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Developing Hydro Electric Project in Nepal: Need for a New Approach, Shri R V Shahi, Former Secretary, Ministry of Power

India-tech Foundation, in association with Ministry of Water Resources, Government of Nepal, Federation of Nepalese Chamber of Commerce and Industry and Independent Power Producers' Association of Nepal, organised an International Conference on Hydro Power in Nepal, at Kathmandu on April 25 - 26, 2009. The programme was well attended with large participation from India, Nepal and a few other countries. It was inaugurated by the Minister of Water Resources, Government of Nepal.

Hydroelectric potential in Nepal is so large that it can meet the total requirement of electricity of Nepal and at the same time it could transform the economy of the country. I had the opportunity to speak in the Inaugural Session as also the privilege of chairing two other Sessions which consisted of panel discussions on Open Access, Financial Regulation and Grid Synchronisation and another Session on Social Responsibility and Environmental Management. During the Inaugural Session, I made a few remarks which are briefly described below:

  1. Inspite of water being a renewable source of energy, it has been a global failure that not more than 20% of the hydroelectric potential has been harnessed. In India, with over 35,000 MW of hydroelectric projects we are at par with the global average in so far as the extent of exploitation of hydroelectric potential is concerned which, is estimated to be of the order of 150,000 MW. In Nepal, this proportion is not even 1%.

  2. Whatever may have been the thinking about hydroelectric projects in the past, atleast in last two years the attention to hydro power has intensified in the wake of serious concerns about the consequences of global warming and climate change, particularly after the Report of the IPCC came out. At this point of time a more favourable support is emerging for developing hydroelectric projects in preference to fossil fuel based new capacities.

  3. A few years back, there were serious reservations on recognising large storage based hydro projects in the category of renewable energy. Even now, reservations in many corners continues but there are large number of countries which have started thinking favourably for storage hydroelectric projects. It is expected that there could be global consensus on storage hydro projects.

  4. One of the main reasons for objection to, and protest against, such large hydro projects has been the issue of rehabilitation and resettlement of affected towns, villages and families. While it is true that in many cases, problems arising out of setting up of large storage hydro projects have been magnified disproportionately by political dispensation and by NGO's, it is also equally true that in a large number of these projects the project developers have been less serious than they needed to be to address the hardships caused on account of submergence and reservoirs. This issue has to be considered with a human face. Towns, villages and families which have existed for generations in these locations get dislocated. Obviously, it creates economic problems, but more importantly it creates social, psychological and emotional problems. A proper advocacy on rationale of hydroelectric projects would, therefore, require formulation of approach, Policy and Schemes of rehabilitation and resettlement as an integrated solution to all these issues. In many cases, hydro projects dislocate and disrupt a number of infrastructural facilities. They need to be recreated, so that the inconvenience caused is eliminated. As a matter of fact, if our approach and development of alternate townships and facilities leads to creation of an impression among the concerned people that if a hydro project is located, they have better houses, better facilities and more comfortable living and earning, it would lead to creation of demands in various areas from the people that such projects should be located in their areas. Today, they are protesting against; our policy and action should create demands from those very people that projects should be located in their area. We have to evaluate to what extent our project developers come out in this test.

  5. In the energy development strategy of India, hydro power occupies very important position. In the year 2003, India launched "50,000 MW Hydroelectric Initiative", which involves development of over 160 power projects in different parts of the country. They are being taken up on priority. We have a potential of 150,000 MW, the remaining ones will also be taken up later.

  6. India's development strategy for hill States of Himachal Pradesh, Uttarakhand, Jammu and Kashmir and North-Eastern States, particularly Arunachal Pradesh, involves their overall upliftment through harnessing of their hydro potentials. These States in the medium to long term will benefit immensely when projects identified in these States are developed, not only from the additional electricity supply that they get but also from the revenue that is generated. The economy of our neighbouring country Bhutan has been transformed mainly on account of the hydroelectric projects like Chukkha and recently Tala Project. Electricity contributes almost 65% of their overall national income, and the per capita income of Bhutan is higher than even India.

