plan of scrapping the survey licenses and applications for the same of those firms which fail to furnish the required documents and revised application fees by the end of March 2013. Over the last 50 days alone, the Department of Electricity Development (DoED), the regulatory body of the country’s hydropower sector, has cancelled the licenses of 36 such companies which were ‘exploring’ the prospects of developing a total of 827MW of hydroelectricity. The number is fairly high, given that the government has so far terminated only 89 survey licenses corresponding to 1775MW.

    What’s more, the DoED has already warned some 600 companies to scrap their applications for survey licenses if they fail to submit the revised application fee within the deadline. The move, argue DoED officials, will ‘free’ at least as many hydropower projects whose combined capacity has been estimated at more than 7,000MW.

    • 36 survey licenses cancelled in last 50 days
    • Hydropower projects of nearly 7,000MW to be ‘freed’ by March end
    • Very few takers of survey license after fee was hiked in October 2012
    • One-fifth of the electricity sold in Nepal at present imported from India

    “Most of the companies which have lost their licenses were just holding the document and doing sweet nothing. Many of them did not contact the Department even once after receiving the licenses and others failed to submit the periodic progress reports and other necessary documents,” says Anup Kumar Upadhyay, Director General of DoED.

    According to Gokarna Raj Pantha, a Senior Divisional Engineer at DoED, companies receiving the warning also include applicants of half a dozen large-scale projects such as the 660MW Kali Gandaki II Storage Project, 600MW Seti Storage Project, 500MW Tamor Khola Project, 425MW Dudhkoshi Project, 340MW Uttar Ganga Storage Project and the 360MW Mangri Gamgadhi Project.

    ‘Very High’ Application Fees

    In October last year, the government hiked the survey license fees by as much as 30 times. Divided into six categories, the survey licenses are now priced at new rates: Rs 1 million for 1 to 5 MW, Rs 2 million for 5 to 10MW, Rs 3 million for 10 to 25MW, Rs 4 million for 25 to 100MW, Rs 5 million for 100 to 500MW and Rs 6 million for projects above 500MW capacity. Previously, the minimum license fee was Rs 50,000 and the maximum Rs 200,000.

    “The new fees are exorbitantly high when one considers the risks associated with investments in the hydropower sector,” asserts Subarna Das Shrestha, President of the Independent Power Producers’ Association, Nepal (IPPAN). The government should make the monitoring of the progress made by the license-holding companies more effective if it wants to control those who acquire the licenses only to resell them at higher prices at an opportune moment, he adds.

    “What if a promoter invests five-six million rupees in the feasibility study of a project only to find out at the end that the project is not feasible?” he asks and adds, “The power producers feel utterly discouraged by the new fess. That’s why the number of companies renewing their licenses or applying for new ones is very, very few.”

    Shrestha is quite right. In the first eight months of the current fiscal year (from mid-July 2012 to mid-march 2013), the DoED has issued only two licenses in the zero to one MW category, 15 licenses in the 1 to 25 MW category, two licenses each in the 25 to 100MW and above 100MW categories.

    Needless to say, most of these licenses were issued before the fees were hiked on October 1, 2012. On the other hand, most of the applicants for new licenses, too, have not responded to the DoED notice.

    “We also sense that the promoters might have found the new fees to be high as even those companies which had made good progress vis-à-vis the projects have not come for renewals,” Pantha informed The Corporate. Gorkha Power Company which had obtained the survey license for the 8.6 Chepe Khola, Siddhakali Power Pvt Ltd which had obtained the license for the 20MW Lower Chamelia (Darchula district) and Amarawati Builders and Developers which had obtained license for the 4.7MW Bhuji Khola (Baglung district) are a few companies which have lost their licenses despite making good progress, according to Pantha.

    Siddha Kali has knocked the court’s door against the DoED decision. “We got the license for Lower Chamelia more than four years ago. After that, we completed all the studies and even prepared the Detailed Project Report as per DoED guidelines and applied for Power Purchase Agreement on July 11, 2010. Then the government started troubling us saying the project would disturb the 6000MW Pancheswar Project and refused to renew our license. Now, we are in the court against this decision,” said Puja Neupane, one of the promoters of the company.

    The only two worth-mentioning companies whose licenses have been renewed after the fees were revised are PES Energy Pvt Ltd, which has the license for the 210MW Phulkot Karnali, and GAGE Nepal which has the license for the 121MW Thuli Bheri. “We had cancelled the licenses of these two companies as well. But PES paid the revised renewal fee a couple of days after its license was scrapped while GAGE Nepal got a stay order from the court against our decision,” explains Pantha.

    Dream Vs Reality

    Nepal has been dreaming to sell power to India perhaps ever since it realized its huge hydropower potentials. The reality is, instead of exporting, Nepal has been importing electricity from its southern neighbour. And this import, ironically though, has been rising every year. It is around 130MW or more than one-fifth of the total electricity sold in the country at present. With the annual demand of electricity increasing by nearly 100MW, the prospects of exporting electricity have clearly been pushed far into the future.

    There are 36 operating projects at present with their production capacities varying from 1.024MW (Tinau hydropower) to 144MW (Kaligandaki A). The total capacity for these projects is about 687MW of which the private sector is responsible for nearly 221MW while the rest is produced by the government. The 60MW Khimiti-1 is the biggest hydropower project and developed by the Himal Power Limited.

    The government has already announced an ambitious plan to generate 10,000 MW of hydroelectricity over the next decade and another 15,000 MW in the following decade. Generating hydroelectricity is a costly affair, requiring huge investments and patience before the investors eventually start getting the returns. It is estimated that the average combined cost of construction, transmission and distribution is around USD 5 million per MW.

    “The scrapping of licenses one after another is going to bring scores of projects of varying sizes under government ownership. But the government cannot build all these projects on its own. We need investors for that, domestic as well as foreign,” Pantha says. “On top of this, renewals as well as new applications have virtually stopped. We can only hope that whichever company approaches us now will be a genuine company with a genuine motive of developing the project it acquires the license for.”

    Shrestha disagrees. “I don’t think many companies will be interested in the survey licenses any more. Most of these projects lack basic infrastructures such as road links and transmissions lines. Also, getting the forest ministry’s permission still remains a task easier said than done,” he concludes.

    Source :The Corporate Weekly