Friday, July 30, 2010

Economics in the National Interest

July 30, 2010

Mr Madhukar SJB Rana
Professor, South Asian Institute of Management
Former Finance Minister

Dear Madhukarjee

Thank you so much for sending your paper to me.

Upon perusal of the section related to “Maximize the Utilization of Water Resources” I have discovered that you have emphasized the importance of multidimensional uses of water. I like this part the most. One can over-simplify the matter by citing the example of Lesotho which is paid US $ 25 million/year for 18 m3/s of water by South Africa and compare it with the potential augmented/regulated flow from West Seti project of 90 m3/s that India stands to benefit by (this project’s installed capacity is just 750 MW).

I need to make a few comments that could be deemed critical. This, I trust, will be of value to you in finalizing (fine tuning) your paper.

In the para where you have quoted me I have following comments:

Ø You have mentioned that “his study shows that, in 2007-08, only 2.04% of the total national energy utilization (2,800 MW) was met by hydro-power and the rest was met by firewood (75.06%); petroleum (9.82%); animal residue (5.87%); agri-residue (4.08%); coal (2.53%) and solar energy (0.6%).” Kindly please note that these ratios aren’t based on my own study. I had quoted the data (expressed in a pie chart) from Economic Survey published by Ministry of Finance, GoN.

Ø In above point you have also mentioned 2,800 MW as the total national energy utilization that was "met by hydro-power." I have not said as such in my paper. This number needs to be changed at two levels. If your reference is with regard to electricity as a source of energy then the correct number will be 700 MW. However, if you want to specifically talk about hydropower in this context, then the correct number will have to be reduced by 53.4 MW – thermal generation.

Additionally, my attention was also drawn by the para immediately following the one referenced above where you have made following statement:

If the economy leap frogs to the much touted 10.0% growth per annum, it would mean that total national energy demand would rise to, inter alia, no less than 11,000 MW. Now to produce 11,000 MW of hydro-energy to substitute all other sources would actually result in the economy leap-frogging as well with both balance of trade (import substitution) and payment surpluses (fdi, exports, carbon trading) beyond the imaginations of the Arab sheikhs.

Here you have referred to “payment surpluses (fdi, exports, carbon trading) beyond the imaginations of the Arab sheikhs” based on your estimate that in order for Nepali economy to leap frog, Nepal will need “no less than 11,000 MW.”

Ø Based on the construction of this sentence, I have inferred that you have come up with this estimate for domestic consumption of power. In which case Nepal will not stand to benefit from carbon trading as Nepal’s baseline is predominantly hydropower and, consequently, there will not be any environmental additionality that will entitle us to indulge in carbon trading.

Ø The only other scenario under which carbon offset will occur is, if and when Nepal exports hydropower to India as her base line comprises of many unclean sources of energy (I am given to understand clean sources are less than 20%). I have played with the number for market rate of CO2 and have discovered that proceed from carbon trading won’t be substantial (hence, no chance of generating revenue stream “beyond the imaginations of the Arab sheikhs” from this). More importantly under the export of power to India scenario, the actual carbon offset will occur in India and, obviously, having been showing good example of economic nationalism, Indians will insist on keeping the revenue stream generated by carbon offset in their country to themselves and Nepal hoping to benefit from carbon trading will be like a pie in the sky.

Please do feel free to contact me if you have any query.

With best regards,


Ratna Sansar Shrestha

-----Original Message-----

From: madhukar []
Sent: Wednesday, July 28, 2010 8:02

To: Ratna Sansar Shrestha
Subject: Re: Request for your paper

thank you, Ratnaji (I owe u aplenty as you will see) I attach the said article
best regards