  7. It is estimated that Nepal has a potential of 83,000 MW. But there are experts who also believe that if proper assessments are made, these potentials could be as high as about 200,000 MW. Even if we consider the conservative estimate of 80,000 MW, the harnessed capacity is less than 700 MW which is not even 1% of the potential. It is important for the economy of Nepal that a number of power projects are developed in the shortest possible time, so that the whole country benefits. An important point to note is that the energy contained in water, if allowed to flow into the sea, without extracting electricity out of it, is lost forever. This is quite unlike fossil fuels in which case even if it is not consumed, it can be consumed later. Time is, therefore, of essence.

  8. The Government of Nepal came out with a Policy on developing hydro projects. It has a two stage license. The first stage licence is given to the developer for carrying out investigations and preparing Feasibility and Detailed Project Reports. Though it is often stated by the authorities that once the Project Reports are prepared properly after due investigations, the second stage licence will be granted, but any uncertainty in this regard needs to be set at rest. The procedure itself should spell out clearly that the second stage licence would be more or less automatic.

  9. The experience of last few years indicates that the pace of preconstruction development activity is very slow. The Government may consider institutionalising a formal mechanism which will monitor and provide necessary inputs and assistance to the developers, so that the project development is speeded up. This mechanism could take care of problems which arise in the process of land acquisition, various statutory permissions and sanctions, security aspects and most importantly the connectivity (road transportation etc.). The problems concerning security of people, so that investigations and subsequently project construction activities are allowed to proceed smoothly, and the difficult locations of project sites without proper transportation connectivity, are such that these could be addressed effectively only by the Government. Individual developers will not be able to handle them. If they are not attended to, the process can go on slowly almost endlessly.

  10. Equally important is the need for commensurate transmission systems to be developed - both intra Nepal transmission and sub-transmission systems and transmission line connectivity with India. Transmission planning required to evacuate power from various generation projects, particularly from such projects which are being developed on merchant basis, is a challenging task even in India. Unless destinations of power flow are known in advance, proper transmission planning does become difficult. While the transmission and sub-transmission systems within Nepal will inevitably have to be developed by Authorities in Nepal, the transmission lines to India, at various points of drawal of power, will need to be co-ordinated between the power project developers and transmission project developers, so as to avoid any mismatch on either side.

  11. In order that these generation and transmission projects achieve financial closures, it would be necessary that a number of regulatory issues both on Nepal side and on India side are addressed in advance. To the extent power would be required to be purchased within Nepal for consumption, the policy and procedure for fixing tariff will need to be formulated and notified, so as to bring about complete clarity on the subject. Similarly, power to be purchased by various agencies in India will need to be brought under the regulatory policies, so that any ambiguity on this account is eliminated.

The Minister of Water Resources, Government of Nepal, Mr. Bishnu Prasad Paudal, who inaugurated the Conference, made a number of important observations, which are outlined below :

  • Hydro power, the Government believes, will form the most important foundation for development of Nepal. Nepal's economy in coming years will depend, to a great extent, on these hydroelectric projects.

  • Hydro power is on the Agenda of all the political parties. They are all convinced that developing these projects would be in the direct interest of the people of Nepal. All the parties are also unanimous that private sector participation in developing these projects will be essential. These are projects which require large amounts of investments and it may not be possible for the Government to mobilise such large financial resources. Dependence on private investments is, therefore, inevitable.

  • Though the potential for hydro projects in Nepal is more than 80,000 MW, the Government has made a modest target for developing 10,000 MW by 2020. They will be executed with a three pronged approach consisting of private developers, public sector undertakings and joint sector. Foreign investments obviously will be required in a significant way.

  • In order to bring about greater degree of clarity on the power sector development approach, Government is contemplating an Act on Electricity and another Act on Electricity Regulatory Commission. The Bills for both these Acts have already been prepared and it is expected that the Laws will be passed soon.

