Wednesday, November 21, 2012

Bearing Burnt of Load shedding

Load shedding has been a problem in Nepal since 90s and successive governments have failed to address it effectively, though Nepal is very rich in the water resources which can easily generate hydropower in necessary quantum. It has been ascribed to lack of political stability and paucity of funding. But lack of vision with regards to water resources and its multidimensional uses is the crux of the problem. Therefore, Nepali people will be facing the problem, which is projected to be 19 hrs a day in this dry season by Nepal Electricity Authority and at this rate people will be getting electricity for a few hours about once a week within a decade.

Prime Minister Dr Baburam Bhattarai, who is also looking after the portfolio of Energy Ministry, is relying on various measures to limit the load shedding to 10 hours in this dry season. One of the measures envisaged for the purpose is curbing technical and other leakages, which is not an unimportant issue, though. However, it should be remembered that electricity deficit in this dry season will be in the range of 900 MW (installed capacity of about 750 MW will generate around 250 MW whereas peak demand projected by NEA is 1163 MW) while total system loss that could be theoretically reduced in the dry season is less than 40 MW (about 15% of generation) which will reduce load shedding only by a small fraction. However, it will require huge investment in system up-gradation, strengthening, etc. including of transmission and distribution network and it is, in any case, not something that could be accomplished in time for this dry season; not even next dry season. Moreover, reduction of nontechnical loss will not make more electricity available in the system as those “stealing” electricity at the moment will only start to pay once they are “caught”. The only difference it will make is: so far those that are not paying for the electricity they are consuming will have to start paying. Therefore, these will not have any significant impact on the reduction of the energy crisis and load shedding whatsoever.

The prime minister has also put forward a plan to set up diesel plant to mitigate the problem. Is it possible to set up the diesel plant to cover for electricity supply deficit of around 900 MW? It is being said that a diesel plant with 25 MW installed capacity will be set up. But 25 MW will be like a drop in the ocean and the deficit will keep on increasing with the continuing increase in demand every year.

Further, rough calculation shows that it will require 6 billion rupees a year in diesel for operation of 25 MW throughout the year (without accounting for other significant costs like depreciation, interest, repairs and maintenance, etc.). With this amount a hydropower plant of 40 MW can be built (assuming initial investment of 150 million rupees per MW); meaning just one year’s fuel cost of a 25 MW diesel plant will “buy” 40 MW hydropower plant with the potential economic life of 25 years. If the life of diesel plant is ten years, then a 25 MW diesel plant will burn up 60 billion rupees worth of diesel (at current price of diesel). Cost of diesel for 10 years of 60 billion rupees is sufficient to build hydropower project with 400 MW installed capacity. Therefore, the decision to set up diesel plant lacks prudence.

Furthermore, currently the price of diesel is Rs. 97 per liter and one liter of diesel can produce 3.5 units of electricity. In this backdrop even if the plant is operated in highly efficient manner, it will cost about 35 rupees per unit of electricity. Who can afford so expensive electricity? Nepal Electricity Authority will not be able to pass on the cost to its consumers, in which case this institution, already projected to incur a net loss of 10 billion rupees in current fiscal, will suffer additional burden of operating prohibitively expensive diesel plant which will increase the current fiscal year’s net loss by 50% and will further increase with time.

The prime minister is even thinking of providing grant for the purpose. What should be remembered is that it would force him to reduce the budget under other heads. For instance, operating the plant for one year will cost 600 km in terms of new road to a nation lacking in infrastructure which will adversely impact the rural people majority of whom are below poverty line.

Moreover, as only one fourth of the total population has access to electricity, it will amount to subsidizing the people with access to electricity at the cost of the people without access to the electricity. Had a 40 MW hydro electricity project been built instead of burning 60 billion rupees worth of diesel, it would have increased the access of people's to electricity in rural areas as well.

The idea of diesel plant comes from the school of thought which believes that “costly power is better than no power”; as they attribute very high cost to “un-served energy.” Indian government allowed Enron to build a power plant in Dhabol, Maharashtra subscribing following that very school of thought, only to realize afterwards that “no power is better than costly power” when it was already late. The rest is history.

In view of all of the above, setting up diesel plant manifests the height of foolishness.

The prime minister has also said that he will import 200 MW electricity to meet the current energy crisis. However, even after import of 200 MW electricity from India, the remaining deficit will still be 475 MW and keep on increasing every year. Besides, it should not be forgotten that UP and Bihar in India are staggering from its own energy crisis and depending on these for additional electricity is like a poor begging from a pauper. People should also learn from the fact that Chief Minister of Bihar Nitish Kumar reduced export to Nepal by 30 MW even in the wet season and further reduced recently too. The intensity of energy crisis in these states of India is higher than in Nepal (people in certain districts of Uttar Pradesh get electricity every 20-day for a few hours). Therefore, it is not wise to depend on import from that country which itself is facing energy crisis.

