Thursday, February 15, 2018

Electricity Act in Nepal’s Interest

After Government of Nepal (GoN) registered Electricity Bill 2008 in parliament, it was tabled for discussion only in 2011 and MPs were asked to register amendment proposals if the Bill required any amendment. The response was overwhelming: there were one hundred forty-two (142) proposals for amendments. In the normal course both the Bill tabled by GoN and amendment proposals registered by MPs should have been thoroughly discussed in the parliament and Electricity Act should have been promulgated after incorporating amendment proposals accepted by the parliament. But GoN chose not to go through with the process and abandoned the Bill resulting in its “stillbirth”.

This scribe too had prepared 44-point amendment proposal and succeeded to get it registered in the parliament by MPs representing Nepal Workers and Peasants Party, CPN (Maoist), Rashtriya Jana Morcha and Rashtriya Prajatantra Party in order to ensure that the legislation is in Nepal’s interest. The 142 amendment proposals are inclusive of these 44-point amendment proposal drafted by this scribe.

The Bill tabled by GoN was not in Nepal’s national interest and GoN became irked with the attempt to ensure that it is in Nepal’s interest bafflingly and chose not to have the legislation promulgated at all. Apparently the Bill was based on a draft prepared by an Indian organization.

In late 1980s, wishing to invest in Khimti project, Norwegians studied relevant laws of Nepal and found it wanting. Then a team of Norwegian legal experts came to Nepal on the auspices of Norwegian government and studied relevant Nepal law in force, after which the team submitted its report to GoN including a draft Khimti Act, which would have been instrumental in encouraging Norwegians to invest in the said Khimti project. The establishment of the time (politicos and bureaucrats) felt that it is not appropriate to promulgate one specific Act for one project and promulgated Electricity Act 1992 instead, based in draft made for Khimti project but after some tinkering and tampering with it. This Act was said to be based on Water Resources Policy, 1992.
Within 2 decades of coming into force of Electricity Act, about 450 MW hydropower was added to the system; public sector and private sector contributing almost equally. In 8 decades from 1911 (when first power plant in Pharping was commissioned) less than 240 MW was added to the system. It is clear that this Act succeeded to attract private sector investment in hydropower generation, which was exclusive domain of public sector till promulgation of Electricity Act.

Improvement in Electricity Act
This scribe was assigned a 3-month study to suggest improvements in the Electricity Act from the perspective of private investors in early 1998. After 3 months, he presented 4 working papers in a workshop in June 1998, the report based of which was furnished to GoN through FNCCI. GoN effectively thwarted the effort of more than a decade to improve the Act and also to ensure that it is in national interest.

Currently prevalent Electricity Act requires many improvements to ensure that it is in Nepal’s interest. Due to space constraint only a few important points are discussed in this article.

Multidimensional Uses of Water
While contemplating generation of energy from water, it should not be lost sight of the fact that water has multidimensional uses. There are many sources to generate energy, ranging from clean/renewable to unclean/un-renewable. Whereas, there is no alternative to fresh water (e.g. it is not possible to irrigate with saline water which is available aplenty in the world). Multidimensional uses of water are as follows:
• Drinking water and sanitation – by achieving water security, untimely death due to water borne diseases can be reduced, including reduction of expenditure on medicine and medical treatment by half that the country’s economy has to bear;
• Irrigation – to achieve food security by intensive cropping to preclude death by famine and starvation, including substantial mitigation of balance of trade and payment deficit by reducing import of food products;
• Animal husbandry and fishery – to avail nutritious food items and also to mitigate balance of trade and payment deficit to an extent by substituting imports thereof;
• Energy generation – to ensure self reliant energy security (water is required even to generate nuclear energy);
• Recreation – for water based tourism, inter alia rafting;
• Navigation – Nepal can transform into water linked country from landlocked one;
• Water based industries – including export of mineral water; and
• Cultural and traditional uses.

Comprehensive Assessment of Alternatives

In view of the fact that water has multidimensional uses and most of such uses are competitive in nature, conscious decision must be made before deciding to put water to any specific use at any site on any stretch of any river. For this purpose comprehensive assessment of all possible alternative uses must be made prior to deciding to put water to a specific use. In such assessment, possibility of production and use of hydrogen in near future should not be ignored (with further development of technology related to its storage and transportation, hydrogen will soon become affordable), in order to afford an opportunity to Nepal to enter into hydrogen economy.

If the decision is to generate hydropower, possibility of generating peak power by putting up a reservoir should be explored instead of run of the river (RoR), which produce more energy in wet season when demand is low and less in dry season when demand is high resulting in mismatch of supply and demand. It is a well-known fact that peaking power plant produces better quality electricity in higher quantum besides generating lean season augmented flow of fresh water. In this context Upper Karnali and Tamor projects are bad examples.

Moreover, reservoir projects should be made multipurpose, which helps control flood in rainy season in lower riparian areas and generate lean season augmented flow. Budhi Gandaki project is a bad example due to failure to make it multipurpose, which for example would have enabled lower riparian districts of Nepal like Chitwan, Nawalparasi, Bara, etc. to increase cropping intensity with water becoming available in the dry season, leading to prosperity.
In order to ensure that new enactment for the purpose is in Nepal’s interest, it should clearly stipulate that decision to harness any site should be made after making comprehensive assessment of alternatives and should make it mandatory to choose reservoir project, where feasible, which should be implemented as multipurpose project.

