“Rs 250 billion as royalty from 10,000 MW”

(Courtesy: Ratna Sansar Shrestha)

In the presence of Prime Minister Dahal last Friday, during the inauguration of 6^th AGM of CNI, Dr Shankar Sharma, former vice chair of National Planning Commission announced that “Nepal will earn Rs 250 billion as royalty of 10,000 MW even under existing law of Nepal”- (he said in Nepali “2 saya 50 arba rupaiya”). This is not correct at all. During the power summit of 2006 TN Thakur of PTC India did his best to mislead Nepali populace by announcing that Nepal can earn IC Rs 10,000 crore (NRs 160 billion) by exporting 10,000 MW electricity from plants built with Indian investment. I published an article refuting his statement in Kantipur on 13^th Kartik last year. Realizing that he wouldn’t be reading an article in the vernacular daily, I got another article published on the same vein in the Kathmandu Post on 25^th Paush last year. Then some half-wit went overboard and said Nepal will earn Rs 25,000 (250 billion) crore by exporting 10,000 MW in a program in Patna couple of months back. I earnestly hope that Dr Sharma is not inspired by these numbers.

Because, under the extant Electricity Act, 1992, capacity royalty is Rs 100 per kW and energy royalty is 2%, at the rate of which Nepal will earn a total royalty of Rs 4.9 billion only if the hydropower projects are able to achieve plant factor of 50% and sold at US 6 ¢. This number is lower by a magnitude compared to the one he has quoted. I take it that discerning readers are aware that NEA is able to achieve only 33% plant factor and in which case the royalty earning will go down to Rs 3.6 billion only.

Under the Electricity Bill the proposed capacity royalty is Rs 400 per kW and energy royalty is 7.5%, at which rate Nepal will earn total royalty of Rs 18.78 billion only at 50% plant factor. Even at the proposed higher rate for royalties Nepal’s earning from royalty will be very far from what he has quoted.

Even if Nepal was to levy 100% of the electricity sales revenue as royalty (ridiculous and impossible), Nepal will receive only Rs 197 billion – still not quite Rs 250 billion. The electricity will have to be sold at US 7.6 ¢ and cent percent of the sales proceed will have to be charged as royalty to achieve royalty revenue of the level he has mentioned. Nobody will disagree that this is a outrageous proposition and Nepal will never be able to levy royalty at this level. In other words the royalty rate will have to be Rs 8.65 per kWh (unit) in order for Nepal to earn as royalty Rs 250 billion. Under present market condition this is impossible feat.

Sometime back Professor Dr Ram Manohar Shrestha also came up with similar astounding numbers about potential royalty revenue for Nepal and I did point out his error (over estimation), which is published in my blog ( HYPERLINK "http://ratnasansar.blogspot.com/" \o "blocked::http://ratnasansar.blogspot.com/" http://ratnasansar.blogspot.com/), in order to deconstruct the myth that is being perpetuated.