Monday, November 3, 2008

"Unbundling may not solve load-shedding"

Interviewed by Nepali Times about the effects of the new electricity ordinance on the anvil that will break the NEA into three components, for Issue #285 (10-16 Feb 2006).

Nepali Times: What do you think about the electricity ordinance?
Ratna Sansar Shrestha: Actually, I'm not fundamentally opposed to unbundling. I believe competition in the electricity sector will definitely help consumers as well as other stakeholders and make the market itself competitive. I am more apprehensive about implementation. So, instead of one big sick organization that is losing Rs 2 billion per year we may just end up with three small sick organizations.

Why is the idea being mooted, especially by the means of ordinances, at this time?
That is a mystery to me. I don't see why the hurry at a time of instability which means there isn't a wider discussion on the pros and cons. Besides, splitting the NEA has long term implications, while an ordinance is an instrument valid for six months only.

Why wasn't it put forward when your team was in the NEA?
The new Hydropower Development Policy 2001, did envisage unbundling the NEA but parliament survived only six months after that. By the time I was nominated to the NEA board parliament had been dissolved. But I can confide in you that we did start work on unbundling the NEA which to an extent has paved the way for the present move.

In the early 1980s donors including the ADB helped set up the NEA now they want it dismantled.
Changing horses in midstream seems to be as much a donor habit. Yes, poorer economies like ours have been subjected to the covenants imposed by these multilaterals and many of their conditionalties are problematic. If one looks at this particular concept dispassionately it is clear NEA has too small a system (just about 465MW of its own and about 149MW belonging to IPPs, already unbundled) to warrant splitting. The action could very well end up costing more to consumers as the unbundling only increases the number of institutions ending up as an opportunity for powers-to-be to hire more CEOs and leading to unnecessarily high expenses. Besides, post-unbundled successors of NEA could still continue to be subjected to interference from bureaucrats and politicians.

So you think it may not be the right solution?
In Nepal many plans that look sound on the drawing board have floundered when put to practice. There is a danger the economic model will be called total failure and people will again clamor for reintegration of the NEA. This will be very messy. The ordinance has a single-minded focus on splitting the NEA while it is silent on how competition at both wholesale and retail levels will be instituted.

Do we have the right and adequate infrastructure for the unbundling of, say, distribution and especially if the private sector is allowed in?
Forget the infrastructure which will have to be thought through and created, even its layout is not visible in the draft ordinance. With due respect to my colleagues in the private sector, they will exploit any loophole available and the whole exercise could boomerang on the economy and consumers. Stronger and stringent regulatory mechanism needs to be placed before allowing the private sector to play a significant role in the electricity market to ensure forward linkages vital for the economy.

Given the fiasco of the tariff fixation commission how optimistic can we be?
Even when I was a board member of NEA we requested the commission for introduction of seasonal tariff in view of the fact that NEA was spilling more than 700 GWh of electricity at that time (we are still spilling 500 GWh). But one or other excuse was trotted out and nothing happened.

How would the new plan rope in the private sector?
First of all, the private sector does not just include business houses. Community-based cooperatives, users' groups, NGOs are also private initiatives, with or without profit motive. If you drop by the office of Community Rural Electrification Department (CRED) of NEA you will be amazed by the groundswell of support for NEA's efforts to involve communities in rural electrification. So many communities are coming forward under the 80:20 program that CRED is overextended. The immediate problem in the power sector is load shedding and Ministry of Water Resources officials themselves admit that the unbundling is not the answer to load shedding.

Will the new ordinance enable us to be in a better position to deal with, say, India in power related issues?
On the contrary, it may weaken the position as the splinter NEAs negotiate with, lets say, India's Power Trading Corporation. They will be a much weakened institutions. But export of energy is a different Pandora's Box entangled with security perceptions of our southern friends.

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