Historically too India has proved to be an unreliable partner to mitigate load shedding in Nepal. After PTC India, Bihar State Electricity Board, et al had agreed to export additional 30 MW electricity to Nepal during the tenure of Prime Minister Pushpa Kamal Dahal 'Prachanda' and all contracts/agreement were already signed, the whole thing was aborted as External Affairs Ministry of India (“South Block”) objected to it in May 2009, which eventually triggering PM Prachanda’s resignation (people, not being aware of this fact, ascribe the resignation to Nepal’s the then CoAS, Katwal). Now, we even do not have any formal agreement signed between India and Nepal for the purpose. Only verbal commitment was, reportedly, made by Indian Prime Minister Dr Manmohan Sigh during the summit meeting of non-alliance nations in Tehran. Hence, there is no guarantee that India will provide 200 MW of electricity when she herself is grappling with energy crisis.

The government is also planning to reduce the working days to five days to reduce the duration of load shedding hours. I do not think that it is a smart move either; at the risk of being tagged “negative”. The government of Prime Minster Krishna Prasad Bhattarai had also declared two days holidays as an austerity measure (to reduce expenditure on utilities, petroleum product, etc.). But the expenditures didn’t decline, including on electricity consumption, as expected while citizenry suffered due to long weekend and both productivity and production of the manpower diminished. Because, people working in government agencies of Nepal are not conscious about energy misuse and the need for conservation and efficiency. Therefore, by adding a day to the weekend the intensity of energy crisis will not be mitigated, load shedding hours will not go down.

Moreover, with each passing day, the electricity demand will keep on increasing (also due to expansion of distribution network in rural areas), further intensifying the crisis which cannot be solved by lengthening the weekend. At this rate we will soon require 7-day weekend. Conversely, if the government is to close down all government offices, all industries/factories, educational institutions, private sector offices, including imposition of prohibition on high electricity consuming equipments, then the load shedding can be brought down to a few hours or even zero. But this will take Nepal back to medieval ages where no one in right mind would like to go.

Today, the crisis has worsened to such an extent that there is no immediate solution to load shedding problem in Nepal. Till a few years back, even I used to suggest minimizing the technical leakage, conserving electricity by using “CFL” bulbs, etc. to mitigate energy crisis (after the likes of us campaigned on behalf of CFL, it was finally implemented last year). However, now the crisis has intensified by a magnitude and these measures will not make a dent on the crisis. So, we do not have any immediate or short term measure except belt tightening for next two winters and if my suggestion is implemented we don’t need to suffer load shedding thereafter.

Even setting up diesel plants will take 18 to 24 months (people talk almost as if the diesel plants will start generating electricity as soon as a decision is made). A diesel plant entails adverse environmental impacts like noise pollution, GHG emission, etc. and before deciding to set up a plant an EIA will have to be conducted which will take about 6 months (no one in right mind would allow a diesel plant to be located in her/his neighborhood). Placing order, getting it shipped, erecting it at site, connecting it to grid, etc. will also take some time. We will be lucky if a diesel plants will start generating electricity for next dry season; it will not be possible to have electricity from new diesel plants for this winter at all.

The best way forward is to exploit Nepal’s competitive and comparative advantage which is water resources. There are a number of hydropower projects in the pipeline which can be completed within 18 to 24 months, if the construction is to be mechanized at the higher plane (Khudi project under BPC took only 18 months). Therefore, it will be a lot cheaper than diesel plant if hydropower project developers are offered 10 rupees a unit if they commit to start generating electricity within 2 years. This is the best option for Nepal under the circumstance, as we don’t produce even a drop of petroleum product.

It is very disheartening to see, Prime Minister Dr Baburam Bhattarai who talks a lot about mitigating load shedding problem in Nepal, determined to export power. It is foolish for a country starved for power, dreaming to export power. Therefore, if we are to build big export oriented projects, it cannot solve the energy crisis faced by the country today even under suppressed economic growth scenario. If the food cooked in one’s household is fed to the neighbors the family will have to starve.

Dr Bhattarai, rightly so, dreams of attaining accelerated economic growth or double digit growth (I too dream of it along with him) while we have yet to achieve normal economic growth. Even if the demand projected by NEA is met (meaning “no load shedding”), no industries will be operated at full capacity and no new factories can be set up for lack of power. This is the suppressed economic growth scenario. My back-of-the-envelope calculation shows that Nepal needs 5,000 MW within 5 years in order for her to achieve normal economic growth contrasted with NEA’s projection of 1640 MW for 2016/17 for suppressed economic growth. To achieve double digit (accelerated economic) growth we will need more than double of it.

