Monday, December 3, 2012

Load Shedding Mitigation Measures Lacks Efficacy

Nepal Electricity Authority has projected 18 hours of load shedding in coming dry season while the care taker PM Bhattarai, looking after the portfolio of Energy Ministry, has committed to limit it to 10 hours and announced certain mitigation measures.

One of them is curbing leakages. The deficit this dry season will be in the range of 900 MW (installed capacity generating around 250 MW whereas projected peak demand is 1163 MW) while system loss that theoretically could be reduced is less than 40 MW (about 15% of generation) reducing load shedding by a small fraction. However, it will require huge investment in system up-gradation and strengthening of transmission and distribution network which is not something that could be accomplished for coming dry season; not even next dry season. Reduction of nontechnical loss will not make more electricity available as those “stealing” electricity will start to pay once they are “caught”; not stop using electricity.

GoN also plans to set up 80 MW diesel plant for projected deficit of 900 MW; like a drop in the ocean. Rough calculation indicates that it will cost about Rs 20 billion/year in diesel for operation around the year (without accounting for depreciation, interest, lubricants, repairs and maintenance, etc.). This amount is sufficient to build hydropower plants of over 130 MW (assuming initial investment of Rs 150 million/MW). Meaning, just one year’s fuel cost of 80 MW will “buy” 130 MW hydropower plant with the potential economic life of 25 years. If the life of diesel plant is ten years, then 80 MW diesel plant will burn up diesel worth Rs 200 billion (at current price of diesel) which is sufficient to buy hydropower project with 1,300 MW installed capacity.

Further, as diesel costs Rs. 97/liter which can produce 3.5 units, electricity will cost about Rs 35/unit. Since consumers will not be able to afford it, NEA, already projected to incur a net loss of Rs 10 billion this year, will suffer additional loss of over Rs 15 billion; Rs 25 billion in one year. If such loss is defrayed by government grant, it would force reduction in the budget under other heads. For instance, operating the plant for one year will cost 2,000 km in terms of new road to a nation lacking in infrastructure adversely impacting rural people majority of who are below poverty line. Furthermore, as only one fourth of the population has access to electricity, it will amount to subsidizing the people with access to electricity (urban rich) at the cost of the people without access to the electricity (rural poor).

The idea of diesel plant comes from the people who believe that “costly power is better than no power,” attributing high cost to “un-served energy.” Indian government too allowed Enron to build powerplant in Dhabol, Maharashtra subscribing to that concept only to realize afterwards that “no power is better than costly power” when it was already late. The rest is history.

The government seems to think that diesel plant will start generating electricity as soon as decision is made. As diesel plants entail adverse environmental impacts like noise pollution, GHG emission, excessive vibration, etc. EIA is mandatory, requiring about 6 months (no one in right mind would allow a diesel plant to be located in her/his neighborhood). And placing order, getting shipped, erection at site, connecting to grid, etc. will take about 18 to 24 months. We will be lucky if diesel plants will start generating electricity for dry season of 2014 AD. In view of all of the above, setting up diesel plant manifests the height of foolishness.

There is also plan to import 200 MW electricity from India forgetting that UP and Bihar are suffering energy crisis (people in certain areas of UP get electricity every 20-day for a few hours!) and depending on India is like a poor begging from a pauper.

Historically too India has proved to be unreliable source. After PTC India, Bihar State Electricity Board, etc. had executed documentation to export 30 MW during the tenure of 'Prachanda' as PM, the process was aborted as External Affairs Ministry of India objected to it in May 2009, culminating in PM Prachanda’s resignation (people, unaware of the fact, ascribe the resignation to the then CoAS, Katwal). Now, without any formal agreement in place, only verbal commitment was, reportedly, made by Indian PM during NAM summit in Tehran, there is no guarantee.

The government is also planning to reduce the working days to five days. PM Krishna Prasad Bhattarai had also declared five days week to reduce expenditure on utilities, petroleum product, etc. But the expenditures didn’t decline, including on electricity, while citizenry suffered and both productivity and production of the manpower diminished. Therefore, by adding a day to the weekend, load shedding hours will not decline. Conversely, if 7-day weekend is declared (shut down all industries, educational institutions, government and nongovernment offices for the whole week) the load shedding can easily be reduced to zero. But this will take Nepal back to medieval ages which no one in right mind would choose.

There is no magical solution for the dry season of 2013 except belt tightening. However, cost effective way forward lies in water resources (where Nepal enjoys competitive and comparative advantage). 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 (construction of Khudi project took only 18 months). Therefore, it will be substantially cheaper if hydropower projects are offered Rs 10/unit on the condition that electricity is generated within 2 years.

It is very disheartening to see PM Bhattarai, who talks a lot about mitigating load shedding problem in Nepal, determined to export power from Upper Karnali (900 MW), Arun III (900 MW), Tamakoshi III (650 MW) and Upper Marsyangdi (600 MW), notwithstanding the public opposition (writ petitions are pending in the Supreme Court about the first 2). It is sheer foolishness for a country starved for power, dreaming of exporting power.

Nepal is facing energy crisis even under suppressed economic growth scenario (no power for industrialization, impelling youth to migrate for employment). Nepal will need 5,000 MW in 5 years to attain normal economic growth (NEA’s load forecast is based on suppressed growth) and higher quantum to attain accelerated economic growth; common dream of PM Bhattarai and this scribe.

Two things should be remembered. This is no negation of foreign direct investment. As long as electricity is used for the benefit of Nepal who invests is irrelevant. Secondly, electricity is unique because it cannot be stored; must be consumed simultaneously with its generation in real time. Therefore, electricity generated, if not consumed domestically has to be exported immediately; otherwise it will be spilled. Besides, so far only a few plants have been built with domestic funding but electricity has not been exported to Norway from Khimti, nor to Japan from Kulekhani. Neither are there plans to export power from Chameliya to Korea or to China from West Seti. Meaning, it is foolhardy to say that the electricity has to be exported to the country to which the investor belongs.

Nepal government should adopt 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 to Nepal. Secondly, Nepal should allow projects to be implemented by the investor/s (domestic or foreign) that will generate the electricity at the lowest cost, expeditiously. Nepal should purchase all such power (at lowest possible price) and electrify the nation massively (not only for lighting, but to industrialize, electrify transportation, energize agriculture sector which will help us attain food, water and energy security) and export the remaining at tariff comparable to what Nepal is importing at; as PTC India does; not allow a developer/investor to export directly at rock bottom tariff. West Seti project is excellent example. Originally envisaged as an export oriented project, the license was cancelled subsequent to immense and unrelenting public pressure; I was one of the few in the forefront. Now Chinese is building for Nepal’s 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 lucrative. However, they are constrained by lack of infrastructure (transmission network and access road) in which it is not feasible for them to invest. Private sector indeed does have comparative advantage in building power plants from the perspective of time and cost (all projects built by NEA, including Chilime, have incurred time and cost overrun). Therefore, NEA should focus on transmission network and if constrained by financial considerations, it should, to use an old euphemism, “beg, borrow or steal”.
 Ratna Sansar Shrestha. fca
Published in Spotlight Newsmagazine: Vol 6 No 11 of November 30, 2012

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