Sunday, October 19, 2008

Modifying Melamchi – Single Purpose vs. Multipurpose

Diversion of water from Melamchi into Kathmandu valley was identified as a viable measure to remedy the water shortage problem of Kathmandu valley some thirty years ago. However, it gained momentum only in the early 1990s, especially after the end of the Panchayat system.

At that time it was initiated with twin goals of producing about 25 megawatt (MW) electricity and supplying the water to the valley simultaneously. The project was planned to be executed in three stages. In the first stage, water amounting to 170 million liters per day (MLPD) was to be diverted to the valley from the Melamchi River. In the second and third stages, similar amount of water was to be diverted from Yangri and Larke rivers.

But the first stage construction works, initially planned to be completed by 2006, is yet to commence. Since the first stage, the funding for which is reportedly ready, has not taken off as yet, the second and third stages are still a distant dream. Neither a concrete plan nor a proper financing arrangement has been put in place for the second and the third stages.

According to a projection made by Nepal Water Supply Corporation, there will be a demand of 310 MLPD of water for the Kathmandu valley in 2010 whereas the Melamchi project will be adding only about 170 MLPD during the dry season to the existing volume of supply. Melamchi is expected to be completed by 2013 at the earliest by when the demand for water supply in Kathmandu would have exceeded 350 MLPD.

Now the Kathmandu valley is getting 90 MLPD of water which means after the completion of the Melamchi project the water supply in the Kathmandu valley will reach 260 MLPD. That volume is insufficient in view of the projected demand of 350 MLPD in 2013. Besides, taking the officially acknowledged leakage level of 40 percent into consideration, the actual amount of water available in Kathmandu valley will be mere 156 MLPD even after augmenting it with the water diverted from Melamchi through the tunnel planned to be built. Therefore, even after the completion of Melamchi project as it is designed, the problem of water scarcity in Kathmandu valley will still persist. As ADB has forced a covenant in the loan documents requiring escalation of tariff by almost 60 percent on current prices (two increases of 15 percent each on the 2004 price level), the water tariff will escalate without any reprieve in the water shortage problem.

The project, as initially designed, involved the construction of a tunnel from Nukute in Melamchi River (located at an altitude of 1700 meters) to bring water down to Sundarijal (1400 meters) thereby creating a head of 300 meters so that about 25 MW power could be generated. But the idea of generating hydropower was later abandoned claiming that it was not feasible. It is true that having to dig 27-kilometre long tunnel just to generate about 25 MW of electricity sounds too expensive even at a cursory glance. But the people ignored the fact that the tunnel has to be constructed anyway to divert water into Kathmandu valley. Therefore, if we were to generate power from the same water, the tunnel construction is as good as free for the power generation component, and incremental cost will be only for the construction of powerhouse, procurement of electro-mechanical equipment and erection thereof. This fact was completely ignored in deciding to abandon the hydropower component.

Proposed Revision
Our team came to a conclusion that as Bagmati has a head of 900 meters, between Kathmandu (altitude 1400m) and the potential powerhouse site on this river in the Terai (altitude 400m), 190 MW of power could be generated from this river. The only limitation is that Bagmati River is bereft of any water. If we can augment the water flow in the Bagmati, we can generate electricity by using the available head.

Therefore, our proposal is to modify the existing Melamchi project so that once completed it brings water not only from Melamchi for water supply in the Kathmandu valley but also from Yangri, Larke and Balephi. This will enable an investor to set up a 35 MW hydropower plant at Thimbu, just before the water enters the tunnel destined to the Kathmandu valley. This will result in an increased water level in the Bagmati, sufficient to generate additional hydropower downstream of Kathmandu valley as well as to irrigate 30,000 hectares of Bagmati plains in Sarlahi and Rautahat districts. In this manner, we will be bringing 1120 MLPD of water to the valley in the dry season. This is equivalent to about 13 cubic meters per second.

There are two uses of water—consumptive (drinking, cooking etc.) and non-consumptive (bathing, laundry etc.). Water used for bathing, laundry etc. constitutes about 85 percent of the consumption and such water flows back to the river and ground water system. You just need to filter/treat such water to make it reusable (it needs to be stressed here that the denizens in Kathmandu should discontinue present, regrettable and uncivilized, practice of draining untreated sewage and industrial effluent into the Bagmati River). Once we add 1120 MLPD of water to the existing supply of 90 MLPD after deducting the maximum that the residents of the valley will use (about 400 MLPD), we will still have 810 MLPD to spare. This volume will be augmented by the reflows of about 340 MLPD from non-consumptive uses.

