Thursday, November 24, 2022
Budhi Gandaki: Invest more than 3 times for 35% additional electricity!
GoN is planning to implement 1,200 MW Budhi Gandaki hydropower project that entails building a 263 meter dam for annual average electricity generation of 3,383 GWh. It is estimated to cost US $2,550 million at 2014 price. This requires temporal transfer of water: rainy season water will be stored in the reservoir behind the dam and gradually discharged at the rate of about 672 cumecs to generate electricity. According to the study report half of water discharged as such would amount to lean season augmented flow which will be windfall gain for India as Nepal is not implementing this project as a multipurpose project including to irrigate land in the Tarai districts like Bara, Chitwan, Nawal Parasi, etc. Historical background Its installed capacity was 200-300 MW according to the study conducted in 1978. Another study commissioned by the Electricity Department of GoN had fixed its installed capacity at 600 MW with a 225 meter dam in 1984, generating 2,495 GWh electricity. Estimated cost was $774 million at 1983 price. In 2012 a development board was formed under Development Board Act 2013 to implement this project at 1,200 MW installed capacity at the cost of US $2,550 million that would generate 888 GWh more than by 600 MW installed capacity with additional cost of $1,776 million. The board was dissolved in 2016 and a Chinese contractor was entrusted to implement it under EPC-F (engineering, procurement, construction and financing) contract only to withdraw it in 2017 and decide to implement it through a subsidiary of NEA. It was entrusted again to the same contractor in 2018. Once more it was withdrawn from that contractor in 2022 saying it would be implemented as a national pride project through domestic investment in the company model. India keenly interested The then Indian prime minister Chandra Shekhar, during his Nepal visit in 1990, had evinced India’s interest in this project and wished to implement it jointly. Therefore, the 1984 report recommending 600 MW installed capacity was handed over to the Indian delegation. Again in 1991 during India visit of the then Nepal’s prime minister Girija Koirala, it was agreed to form a joint team of experts to conduct field surveys to reach agreement on the parameters of the project as outlined in Nepal’s study; the field surveys to be completed by June 1992. It was also agreed to finalize modalities of financing it jointly pari passu. DPR was to be prepared such that construction could begin by 1994. However, during a meeting of water resources ministers of Nepal and India in 1996, held in Delhi, Nepal’s request to withdraw this project from the list of joint projects was accepted by the Indian side so that it could be opened for private sector investment. Even in this meeting, no discussion/negotiation was initiated by Nepali delegation with regard to India paying for the value of lean season augmented flow from this reservoir project. Officials of Nepal have taken it only as a hydropower project and no thought has ever been spared for the use of lean season augmented flow in Nepal or to sell to India. As the lean season augmented flow from this project is highly valuable for India, she was ready to finance the project jointly pari passu. But Nepal implementing it solely has created a circumstance wherein 100% of lean season augmented flow would fall in Indian lap without having to pay a cent for it (advertently or hopefully inadvertently). If anyone thinks it is a scam of grand scale, the person would not be mistaken. More than three times costly It has already been pointed out that the estimated cost of 600 MW was only $774 million while it is estimated to cost $ 2,550 for 1,200 MW; more than 3 times. It would not be out of ordinary to suspect ulterior motives behind doubling of the installed capacity, entailing cost increase by more than 3 times but increasing electricity generation by only 35%. While the cost increases by $1,776 million to double the installed capacity of this project, the estimated cost of the 750 MW West Seti reservoir project is only $ 1,200 million at 2012 price, which can generate 3,636 GWh. Ideal alternative Therefore, it would have been prudent to construct this project at 600 MW installed capacity at the cost of $774 million and also construct the West Seti project simultaneously. Total installed capacity would have been 1,350 MW and total cost of both $1,974 million only, resulting in a saving of $576 million. Further, total electricity generation from this option would be 6,131 GWh, which is 2,748 GWh more than that 1,200 MW Budhi Gandaki alone can generate. In this backdrop, it is not clear why the installed capacity of Budhi Gandaki was doubled at more than 3 times