Sunday, August 10, 2014

Dissecting Laos model - will it lead Nepal to prosperity?

Hydropower project built with foreign investment for export will result in apportionment of economic benefits in following manner:

* forward linkage benefit = zero (0) as electricity will be used in the neighbouring country for industrialization and value addition will accrue to the user country's economy.

* investment linkage benefit = zero (0) as the return on investment will be repatriated by the foreign investor.

* backward linkage benefit = zero (0) as most of the construction materials and hydro mechanical and electromechanical equipment is not produced in Laos.

* fiscal linkage benefit = depending upon royalty and other taxes levied by Lao government. If these add up to 25% then fiscal linkage benefit will be 25%

Therefore, benefit to Laos:

forward linkage 0/100
investment linkage 0/100
backward linkage 0/100
fiscal linkage 25/100

In total benefit to Laos will be about 25 out of 400.

Clear and better alternative for Nepal is to maximize benefit from forward linkage by using electricity internally and from investment linkage by mobilizing investment from domestic sources as far as is possible. Due to underdeveloped state of Nepal’s industries, increase in backward linkage will take couple of decades more. Increasing benefit from fiscal linkage is advisable for export-oriented projects only, not to project from which electricity will be internally used.

This scribe has conducted similar analysis of West Seti project, license for which held by SMEC has been cancelled and the paper was published in Issue # 5 (July 2009) of Hydro Nepal (journal of water, energy and environment). It can be accessed by following the link below:

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