Nepal's Hydropower - Deconstructing a Few Myths II

(Courtesy: Ratna Sansar Shrestha)

(Responses provided by author to comments on original post located at the following URL: http://nepaliperspectives.blogspot.com/2008/08/nepals-hydropower-deconstructing-few.html#comments)

It is clear from a number of comments to my first write up on the subject that it will not be possible for the politicos to continue to take Nepali people for ride. Every time Nepal passes through the transition (politically unstable) period Nepali politicos give away Nepal’s vital interests. 1950 treaty set the ball rolling on this path during the 20th century, merely to have Koshi, Gandaki and Mahakali Treaties (starting from Tanakpur “Understating” to Mahakali package) to follow in its wake. With the demise of “Panchayati democracy,” a new trend got underway entailing Nepal to surrender rivers to private sector in the name of export oriented projects. Examples of this new trend manifests in West Seti, Upper Karnali and Arun III projects.

It’s Fresh Water, Not Energy

One thing is common in all these treaties and agreements – ensuring fresh water for India. Without spelling it out explicitly, Nepal’s right to water in these rivers have been ceded. The issue in terms of downstream benefit in the case of reservoir projects is relatively easy to understand (some politicos refuse to understand the value of stored water while going about lamenting that water flowing in rivers, for which no one will be willing to pay a price without adding spatial or temporal value to it, is going awaste). West Seti project, for example, augments the dry season flow in the downstream areas in India by 90 m3/s, equivalent to 7.77 billion liters per day. In order to understand the value of such water one needs to know that Nepal is planning to invest in the order of Rs 30 billion to bring 170 million liters per day into Kathmandu. Had West Seti project been conceptualized as a multipurpose project, there would not have been an issue of downstream benefit to India. However, as there are no plans for Nepal to benefit from the augmented flow, India will receive such stored water free of cost, besides benefiting from flood control benefits. The issue here is why Nepal should inundate over 4,000 hectares of its land (to build the reservoir and due to inundation in Banke district as a result of Laxmanpur barrage and augmented flow) and displace over 30,000 people just to provide additional water to India during dry season, free of cost. Politicos and bureaucrats sermonize that Nepal is free to use such water while it flows within Nepal. But without a multipurpose project being conceptualized for Nepal to use such water, India, after using the augmented flow during one season, will start asserting the principle of “existing prior consumptive use” and Nepal will lose the right over such bodies of water permanently. This principle has already been used in structuring Mahakali Treaty to the disadvantage of Nepal. This is one way of gifting precious fresh water produced by storing it in Nepal to India.

One will need to study Columbia Treaty under which Canada is compensated for losing alternative use of the land inundated and also for augmented flow in the dry season from USA, besides the power benefit shared between the two countries for constructing the reservoir project. Nepal should have insisted on using this treaty as a precedent in getting recompense for land mass lost due to submergence (including forest resources, wild life, existing infrastructure, etc.) in the case of West Seti project. But …

Another way Nepal is ceding its right to water becomes apparent with some difficulty. Run of the river projects like Upper Karnali and Arun III do not generate augmented flow and, hence, apparently, no water related issues are involved. But an in depth study will make it clear that water issue is involved even in these projects. Section 20 of Electricity Regulation, 1993 guarantees “Right on Water Resources” which says that “The licensee, who has obtained license for production of electricity, shall have the right to use the water resources for the works as mentioned in the license to the extent of such place and quantity as specified in the license.” As stipulated by this section someone possessing a license to a specific site is guaranteed that no consumptive use of water will be undertaken in the upstream areas of the project, which might entail reduction of flow to the project site. By getting various “investors” to secure licenses to sites in Nepal, India has succeeded in ensuring that Nepal is forced to refrain from using the water for consumptive uses in these areas. In this manner too downstream flow to the Ganges is successfully secured with the issuance of each license and Nepal misses an opportunity to use such water, for example, to irrigate its arable land. In order to put things in proper perspective, one needs to remember that the Ganges receives 41% of its flow from Nepal in the wet season and 75% in the dry season.

On the other hand, although quite a few of Nepal’s hydrocracy (bureaucrats, intellectuals and politicos related to hydropower) believe that India badly needs electricity from Nepal, time has already proven that it’s not so. Take the example of West Seti. If India was badly in need of electricity from this project, Indians would have made sure that this project was built more than a decade ago. In other words, they would not have allowed this project to hibernate for one and a half decade. Same conclusion could be drawn from Mahakali Treaty as well. The detailed project report (DPR) for Pancheswar project was supposed to be ready within six months of execution of this treaty. It’s been over a decade now but the DPR is nowhere near sight. From this it could be easily seen that India is not that desperate for electricity from rivers in Nepal, as is being perceived (and also propagated) by Nepal’s hydrocracy. If indeed India was starving for electricity she could have easily ensured that Pancheswar project (6,480 MW from storage project and 240 MW from reregulating dam) is built and, probably, commissioned by now. By getting Nepal to sign on the dotted lines in the treaty document, India succeeded in legitimizing the use of water in excess of what she is entitled to (50% of the water in Mahakali – deemed to be a border River), which she had been illegitimately using prior to execution of the treaty. And it’s also not that difficult to see that she is in no hurry to get this project commissioned.