cost just to generate merely 35% additional electricity. Inundation in Nepal This project, if built at 1,200 MW installed capacity, would inundate 63 square kilometer land including appurtenant involuntary displacement of populace there, while 600 MW would have inundated only 49.8 square kilometer. In other words, doubling installed capacity would result in more inundation while costing more than 3 times and resulting in very low incremental benefit for Nepal. It should not be lost sight of the fact that inundation entails opportunity cost for Nepal in terms of forest product, agricultural produce etc. that Nepal would be deprived of till the project is in operation. Nepal to implement on her own In early 1990s this project was agreed to be implemented jointly by Nepal and India. However, in 1996 Nepal decided to go it alone in order to have it implemented by the private sector. After doubling its installed capacity, Nepal decided to implement it on its own. India has not proffered any reaction to this decision. In the context of the Brahmaputra River, which originates in China, flows through India to Bangladeshi and joins the Bay of Bengal, former is an upper riparian country and latter a lower riparian. Whenever China decides to build any project on this river India protests vociferously. But India has been deafeningly silent with regard to Nepal going ahead to build this project without Indian involvement. The main reason behind palpable deafening silence on the part of India is that she stands to receive 100% lean season augmented flow from it without having to invest a cent. India likes Nepal to commit such blunders time and again. Irrigation in India Since Nepal has no plan to use lean season augmented flow emanating from this project, the same would flow down to India, where 1.8 million hectares of agricultural land in Bihar and Uttar Pradesh states would be irrigated. This project would herald intensive farming there, affording 4/5 harvests in a year. As the extant dam on Gandak barrage is merely for spatial transfer of Gandak River water and, therefore, water for irrigation in India is available only in the rainy season. However, as the dam of this project makes temporal transfer of water, irrigation in dry season will become possible. Therefore, this project is of paramount importance to India; specially since 8 former prime ministers and current prime minister are elected from Uttar Pradesh in India. Value of lean season augmented flow It has been mentioned above that this project would produce 336 cumecs lean season augmented flow, which Nepal has no plan to put to consumptive use since this project is not designed as a multipurpose project. The value of the augmented flow can be monetized on the basis of precedent set by Lesotho and South Africa. As South Africa had paid Lesotho at the rate of $2.79 million/cumecs in 2020, India would owe $390.5 million for the lean season augmented flow from 1,200 MW Budhi Gandaki project to Nepal. In other words, from the value of this lean season augmented flow of 6.5 years, Nepal should be able to cover the cost of implementing this project. Then India would be required to pay $390.5 million each year after 6.5 years of its operation till the project is in existence. But no such arrangement has been made yet. Because, although plans were made to implement this project by Nepal on its own since 1996, not even one discussion/negotiation has been held with India with regard to lean season flow from this project that India stands to benefit from. If electricity generated by this project is to be sold at 5 US cents, the sales proceeds would amount to only $124.75 million, while value of lean season augmented flow from it is $390.5 million as pointed above. Therefore, the value of lean season augmented flow is more than three times of the proceeds from sale of electricity generated by the 1,200 MW project. It should not be lost sight of the fact that sales proceed is not net profit at all (operational expenses, royalties, interest on debt financing, etc. would have to be deducted), while the value of lean season augmented flow would be pure net profit for Nepal, if Nepal was to demand payment from India for it that will fall in her lap. It is well known that there is no alternative for fresh water for uses like drinking, cooking food, irrigation etc. However, there are many sources to generate electricity: fossil fuel, which is neither clean nor renewable, traditional sources like firewood, cow dung, etc. which are neither clean nor renewable and sun, wind, water, etc. which are both clean and renewable. Therefore, it is detrimental to Nepal’s national interest to build this project to generate electricity worth $124.75 million, while neglecting to collect $390.5 from India for lean season augmented