Tuesday, August 18, 2009

Mirage of illusionary benefit of Rs 45 billion from Pancheshwar Project

August 18, 2009
Mr DB Singh
Project Chief
Pancheshwar Project

Dear DBjee

Having had some misgiving about the fancy amounts by which Nepal is supposed to be benefited by implementing Pancheshwar Project, I have conducted an analysis of these amounts and I am both amazed and stupefied that people dare to churn/dish out such numbers and there are people, too who believe in such illusionary numbers. Nepal is, reportedly, to be benefited to the tune of Rs 45 billion 870 million from electricity by building it in conjunction with Purnagiri. Similarly, if the re-regulating dam is built at Rupaligarh, instead, then the benefit is supposed to be Rs 34 billion 500 million. Moreover, Nepal’s benefit from carbon trading is supposed to be Rs 4 billion 420 million. Furthermore, the benefits from fishery and irrigation are supposed to amount to Rs 16 billion and Rs 5.69 billion respectively.

Justifying his intention to take up matters related to this in his imminent trip to India, Prime Minister Nepal, too, has parroted the amount of Rs 45 billion over and over and so has the energy minister. These numbers have been repeated so many times by the media ad nauseaum that people, unfortunately, seemingly have started to believe. Even a person like Dr Ram Sharan Mahat is reported to have opined that it will be unfortunate if the project does not get built, citing the same numbers. Therefore, I am trying to find out who is responsible for these bunkum numbers. You want to know why? Simply because, in my considered opinion, that person is either thoroughly incompetent or s/he has done so with some malafide intention, eventually designed to have Nepal and people of Nepal taken for a ride, which is not a new phenomenon (there are precedents set by Koshi through Tanakpur Treaties and agreements for West Seti through Arun III projects).

Revenue from Royalties
People are already talking as if Nepal will be benefited by monies in these amounts by simply having the project built. The only money Nepal stands to receive as such after getting the project built is from royalties; capacity royalty at the rate of Rs 100 per kW and energy royalty of 2% under current Nepal law. From Nepal’s 50% share of Pancheshwar and Rupaligarh (capacity 3,360 MW, generating 6,161 GWh), Nepal will become entitled to the total royalty of Rs 793.5 million (not even one billion and very far from reported Rs 34.5 billion!) if the energy is sold at US 4.95 ¢/kWh - the rate at which West Seti is set to export energy to India.

If the re-regulating dam is built at Purnagiri, Nepal’s 50% share will be 3,740 MW generating 8,192 GWh and the total royalty from this project will amount to Rs 982 million only (tantalizingly close to a billion!); not Rs 45 billion, though. The person coming up with these bunkum number (fantastic ones at that!) has used Rs 5.60/kWh as the sale price of electricity which is higher by 50% compared to the rate I have used. However, I have a justification for doing so. As the cost of generation is, reportedly, Rs 2.62, the bulk rate for domestic consumption should not include a mark up of more than 40%. Similarly, if the electricity is to be exported, there is no possibility of India agreeing to pay more than west seti rate.

To conclude, these amounts (Rs 45.87 billion or Rs 34.5 billion) is high by a magnitude and our PM and energy minister and their ilk are getting excited for no reason simply because a misguided person (or an incompetent one) has come up with these illusionary numbers. I request your active help in rectifying the wrong impression caused as such, if at all possible.

Return on Investment
It is also possible that the reference to these numbers could have been made from the perspective of return on investment. I have analyzed this aspect too. I have come to learn that it will cost $ 2,980 million for Pancheshwar and Rupaligarh combination. In that case Nepal will have to invest $ 372 million in equity and raise a debt of $ 1,117.5 million to mobilize her share of the initial investment amounting to $ 1,490 million. At the reported rate of return on investment of 25% Nepal will earn Rs 6.98 billion only. It needs to be remembered that to earn such return one doesn’t need to sign unequal treaty like Mahakali Treaty and also invest. Businessmen in Nepal are known to earn return on investment at rates higher than this in certain ventures. Besides, Norwegians and Americans (who have since divested) have invested in hydropower in Nepal are earning at rates higher than this. Nepali investors have invested both in Nepal and India to earn similar returns. Therefore, if the hype being created was in the form of return on investment then it is completely misplaced on two counts. One, the numbers thrown around are high by a magnitude and getting a return on investment at such rates is normal and natural phenomenon; there is no need for banner headline and surrender other vital interests of Nepal (I will refer to one of these below).

Moreover, you will recall that Nepal is about to borrow $ 45 million from ADB to invest in west seti project and, from it one can easily infer that Nepal will not be able to spare $ 372 million (equivalent to Rs 28 billion) to invest in equity of this project. If Nepal has to borrow to invest in equity (besides having to borrow the debt part of $ 1,117.5 million) as such then instead of earning a return Nepal will become entangled in a debt trap. I don’t even feel like analyzing its impact.

Benefit from Carbon Revenue
As mentioned above, it was also reported that Nepal could earn Rs 4.24 billion from carbon revenue. I have two comments with regard to this, too. One, if the electricity is used in Nepal, there won’t be any carbon offset, thus precluding the prospect of revenue from carbon trading. Conversely, carbon trading could become a reality if Nepal’s share is exported, thus depriving people of far western development region from the much needed electricity. Even on this tangent the potential for Nepal receiving such an amount is very remote as the carbon offset takes place in India and, unlike some people in Nepal, Indians would never be willing to surrender something that they are entitled to. They would have been forced to cede the right to this source of revenue if something was stipulated in the Mahakali Treaty in this respect. But, unfortunately, the treaty is silent with regard to India having to sacrifice such revenue stream in favor of Nepal. Had clear stipulation been made about it in the Treaty then India would have been forced to divert it to Nepal. So the talk about Nepal benefiting from carbon revenue too is misleading. From the way things are going on now, I am starting to believe that all these rumor mongering were designed to make fools out of politicos, bureaucrats and people of Nepal.

Irrigation Benefit
I am certain that the reported irrigation benefit of Rs 5.69 billion too is dubious. However, I don’t wish to my invest time in analyzing this number as this benefit, if it were to occur, Nepal is entitled to every paisa of it. But I would like to draw your attention to what Nepal stands to lose.

At the time of signing this treaty people were assured of 50% water from this river, deemed to be a boundary river against the spirit of Sugauli Treaty of 1816. Even the Sankapa Prastav passed by the joint session of the parliament reiterated that Nepal is entitled to 50% water. However, unfortunately, after implementation of this project only 93,000 hectare of land will be irrigated in Nepal and 1.6 million hectares in India; a clear case of breach of the principle of 50%. It has come to my knowledge that Nepal will have to sacrifice 86.5 km2 of its land to build the reservoir; amounting to 43% (57% submergence is supposed to happen in India). From this perspective, Nepal is entitled to irrigation of 43% land not just 5.49%. In view of this India needs recompense for 37.54% irrigation facility that India uses in addition to the share she is entitled to. If it is to be monetized at the rate South Africa is paying Lesotho, Nepal deserves Rs 15.17 billion per annum. However, to my dismay, nobody is talking about this issue and looks like the corrupt politicos and bureaucrats of Nepal are happy to surrender this right while chasing the mirage of Rs 45 billion.

Misguided people who fail to comprehend these important issues brand people like yours truly anti development. People like me are simply trying to ensure that Nepal is not short changed out of what she is legitimately entitled to. I am sure that you too wish the same for our motherland.

I hope you, in the capacity of the chief of project, will eagerly work to clear the environment vitiated by this disinformation campaign.

No comments: