An Economy does not buzz without power, energy and basic infrastructure. Every kitchen is a great teacher of the economics. And it hurts when a rich household is full of empty stomachs. As a case in point, let us look at Nepal: a country with an abundance of natural resources and yet, it manages to remain poor. Efforts have been made in the past to address poverty but most were camouflaged by the politics. Sadly all that the many Revolutions did was: a change of guard, languishing Constitution, and no real progress in promoting economic development. However, post 2006 the market seems to have realized the potential and therefore the renewed chase for Nepal’s resources. Though some radical elements would still want absolute control of resources, the agenda of economic development through private participation is making inroads even in the Maoist headquarter. Signing of Bilateral Investment Promotion and Protection Agreement [BIPPA] with India during ‘the Maoist’ PM’s visit to New Delhi during October 21-24, 2011 is indeed a great leap!
Due to frequent changes in the governments, all major political parties – especially those who make more noise while in the opposition – have got their chance of managing the power crisis in the last couple of years. One of the most significant outcomes of these frequent changes has been that all the parties in Nepal now acknowledge the crisis. Power generation and transmission being a capital intensive and high gestation period project, there can be neither a magic wand nor a political ideology that can overcome shortages with mere slogans. This is beyond their capacity and therefore best left to the sector that can handle it – private sector. Important to understand here is that this acknowledgement of the crisis is only a beginning of the long journey.
Published data reveal that in Nepal biomass accounts for 86% of energy source while the share of electricity is just 1%. Also that 90% energy is consumed at residential level. Likewise, Nepal has an estimated hydro potential of 83000 MW, of which current generation stands at a mere 643 MW. According to Nepal Electricity Authority, YOY demand growth rate stands at 10%. In 2011, the peak demand was 947 MW. Due to Run-of the-River type of generation, except 92 MW, capacity shortage during the same period was approximately 520 MW with a daily energy shortfall of 5,600 MWh. As a result, Nepal faced over 14 hours of load shedding. Same sources also forecast that the peak demand in 2020 would be about 2000 MW under normal growth and 4000 MW under high growth scenarios. Since no significant generation is expected in next few years, the load shedding forecast for the years ahead is alarming. Lack of adequate power evacuation infrastructure makes it even worse. Nepal does not yet have a more than 132 KV transmission lines in its system. However, nine different projects of 220 KV double circuits totaling to 733 Km both north south and east west of Nepal and five different projects of 400 KV lines, 960 Km, including cross border lines are under various stages of development currently. These lines are planned to evacuate power from the proposed plants into the national grid and also to India.
Coincidentally as the government is gaining much needed support to promote private investment, private companies from within and outside Nepal are already queuing up to build the projects. At least 312 licenses have been awarded to various private developers to generate 15,932 MW from various river basins in Nepal. Of these 28 medium to large projects totaling to 8,249 MW are licensed to 14 developers from India. Of these, 13 projects of seven different promoters totaling to 4,105 MW lie in the Karnali Basin alone – one of the poorest regions in Nepal, which now stands to gain the most from its resources. At a conservative estimate of hydropower development Karnali basin alone is attracting at least USD 4 billion equivalent of FDI, highest ever in Nepal. Most of these projects are in early stages of development. Commercial operation of which may be possible by 2016-17. Total installed capacity of these licensed projects is likely to increase after optimization studies are completed. However, in the given condition even if Nepal consumed 4000 MW from its entire generation in next 10 years, the balance of more than 12,000 MW would be available for India. Though 12,000 MW sounds bit too small for a country like India, this is huge for the companies involved – it means investing at least USD 24 billion (i.e. Indian Rupees 120,000 Cr) in generation alone.
Among the Nepali developers holding licenses for project capacity of more than 25 MW, only a small minority is capable of sponsoring these projects themselves. Interestingly most licenses have been awarded on the first come first serve basis in the past, therefore without any due diligence on the capability of the licensee. Naturally these promoters of the projects aggregating to over 5000 MW licensed capacity are looking either for outright sale of the projects or JV with foreign partner. This is an immediate opportunity for those not already in Nepal but interested in Nepal power market.
It then is obvious that, given the hydro potential of Nepal, few in the power business can afford to ignore Nepal. However, for those interested in the Nepal hydro market, this is only a story half told. A promise of plenty!
There are several challenges to make a project a success. These challenges are both internal and external to projects. While internal challenges include meeting the milestones in various stages of the project and managing stakeholder expectations, external ones generally stem from frequent changes in political leadership, poor transport infrastructure and bureaucratic delays. Each project has a unique set of challenges and there is no one best way to address them. However, these challenges can be managed through regular engagement of stakeholders. In other words engaging stakeholders would mean to engage them through advocacy and information dissemination at respective levels. This may sound a little off the beat and not a familiar territory for the businesses but it is the hard reality of underdeveloped markets like Nepal. A comprehensive plan with carefully crafted strategy to manage the risks and challenges is perhaps the right beginning to enter Nepal’s huge untapped hydro market.
Published in NICCI Newsletter November 2011
सिध्द विचार 