Tuesday, March 2, 2010

RE: Fw: Your article on Karnali project in "Yo Sata"

March 1, 2010
Dr Chiran S Thapa
Naxal, Kathmandu
Dear Chiranjee

Thanks for your rejoinder.

On Arun III I agree to disagree with you and urge you to spare some time to read the paper on it by following the link below before you make up your mind as such:


To recap some important points, the magnitude of load shedding now would have been greater than it actually is if Arun III was built. Because, from the financing perspective, Kali Gandaki A, Middle Marshyangdi (MM), Khimti and Bhote Koshi projects wouldn’t have been built if Arun III was built at that time. Moreover, we can also rely on our hydrocrats to incur time overrun in commissioning Arun III (MM was delayed by 4 years) which would have further aggravated the current load shedding problem.

You seem to believe in potential “multiplier effect on the project location and areas much farther away” .. “”from donors as grants or loans at very low interest.” In my considered opinion it would have been negative multiplier effect, rather. Just by looking at what happened with MM should people be able to understand what would have happened in much larger scale; 70 MW vs. 201 MW. KfW gave about Rs 13 billion as grant for MM while their own contractors have already taken back Rs 26 billion and are asking for Rs 10 billion more. Due to the delay of 4 years, it has cost Rs 5 billion in additional interest during construction and Rs 9.4 billion in lost revenue. In total the project has ended up costing us Rs 50.4 billion. It’s almost like KfW giving a bait of Rs 13 billion to make us bleed to the extent of Rs 50 billion. This is bound to have negative multiplier.

Let’s look at it from the perspective of NEA and retail consumers. Based on above numbers, MM has ended up costing US $ 9,523 per kW. The weighed average cost per kW even for NEA for the installed capacity added through till 2005 was $ 2,580 only. Just imagine where NEA will end up once the full cost of MM is capitalized. The upward pressure due to the cost will not be affordable to the consumers. Whereas if NEA doesn’t pass the cost through to its consumers by revising the tariff upwards then it will start hemorrhaging at far greater scale which will amount to subsidizing electricity users by robbing larger section of the populace who don’t have access to electricity. I am not sure if you are aware that the grant from donors is to GoN and the multilaterals require GoN to pass it on to NEA as GoN equity. To aggravate the matter, GoN these days, have been on-lending even the grant to NEA and earning interest on such grants.

From the above computation you should be able to extrapolate what the situation will be like if Arun III was built that was estimated to cost $ 5,300 per kW. You will have to remember one more thing. MM was estimated to cost $ 2476 per kW. But the cost overrun jacked up the cost per kW to US $ 9,523 per kW. If Arun III cost too was to escalate in the same fashion, which is inevitable due to the faulty content and structure of contracts NEA has been and is following, the per kW cost will be close to $ 20,000 kW. This would have ravaged the economy a lot more than the multiplier effect you are imagining.

With best regards,


Ratna Sansar Shrestha

-----Original Message-----
From: C.S. Thapa [mailto:cst21@hermes.cam.ac.uk] On Behalf Of C.S. Thapa
Sent: Thursday, February 25, 2010 7:35
To: Ratna Sansar Shrestha
Subject: Re: Fw: Your article on Karnali project in "Yo Sata"

Dear RatnaSansarji,

As usual, there is much in your reply to Constituent Assembly member
Adhikari that is original and of much educational value. Even if it isn't
easy to agree with you on some issues, it's difficult not to reassess one's
thinking. There is a potential project on which I disagree with you - the
Arun III, where if you take into account the equipment we were about to
receive, had the project gone through, from donors as grants or loans at
very low interest and the multiplier effect on the project lcation and
areas much farther away, the country would have been much better off.



On Feb 24 2010, Ratna Sansar Shrestha wrote:

>Mr Radheshyam Adhikari
>Member, Constituent Assembly
>Dear Radheshyamjee

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