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Hydroelectric Potential of Nepal: Its Relevance to India's & Nepal's Economic Development, Shri R V Shahi, Former Secretary, Ministry of Power

In the middle of September, 2007, a very important seminar was organized in Kathmandu by Nepal Bankers' Association, Independent Power Producers Association, Nepal and PTC India Ltd. Infact, this event "Power Summit - 2007" was the second in this series, the first one having been organized in 2006. The main objective of this seminar was to identify the investment opportunities and to generate interest in Nepal's Hydropower development, specifically in the large scale hydropower generation and export. I had the opportunity of participating as also of chairing a session which dealt with the issues of Transmission, Interconnection and Power Trade.

The importance given to this event by the Govt. of Nepal can be judged and appreciated by the fact that this was addressed in the first plenary session by the Minister for Finance, Former Deputy Prime Minister, Minister for Physical Planning & Works and Minister for Water Resources, apart from other senior officials and dignitaries in the Govt. of Nepal and a number of associate Govt. Agencies. Participation in this was equally impressive from Indian public sector and private sector companies.

Nepal has recently notified a hydropower policy which aims at inviting foreign investments in development of hydroelectric projects. Though, geographically much smaller in size as compared to India which has a hydro potential of 1,50,000 MW, the potential in Nepal is as high as 83,000 MW. As a matter of fact, one of the power experts in his presentation gave an estimate of almost 7,00,000 MW if all the resources and all the river systems are properly assessed. In any case, if we go by the earlier estimate of only 83,000 MW, these natural resources hold enormous promise for both India and Nepal in respect of their economic development and overall upliftment of living standard of our peoples. In India we have reached a per capita electricity consumption level which is of the order of 620 KWH per year and it is considered very low and totally inadequate. Within India there are a few states whose per capita consumption is less than even 100 KWH and these states are obviously very poor and are unable to provide an acceptable level of energy consumption to the people. Almost similar to these states - infact somewhat lower - is the per capita electricity consumption in Nepal. As compared to the huge potential that Nepal possesses as mentioned above, the development has been hardly of the order of about 600 MW. Almost 80% of Nepalese population is yet to be provided a reasonable access to electricity. We can draw a parallel with our own North Eastern states which have huge hydroelectric potential and their own level of consumption of energy and electricity is so unevenly and poorly placed. In a way, both, North Indian States of India as well as Nepal present a paradoxical picture inasmuch as both of them sit on the huge natural endowments of water energy, but yet they are profusely deprived of access to these energy and electricity resources in terms of consumption.

Development of hydro potential is not to be seen only in the context of generating power and consuming power. These potentials have the strength and the power to provide and propel overall economic activities and growth. Availability of electricity is one advantage and a very apparent advantage. The bigger advantage is overall development. The example is not far to search. Bhutan understood the power of its hydroelectric resources, started launching right initiatives at right time and the result has been that not only the Bhutanese have electricity but also almost 70% of their GDP comes out of hydroelectric generation. It has transformed the economy of Bhutan and the process is continuing.

This awareness, though belated, seems to be taking shape in the governance system in Nepal. Almost all the Ministers, Senior Officials and those from industry, who participated and spoke in this seminar, emphasized the need for facilitating the process of speedy development of hydroelectric projects. There was none who had a contrarian view. Yet, it would be relevant to quote some of the important observations to precisely project the nature of conviction and belief that has emerged and the urge with which the Nepalese governance, as also the informed groups, system want to promote hydroelectric development.

The former Deputy Prime Minister and Finance Minister who is an eminent personality in the Communist Party United Marxist Leninist (UML) was not only forthright in his speech but his articulation emphasizing the urgent need for speeding up this process is worth noting and appreciating. Some of his observations are quoted below:

  • Nepal is rich in water resources. There are over 6000 rivers and rivulets that flow to India through five major river basins. The available water resource of the country can generate more than 83,000 MW of power. But the country has been able to generate only 612 MW.

  • Due to shortage of power existing industries are unable to run in full and new industries are not coming up. It has hampered the economic development of the country.

  • UML Party has a clear vision for the development of hydropower projects. This vision is outlined as below:

    • We want small projects to be developed by Nepali developers utilizing Nepali capital.

    • We want Village Development Committees and District Development Committees to develop small projects so that villagers get energy and local governments get revenue.

    • Joint Venture between government and private sector to develop medium size power projects.

    • Large power projects to be developed through foreign investments.

    • With the above four types of approaches we should target to develop atleast 20,000 MW in next ten years.

  • A number of Indian developers have shown their interest in Nepal for developing almost 12000 MW of capacity. India needs power and Indian developers have chosen Nepal because there is a big advantage of having a secured market in India. With this positive environment there is every possibility that Indian investors can successfully build and operate hydropower plants in Nepal.

  • A few months back, a delegation of UML had met the Prime Minister of India and had requested for speeding up the work on Pancheshwar Project. Faster development of this project could be to the mutual benefit of both India and Nepal.