  • With the establishment of Electricity Regulatory Commission, an environment of competition would be facilitated in which both private sector and public sector will contribute.

  • Indian agencies can play an important role in developing these projects. India and Nepal have age old cultural links and the Government of Nepal has strong commitments to implement the multi purpose projects viz. Pancheshwar (6,000 MW), Karnali (10,800 MW), Saptakoshi (3,500 MW).

  • The Government is aware of the need to provide security to the people of project developing agencies. We recognise that unless the right environment for safe working is created and maintained, project development activities will suffer. The Government is committed to ensure security.

Subsequently, in the two Sessions - "Panel Discussions" and "Social Responsibility", which I had the opportunity to chair, a number of issues came up. These are outlined below:

  1. The Government may consider setting up of an Inter Institutional Group (IIG), which should consist of senior representatives from Ministry of Water Resources, Banks, Environment Ministry, and Developers. This should regularly meet till the financial closure of the project, so that all issues standing in the way of financial closure are addressed.

  2. In India, development of hydroelectric projects needs complete involvement of Central Electricity Authority, Central Water Commission and Central Transmission Utility (Power Grid). They provide the technical guidance on the type of project, the broad design of the project and also the required transmissions systems. A similar set of institutional arrangement would be necessary in Nepal. In the interim period, necessary assistance may be sought from these agencies which have been involved in development of more than 35,000 MW projects in India, besides about 20,000 MW under execution.

  3. There would also be a need for Bilateral Agreements between India and Nepal which will facilitate transmission of power. This Agreement could take care of the jurisdiction of various agencies on India side as well as on Nepal side, so that any ambiguity and gaps could be properly addressed.

  4. The sale of power between project developers from Nepal to electricity distribution agencies in Nepal and to various agencies in India will also need to be structurally worked out. Whether all the sale would be channelized through one or more trading agencies or there would be direct Agreements with the distribution utilities or it would be a combination of both, will need to be formalised.

  5. When the Grid with India is connected, there will be a need for evolving common Operating Standards. The Transmission agency in Nepal, Power Grid (India) and Central Electricity Authority (India), may sit together and evolve such operating documents.

  6. For all such projects, which have been licensed and those which are in the pipeline, the Government of Nepal may identify the road connectivity need and formulate projects, so that these could be completed in time to meet the needs of these projects.

  7. On land acquisition, the macro level thinking in the Government needs to get down to local level officials, so that land acquisition process is made developer friendly and possession of land gets expedited.

  8. While the lending could be streamlined with the consortium of Banks of Nepal and India, the issue of equity funding may have to be addressed. The Listing Law in India requires that the Nepalese Company should be Listed in the Nepal Stock Exchange first. In order to help project developers, the present provisions relating to Listing in Nepal need to be liberalised. Project companies should be enabled to raise equity funds even during the initial years of project development.

  9. Rehabilitation and Resettlement Policy should be clearly laid down. While formulating and reviewing the Policy, the developers should be fully involved, so as to take care of their practical difficulty. These Policies will need to be disseminated right upto the local level Government agencies, as also the affected people, so that any disconnect is avoided.

Both India and Nepal have common interest in harnessing hydroelectric potential of Nepal. There seems to be considerable weight in the argument that potentials, if properly assessed, could be as high as 200,000 MW. The geography of Nepal is such that these projects when developed would not only benefit immensely the people of Nepal, who need enormous amount of electricity so badly, but also to Indian States which share common borders on a long stretch. Transmission connectivity from Nepal to India could be a much easier and workable exercise as compared to planning and implementing connectivity between North-Eastern States of India and other regions. It must, however, be made clear that development of hydro potential in Nepal has first to be done to meet the needs of Nepal. Only balance power would be available to India. Once this approach is followed, the people of Nepal would identify their interests with the development of these projects. Large scale support of people of Nepal is essential for smooth development of these projects. And, such supports will be available only when they see their benefits and benefits to Nepal in these projects.