Two things have to be remembered in this respect. This does not mean that we should close our doors to foreign direct investment. As long as the electricity is used for the benefit of the country who is investing in which project does not matter. Secondly, electricity as a commodity is unique in the sense that it cannot be stored; must be consumed simultaneously with its production in real time. Therefore, electricity produced in Nepal, if not consumed domestically has to be exported in real time; otherwise it will be spilled. Besides, only a very few plants have been built in Nepal with domestic funding and electricity is not exported to Norway from Khimti, to Japan from Kulekhani. Nor are there plans to export power from Chameliya to Korea or to China from West Seti. Meaning it is foolhardy to say that simply because a foreign investor is investing in a project, the electricity has to be exported to the country from where the developer hails from.

All problems have solutions and load shedding problem is not different. Nepal government should have a policy to implement as many hydropower projects as possible with domestic investment so that benefit from investment linkage will accrue to Nepal’s economy; but shouldn’t preclude foreign investment as long as electricity generated is availed for internal consumption. Secondly, Nepal should allow projects to be implemented by the investor/s (domestic or foreign) that will generate the electricity at the lowest cost. Nepal should purchase all such power (at lowest possible price) and electrify the nation massively (not only for lighting purposes, but to industrialize and electrify transportation which will help us attain energy security) and export the remaining at premium price comparable to the rate Nepal is paying to import power from PTC India. It must be noted here that Nepal should export to enjoy the profit as PTC India exports to Nepal not a developer in India. West Seti project is a good example from this perspective. Originally envisaged as an export oriented project, the license was cancelled last year subsequent to immense and unrelenting public pressure; I was one of the few in the forefront. Now a Chinese developer is going to build it to meet Nepal’s internal need and the fact that it will be implemented as a multipurpose project is the icing on the cake.

Private investors have discovered that investment in electricity generation is a lucrative business. However, they are constrained by lack of infrastructure like transmission network and access road. We have learnt that private sector, indeed does have comparative advantage in building power plants both from the perspective of time and cost (all projects built by NEA, including Chilime, have incurred time and cost overrun). Therefore, NEA should launch a campaign to build transmission network and if it is constrained by financial considerations, then it should, to use an old euphemism, beg, borrow or steal to build it. It will be difficult to attract private sector in this business.

A part of the load shedding problem is attributable to construction delays. Implementation of hydropower projects by NEA is fraught with both cost overrun and time overrun risks as the experience shows. Therefore, the best use of national resource is to have hydropower projects implemented by private sector that seems to be able to implement projects effectively and efficiently both in terms of cost and time (government and NEA should avoid these by signing long term power purchase agreements with the developers at lowest possible tariff). Technical loss can be significantly reduced by up to 7-8 percentage points by strengthening the transmission network which will definitely help in reducing load shedding duration. 

Nepalese policymakers and leaders must wake up from their slumber to solve this mammoth crisis because Nepal has the prime resource needed to generate the electricity - water. There is some comfort in the fact that Nepal has more than 6000 rivers and majorities of them are capable to turn the turbine and generate electricity. Being pessimist is a waste of time (we don’t have right to be pessimists), so let us think from an optimistic point of view. But even so the picture is not that rosy. It’s not that Nepal is running out of the solution. We have some reliable and lasting solution but for this we have to have a vision of accelerated economic growth and willpower to attain it for which it is of utmost importance to understand that exporting power will not help Nepal attain even suppressed economic growth. Power for industrialization that will generate employment will only lead us to normal economic growth which will eventually help us achieve double digit growth.

There is inherent self contradiction in the professed aim of PM Bhattarai: he pays lip service to mitigating Nepal’s energy crisis while trying to have export oriented projects like Upper Karnali (900 MW), Arun III (900 MW), Tamakoshi III (650 MW) and Upper Marsyangdi (600 MW) implemented, notwithstanding the public opposition to it (I myself am fighting cases in the Supreme Court about the first 2 projects – not against the projects but against the idea of exporting power from these projects).

To conclude, in today's world of blooming information communication technology, modern electronic equipment, etc. to what extent this load shedding is allowing a Nepali to contribute should be the matter of concern for every Nepali. Going back to dark ages with candles, lantern, and kerosene light and firewood (three-fourth of the population is still dependent on it), what legacy will we leave behind for generations to come; every Nepali should contemplate this issue.
Ratna Sansar Shrestha

Published in Vol 4, Issue 2 of Greatway magazine based on conversation.

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