Export to and Import from India

Prayasjee has put his finger on the raw nerve. Thanks. The peak demand in last fiscal year, according to NEA’s latest report, was 720 MW. The industrial corridors in Butwal-Bhairahawa, Parwanipur-Birgunj, and Duhabi-Biratnagar are starving for energy for the existing industries. These corridors could use 200 MW each while establishment of new industries and expansion of the existing industries is constrained due to lack of electricity. Dr Amrit Nakarmi has figured out that merely to displace cooking gas (LPG, which is causing NOC to hemorrhage, besides other petroleum products) in Kathmandu valley we need additional 680 MW. By the time West Seti project gets commissioned in about 5 years, in this manner, Nepal’s own demand will exceed 2,000 MW. If Nepal is to try to be self reliant in the matter of energy for transportation and, therefore, electrify its transportation system (ranging from electric train, trolley bus, cable car to hybrid cars) the demand will be much higher. Therefore, I have no choice but to agree with you that it makes no sense for Nepal to endeavor to export electricity when she herself “doesn't have enough electricity” as you have very aptly put it.

Prayasjee, there is also fiscal tragedy inherent in this export-import “business.” It costs about Rs 21/kWh for NEA to generate peak-in power (from thermal plants) but peak-in power from West Seti project is slated to be exported at around Rs 3/kWh (US $ 0.0495/kWh). Further, Nepal is importing electricity from (the same) PTC at prices ranging from Rs 5.58 to Rs 6.50, for any time during the day and during all seasons, in 2006 (I don’t have the applicable rate for 2008 which is bound to be higher). After knowing this, I have to agree with you that it not only “sounds really stupid,” but it’s really stupid on the part of us (people in Nepal – for tolerating such a hydrocracy and the leadership all these years).

Decommissioning

Prayasjee, you are also right with respect to the hype created by the hydrocracy about Nepal becoming rich after getting the project handed over after 30 years “free of cost”. As the old saying goes, it will be tantamount to us going about bragging that we have put on some weight while it was merely a case of swelling of the body. Besides the point you have rightly raised, there is the issue of decommissioning which both the hydrocracy and the project people don’t like to talk. Although the main source of Kulekhani reservoir, for example, is not river based, the dead storage of this reservoir is already 25%. In other words, the capacity of Kulekhani reservoir has diminished to 75% of original capacity in about 25 years. Seti River carries high silt load and West Seti project will transform into a run-of-the-river project from the reservoir project in about 30-40 years. At that time, after getting it handed over to Nepal, this project’s dam will have to be decommissioned. As the private sector has not provided any budget for this purpose, the government of Nepal will be forced to spend money for this purpose. Meaning, when Nepal is supposed to be “enjoying” electricity from this project handed over free of cost, she will be forced to shell out money for decommissioning which will be costlier than the origial project cost.

Monopsony

Hiding behind the shield of anonymity one commentator has alleged that I was trying to fool “innocent Nepali readers.” It seems s/he her/himself is trying to fool the readers while forgetting that the readers are much more informed than s/he deigns to think. I earnestly hope that s/he will desist from doing so soon. S/he attempted to prove the point by explaining that PTC is not the only buyer and went on to “try” to enlighten me by listing some other “could be” buyers. Existence of other buyers in India and PTC being authorized to be sole buyer of electricity from Nepal (thereby leading to monopsony market situation) is very different. Once other potential buyers also become authorized to play in this market the monopsony market with regard to export of electricity from Nepal will cease to exist. I am sure that s/he is aware of this. I am obliged to other commentators who also have pointed this fact out.

Export Tarrif

S/he also says that “The going rate for a PPA with PTC is Rs। 5।30...that is why West Seti project is not taking off...they signed a terribly bad and unfeasible deal।” If that is the case then the proponents of West Seti people are better off by canceling current PPA with PTC and asking for new one with the rate s/he (the particular commentator) has quoted। In any case, the point I was making in my original write up was that expecting PTC to pay Rs 5।13/kWh from even run-of the river project is an over estimation when PTC has agreed to pay merely around Rs 3/kWh for peak-in energy (I am sure that the commentator is not “innocent” to the extent of not understanding the difference between the energy generated by the two types of projects)।


I request Damanjee to note that PTC hasn’t offered West Seti Rs 5.13 per kWh, rather around Rs 3/kWh only (US $ 0.0495/kWh). The website for Department of Electricity Development is http://www.doed.gov.np/

Nepal’s Economically Feasible Potential

The anonymous commentator has even called me a “theoretical man” based on the fact that I have used 43,000 MW to compute per capita electricity that will be available to the people of Nepal। S/he needs to remember that I was merely using a number that is being used by government authorities including Water and Energy Commission of GoN। S/he needs to remember that I was not endeavoring to establish a correct number for Nepal’s economically feasible potential contrasted with what is currently official accepted number। I, however, agree with her/him that “this number will continue to go up with more infrastrucute (sic) being built and PPA rates going up” and potential virgin sites being identified.

Royalty

S/he goes on to allege that I don’t “have a clue as to how energy royalties are calculated” and goes on to talk about gross and net energy। It is common knowledge that there is no monopoly or monopsony whatsoever in the matter of understanding the difference between gross and net (and Damanjee also says that I “may not know the difference between NET and GROSS (based on royalties))।” Being a Fellow of Institute of Chartered Accountant and also a student of both management and economics (also having taught in Tribhuvan and Kathmandu Universities for over 3 decades), it’s not possible for me to deny knowing the difference between NET and GROSS. However, my whole and sole point in the write up was: it’s practically impossible for Nepal to earn the royalty at the rate of US 1.5 ¢ per kWh at currently prevalent tariff rates for electricity, under current Nepal law. In order for Nepal to earn royalty at the rate of US 1.5 ¢ per kWh under existing law, as I have mentioned in my write up, the tariff will have to be US $ 0.60/kWh – which is well neigh impossible even in the near future, unless applicable royalty rate is revised upwards to 25% by amending the relevant law and Nepal starts exporting electricity at the rate of US 6 ¢ per kWh.

Related Post:

Nepal's Hydropower - Deconstructing a Few Myths
http://nepaliperspectives.blogspot.com/2008/08/nepals-hydropower-deconstructing-few.html