Waiting for Godot

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    ELECTRICITY TRADE WITH INDIA

    Last month, Nepal Electricity Authority (NEA) increased load shedding to 12 hours daily. With one of the coldest winter in years, these power cuts sapped whatever little remained of the New Year cheer.

    My story on load shedding begins on a personal note, at the receiving end of a public admonition in a brightly lit conference hall in Hotel Soaltee five years ago. A former Secretary of the Indian Ministry of Power summing up the Nepal Power Summit 2007 picked me out by name, and berated me for having argued that the prospect of selling electricity from Nepal’s hydro power plants into India was pure fantasy. I was, he said, the only one in the entire conference who had doubted the possibility.

    The secretary wasn’t being unfair. Those were the giddy days of Nepali hydro. Large hydro plants, packaged on the promise of exporting power to India, were being auctioned. There was little room for sceptics.

    A year later that giddy optimism scaled new official heights.

    “Nepal will seek to develop 10,000 MW in ten years,” Prachanda announced boldly during his first state visit to India. Everyone applauded. Bihar’s Chief Minister, Nitish Kumar, still dealing with the devastating Kosi floods at the time, cheered the prime minister. Flanked by India’s high and mighty, the ringing endorsement of Prachanda’s vision that afternoon was enough to make even the most hardened critics cower in the corner. There really was no room for sceptics.

    Four years later, that giddy optimism has been deflated by long power cuts. Bombastic announcements of 10,000 MW in Delhi have given to way to pleading for a few more MW.

    During President Yadav’s recent state visit to Delhi, Nepal requested India for a meagre 55 MW. The Indians hemmed and hawed, before mumbling something about cross-border transmission bottlenecks. May be by the summer, they promised.

    India held out hope. Nepalis bought it.

    “People might have to wait for the next four months for the load-shedding hours to actually go down,” NEA’s Managing Director announced to the media after the visit. He went on to blame the lack of transmission lines between India and Nepal for the problem – a popular scapegoat every time an explanation is needed on why Nepal remains shrouded in darkness.

    “Absence of cross-border transmission line is a major bottleneck for power trade between the two countries,” the Managing Director explained. He might have merely stated the obvious. But that simple remark encapsulates the very essence of why Nepal has plunged into darkness and remains there. Nepal’s fixation on electricity inter-connection with India has been her curse.

    The long held myth has been that power could be exported to India from large Nepali hydro plants with tremendous benefit for Nepal; that exports could be used to finance development of large hydro plants. These assertions were never true, even if they were stated with conviction in brightly lit conference halls in Hotel Soaltee.
    The Indian power sector is a quagmire. It is broke. Late last year, the Union Government approved a plan to refinance the state distribution utilities, which were reeling under accumulated debts of Indian Rupees 1,900 billion (approximately US$36 billion). This is the second financial restructuring of the sector in a decade. Despite requiring states to pledge to specific reforms, it is doubtful if this round of cash infusion will fundamentally change the way business is conducted.

    Although the Indian power sector has witnessed significant growth in private participation, stories of sustained corporate growth of power companies have not been inspiring. More recently, the situation has been downright dreary.

    Flagship programs, such as the 4,000 MW Ultra Mega Power Plant scheme, designed to promote private sector generation, have been failing in parts. Tata Power, for instance, took an impairment charge of $150 million on its 4,000 MW Mundra power plant. Reliance Power is in arbitration with the states on its 4,000 MW Krishnapatnam plant.

    Five to six years ago, the Indian power sector had witnessed a huge rush to develop new capacity. Much of it was in response to soaring short term electricity prices, often above Indian Rupees 8/kWh on average. The push to develop large Nepali hydro designed for export to India was partly in response to these opportunities.

    Since then, short-term electricity prices have collapsed in India. It now trades around Indian Rupees 3-4/kWh on average. Although many power plants with surplus capacity at that time made significant profits, there is now widespread realization that power prices are unlikely to return to those highs. Everybody has now realized that distribution utilities are simply unable to absorb such prices. About 10,000 – 20,000 MW of new upcoming capacity in India planned on the premise of high short-term prices are reportedly stranded.

    Even without all of the complexities and challenges of Indian power markets, there are two basic reasons that Nepali hydro power exports can never work for India. First, Nepali hydro power will always be more expensive than electricity generated in India, except perhaps at periods with very high demand. Second, it should always be more profitable to sell power in Nepal than in India. Nepali consumers will always be willing to pay more for power than Indian consumers.

    Indian power markets lack the security and prices to finance or underwrite development of Nepal’s hydro plants.

    If not as a market for exports, could India at least provide Nepal with some additional electricity in such times of distress? To the President and the NEA visiting Delhi, 55 MW may have appeared a small amount that India is easily able to provide. They are wrong.

    Electricity is invaluable in India, with very little to spare. The country already suffers huge power shortages. Official estimates of shortage typically amount to around 15 percent of demand. In reality, shortages are grossly under-estimated and are possibly around 25-30 percent of the demand. With latent demand (i.e., demand that consumers postpone because they don’t believe supply will be there), shortages are likely closer to 50 percent.

    It should always be more profitable to sell power in Nepal than in India, as Nepali consumers will be willing to pay more for power than Indian ones.

    Even if higher prices were offered, additional generation may not be available. Formal and informal mechanisms help to keep prices suppressed. Higher price generation is often forced out of the market, despite the willingness of some industrial consumers to pay more.

    Electricity in India is political currency. It could make the difference between an election victory and defeat. During the last general elections, short-term electricity prices soared as distribution utilities were directed to meet demand at all costs. Prices crashed after the election.

    Within India’s power sector, 55 MW is a small amount. But as the 2014 election approaches, 55 MW could be big enough to swing a constituency. Rather than provide electricity, India will find it easier to offer money for kerosene or diesel to keep the lights burning in Nepal.

    Too much time has been wasted in Nepal dreaming about India. Waiting for Indian markets to realize our potential for hydro exports or waiting for Indian supply to supplement our domestic supply, is a bit like Waiting for Godot.

    It may be convenient to blame the absence of cross-border transmission lines for our load shedding woes, but the real fault lines are closer to home.

    The author is a consultant on energy and environment
    bishal_thapa@hotmail.com

    Source : The Republica