With 1150 MLPD of water flowing down the Chovar gorge, we can build an 18-kilometre tunnel there to set up a 140 megawatt power plant. Building another tunnel of eight km starting from the tailrace of this power plant, will help set up another 50 MW power plant. So in total, we can generate 235 MW of power while supplying sufficient water to the people of the valley.
For irrigating 30,000 hectares of land in Sarlahi and Rautahat districts during dry season, a barrage on Bagmati River already exists, just a little north of East West Highway. Also a canal network in this area already exists for irrigation during the time when there is water flowing in this River. Thus, through this scheme, we can supply adequate amount of water to the valley denizens, generate much needed hydropower (thus mitigate load shedding problem) and irrigate the fertile lands of Terai enabling the farmers to plant multiple crops.

To attain these objectives what is needed is only to enlarge the diameter of the tunnel from Melamchi to Sundarijal from currently planned 3.7 meters to five meters. Hence, instead of going for a single purpose Melamchi, we should seek a multi-purpose Melamchi.

The modified multipurpose Melamchi will need an additional investment of about 400 million dollars for the hydropower component only. This change does not entail additional investment for the works related to current Melamchi scheme nor for the irrigation component. Actually, the need to build structures like intake and de-silting basin, planned to be built under current Melamchi scheme will be obviated if the multipurpose Melamchi is undertaken. Besides, it also needs to be remembered that second and third stage works under current Melamchi scheme (without funding in sight and plan on paper) to divert additional water from Yangri and Larke Rivers, also do not need extra financing after implementation of multipurpose Melamchi.

The funding for hydropower can be arranged through a debt-equity scheme of 75:25 ($ 300 million in debt and equity of $ 100 million). For equity financing, we can give the first priority to the people of Sindhupalchowk (water belonging to whom is to be diverted) to buy shares in the project followed by the people from Kavrepalanchowk, Kathmandu and whole of Nepal in that order. If we fail to mobilize needed equity in this way from within the country, we can invite foreign investors (like Indian investors who seem to be in a frenzy to invest in this sector). So, financing is not a problem. There are many financial intermediaries including large banks willing to provide debt financing for the hydropower sector.

The local people have been obstructing the construction works in various water projects including Melamchi and Middle Marshyangdi. This is because the local people lack a sense of ownership in these projects. They have shown their ardent interest to invest in the project in order to ensure an income stream for themselves in future. However, especially in a water supply project, it is not advisable to make the local stakeholders to invest as their expectation of returns from such project will not be met. This is because such projects do not generate adequate revenue stream to allow distribution of dividend to the shareholders (revenue stream will be adequate only to meet operational cost and will not even be able to meet debt service requirement). However, we can inculcate a sense of ownership by giving them an opportunity to invest in the power projects components thereby making them the owners of the project. Only then the locals will ensure that the construction works are expedited. The local stakeholders will make sure that the contractors don’t find excuses to delay the works. People of working class who are not able to invest in the project (for lack of savings) should be allowed to work in the project. They will earn income, some of which will be saved. They should be allowed to invest such saving in the project itself. In this way, they will not only have a source of income during the project implementation period but also after the completion of the project.

For the modification of the Melamchi project in the proposed lines, the challenges at present are the politicos and bureaucracy of our own and that of the Asian Development Bank (ADB). We have been making presentations of our concept to the high level people in the government, political parties and ADB. But only a very few have succeeded to comprehend the full ramification of the vision and its merits for the region as a whole (not just Kathmandu valley). Even those who have succeeded to understand the concept have developed weak knees.

We should note that none of the capital intensive projects, including hydropower projects, undertaken by the government (or Nepal Electricity Authority) has completed in time or at the initially estimated cost. The glaring example is Middle Marshyangdi which was supposed to be finished by 2004 at the estimated cost of Rs. 13 billion. But Rs. 26 billion has already been spent and the completion is nowhere within sight. Similarly, Chilime, although touted as the best project so far (it did succeed in attracting and garnering many awards, though), was delayed by over four years and also incurred cost overrun as the original contractor abandoned the work. There is no track record of the government finishing any project within the prescribed time and cost. Nothing will be achieved as long as such tendency continues to prevail.

The current practice is to have separate engineering consultants and contractors. The contractors blame the consultants for faulty design and the latter blame the contractors for poor workmanship and in the bargain Nepal ends up suffering financially and economically (due to, for example, load shedding which is a result of delay in projects like Middle Marshyangdi). This has been a common experience in almost all projects so far. Therefore, there is no guarantee that the same fate will not befall on current Melamchi as there are separate consultants and contractors also in this project.

Modified Melamchi should have a different contracting and implementation mechanism. The contract should be granted to the best and capable party with a strict condition that they should complete the project within the stipulated time and cost (with no scope for any variation order), that any excuse to delay the project will not be entertained and that there will be penalty for each day of delay in the project completion and bonus for each day of early completion.(Published in New Business Age of March 2008)

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