  • We are in favour of Saptakosi Dam Project. We want Sunkosi - Kamal Diversion Project to be implemented simultaneously. Nepal and India shall get benefit of irrigation, electricity and flood control.

The above observations not only outline the nature of changes that have taken place in the mind set of people toward particularly large hydro projects but they also convey a deep rooted conviction and commitment of a very important political outfit of this country.

The Indian government agencies engaged in power development a well as the private sector have now to respond, in a serious and meaningful manner, to avail of the opportunities that have unfolded. The private power policy of Nepal was also discussed. By and large they have been structured on the same framework which is being used in hydro rich states of India - relying upon the extent of free power, upfront payment of premium etc. However, a small lacuna that was highlighted during discussions relates to two stage license for development of hydro projects - the first for detailed investigations and preparation of Detailed Project Report (DPR) and the second stage when the license would be given for developing the project. It was argued that preparation of DPR for hydro projects is distinctly different as compared to the Thermal Projects. It requires much more time and money to do so. Therefore, the second stage license should normally be an automatic process. Though it was clarified during the seminar by an official of the Nepal Government Power Department that the understanding is that those given first stage license, subject to satisfactory preparation of DPR etc., would also be granted the second license, yet for bringing about the required degree of certainty in the process this ambiguity needs to be remedied. This will create even more interests and better quality of investors and developers.

In the inaugural speech of the Finance Minister of Nepal the observations made by the former Deputy Prime Minister, as already briefly described were further reinforced. A few quotes from his extempore speech are worth mentioning:

  • Nepal's Hydroelectric potential is not just for domestic consumption.

  • Infact Hydroelectric resources of Nepal, if properly developed, will create enormous export potential. Nepal has a huge balance of payment deficit (one billion US$). Hydroelectric projects will go a long way in addressing this problem.

  • Besides export, Nepal itself has a significant gap between demand and supply. Demand itself has to grow at a rate of 9 to 10%.

  • Large hydro projects should be preferred. Unless we facilitate development of reservoirs to store water and develop such large projects, we will be wasting a lot of energy in the water which will go away without being used. In this context the Finance Minister quoted the statement of a senior political personality of Sri Lanka who had said about the water "Let not a single drop of water go to the ocean without quenching human thirst". The Finance Minister related his own remarks to this and said in the context of Nepalese water resources that "Not a single drop of water be allowed to go to the sea without creating wealth".

This shows the awakening that has been created and is getting deep rooted in the belief and approach of Nepalese government and administrative dispensation. We, in India, need to work on this. As a matter of fact, in India we need to bring about similar realization and recognition of the need for large dams in order that no water is wasted unless it is properly channelized for drinking, irrigation and/or electricity generation. Both Indian public sector and private sector need to respond, in a significant way, to the Nepalese government policy as well as to these positive approaches which have developed.

What is now needed is to prepare adequately for investigations of such project sites which have not been investigated so far. Wherever DPR's were prepared earlier and if they need to be updated with fresh data with or without field investigations in a time bound manner, the same should be done so that further progress on project development takes place. Considering the large number of projects, it would be necessary for Indian consulting agencies and others to set-up necessary outfits, collaborate with the existing engineering agencies in Nepal and take up investigations on new project sites.

During the conference, in one of the presentations a concern was raised whether large number of projects with large capacities, if implemented, would lead to excess power availability and the generating companies may find it difficult to sell power. This issue was discussed in detail and it was pointed out that firstly in Nepal itself there is going to be huge demand, and secondly Indian power sector needs are enormous - 800 GW in next 25 years as compared to 135 GW as at present. Therefore this concern appears to be somewhat misplaced. It was also emphasized that in the long run hydro power would work out much cheaper because of the absence of the need for fossil fuels whose prices keep increasing. This gives a great competitive advantage.

In the context of power project development in Nepal, interconnecting transmission system between India and Nepal is perhaps the most important issue to be addressed appropriately. This was the main topic in a session that I had the opportunity of chairing and it would require a comprehensive analysis separately. It is, however, necessary to highlight in this paper that since India and Nepal have a long common border from west to east and there are a number of adjoining Indian states which have large deficits of power, pending a long term arrangement of Ultra High Voltage Transmission System, other modes of interconnections at a few suitable locations interconnecting important load centers on Indian side and on Nepalese side could be considered.

A connected issue with reference to the transmission interconnections is the need for augmenting transmission, sub-transmission and distribution infrastructure in Nepal itself. Unless that is taken up on priority, the electricity consumption in Nepal would not grow and also access to those who have not been provided electricity would not be possible.

Role of Power Trading would be the key to the commercial arrangements which needs to be established between the generating companies in Nepal and those who have to procure power via the power trading agencies. Power trading companies themselves will need to upgrade their financial strength and standing so that they could become buyers and then sell power to those agencies which are engaged in distribution. Obviously, these commercial transactions will have to be structured under the overall framework of the policies in Nepal and those in India.