Objective of Electricity Generation

Self reliant energy security for Nepal should be the principal objective of electricity generation, including to displace imported fossil fuel, which would help (1) reduce balance of payment and trade deficit, (2) reduce cost of transporting people and goods and (3) reduce environmental pollution. Thus, liberation of Nepal from dependency on imported energy sources should be prime aim of such an enactment.

Self reliant energy security entails availing energy produced in Nepal to all sectors inter alia agriculture, industry, transportation, tourism, health, education, ICT, etc. and for urban, semi-urban kitchens to supplant LPG with electricity and eventually to displace firewood from rural kitchens. Ensuring access to electricity to all people of Nepal should be the prime goal.

Nepal is suffering from high trade deficit due to ever increasing imports and dependency syndrome is gaining stranglehold over the economy. On the one hand, industries are not provided requisite electricity forcing them to operate at around 50% of the capacity. On the other hand, industrialists are not able to start new industries for lack of electric energy. Aim should be to encourage establishment of industries to substitute import and to promote export by supplying ample electricity at affordable rate. It is noteworthy that, at the moment, Kathmanduites are enjoying liberation from load shedding at the cost of industries.
Similarly, electricity in adequate quantum at reasonable rate should be provided to industries that process agricultural produce, herbs, minerals, etc. and for cold storage, factories producing agricultural implements, fertilizer, etc. Energy security cannot be achieved without displacing diesel pumps with electric pumps used for irrigation.

New electricity law can only be in national interest if it succeeds to achieve self-reliant energy security by breaking dependency syndrome on imported sources of energy, including fossil fuel (it will not be possible to cease to be dependent on imports for aviation fuel for obvious reasons, though).

License Procedure
The licensing procedure under prevalent Electricity Act needs to be streamlined as follows:
• No license for electricity generation should be issued if Nepal stands to benefit more by putting water to alternative uses at any particular site of any river;
• License should be issued with an eye on optimization of benefit to Nepal from the watershed and river basin;
• License should not be issued only from the perspective of optimization of installed capacity from available head and flow from engineering perspective only, at the cost of irrigation of additional land in future, in both upstream and dewatered areas. With increase in population, more land will have to be brought under cultivation and cropping intensity will have to be increased, requiring water for irrigation;
• License should be issued on competitive basis in transparent manner to ensure availability of electricity at least cost to nation;
• License should not be issued to applicants without financial capability, including requisite credibility to mobilize debt funding. License should only be issued against bank guarantee covering 10% of the project cost. At the moment, brokers are able to hold licenses to peddle with prospective investors;
• Since ownership of the project devolves to GoN after the license period, design life of the plant needs to be specified to ensure that GoN can operate it without problem for at least a decade after handover and directives regarding construction, repair and maintenance standards have to be issued.

Export of Energy
Even without aiming to displace fossil fuel, Nepal is grappling with energy crisis. Issuing license for export-oriented project in such a backdrop is outright stupid. Therefore, no license should be issued for export-oriented projects till Nepal achieves self-reliant energy security.

If for any special reason, license has to be issued for an export oriented project, it should be subjected to parliamentary ratification as stipulated in Sub-article (1) and 2(d) of Article 279 of present Constitution, which specifies that agreements for division of natural resources and their use should be ratified by the parliament. It should not be forgotten that GoN issuing a license also amounts to an agreement.

In this interdependent world, it is not possible to avoid export and import of energy. It is but logical to export excess energy and import to meet deficit. However, energy should not be exported for profit maximization of the private sector; it should be done in accordance with nation’s need.

Downstream Benefit
Main weakness of prevalent Electricity Act is its silence with regard to sharing benefit of lean augmented flow. Basically it is silent with regard to mechanism for recompense for the cost of negative externalities and sharing benefits of positive externalities. Inundation and involuntary displacement are negative externalities and flood control and lean season augmented flow are positive externalities.

It is unconscionable to give away positive externalities free of cost, as Nepal has to bear huge cost, inter alia opportunity cost in terms of lost agricultural produce and forest product for more than half a century due to submergence of Nepal’s territory. Even Koshi and Gandak treaties have no provision to recompense GoN for such opportunity cost; there is provision to recompense to GoN for lost land revenue only.

Therefore, license for reservoir projects should be issued for the installed capacity with an eye on consumptive use of lean season augmented flow in lower riparian areas of Nepal. If India wishes to receive lean augmented flow, installed capacity of the license can be increased on the condition that she is committed to pay for such benefit. Optimization of Budhi Gandaki at 1,200 MW was a blunder, without receiving any commitment from India to pay for lean season augmented flow.

Conversely, if a project like Budhi Gandaki is to be implemented that allows India to enjoy downstream benefit, parliamentary ratification of it should be made mandatory after negotiating with India as to recompense mechanism for benefits of positive externalities that India would enjoy.

Published in People's Review on February 15, 2018

Ratna Sansar Shrestha, FCA

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