flow. The proponents of this project could have worked in Nepal’s interest by arranging to receive payment for lean season augmented flow for 6.5 years in advance to implement this project and also to receive money for the same for the period this project is in operation after 6.5 years of operation. But they did no such thing, sadly. Flood control Flood in Sapta Gandaki River causes huge destruction in Indian Bihar state almost each rainy season. In 2017 $32 million was distributed to flood victims and in 2019 $27 million. The flooding there is an annual phenomenon and one of the main causes is overflowing in Budhi Gandaki River. Such floods cause costly destruction of life and property there, which requires rehabilitation and resettlement at enormous cost. After construction of a dam on Budhi Gandaki River flood would be controlled by a magnitude. That means there would be huge savings in terms of lives and property saved and avoided rehabilitation and resettlement costs. In other words, this project with 1,200 MW installed capacity would result in flood control in the Indian state of Bihar. According to the Columbia Treaty signed between Canada and USA, the latter had paid $64 million in advance for 60 years in 1964 to the former. Further discussion has already started with regard to arrangement from 2024 onwards. However, unfortunately, proponents of this project have not even thought of sharing flood control benefits with India as no discussion/negotiation has been initiated to share the flood control benefit that is about to accrue to India. Optimized at 1,200 MW Nepal was in the midst of an energy crisis when the installed capacity of this project was doubled to 1,200 MW by way of optimization. However, as mentioned above doubling of installed capacity did not result in doubled electricity generation. Only 3,383 GWh would be generated by 1,200 MW, while 600 MW would have generated 2,495 GWh, an increase by only 888 GWh; incremental electricity generation is only 35%. Optimization should mean maximizing the benefits to Nepal at least cost. On the contrary the cost increases by more than 3 times while electricity generation increases by 35% only. Another way of optimizing from Nepal’s perspective at 1,200 MW installed capacity could be done realizing monetized value of flood control benefit to India as well as lean season augmented flow that India stands to receive. Decision makers seem to have failed to realize that doubling installed capacity does not result in doubled electricity generation. Therefore, the decision to double the installed capacity was not made in Nepal’s interest. It is not difficult to find out in whose interest this decision was made. Because, India benefits from flood control and lean season augmented flow from this project free of cost and without even having to invest in the construction of the project. Because no plan has ever been made to design this project as a multipurpose project including to use lean season augmented flow for consumptive use in Nepal; alternative no discussion or negotiation has been initiated with India for flood control benefit and lean season augmented flow that it stands to receive by default. Conclusion Chandra Shamsher had been careful to obtain land from India in lieu of land used for Sharada barrage. However, he committed blunder by first treating Mahakali River as a border river and then agreeing to allow India to use 47% of dry season flow of this river that belonged to Nepal, for an indefinite period. This afforded India an opportunity to lay claim to prior existing consumptive use in the Mahakali Treaty and 50% share of water from Mahakali River to Nepal turned out to be 1.5% of the total. Further, any water that belongs to Nepal but that she is unable to use would belong to India free of cost. The extent to which Nepal got a raw deal in Koshi and Gandak treaties signed by Matrika and BP, respectively, requires no mention. Sharada, Koshi and Gandak barrages were built with Indian investment and India hogged all the benefits may not sound unnatural for some. But in the case of Budhi Gandaki, Nepal is planning to provide 336 cumecs of lean season augmented flow from it and flood control benefit gratis to India without even signing an MoU, agreement or treaty. From this perspective it becomes clear that it is not a case of India cheating Nepal, rather it is a shameful case of Nepal allowing India to cheat herself at her own initiative. Its classic case of reverse colonialism; India not having directly done anything in this respect, nor making any financial investment or even persuading/coercing to sign MoU, agreement or treaty. Contrasted with Sharada, Koshi and Gandak barrages, where India can be said to have colonized Nepal’s natural resources, in the case of this project Nepal is consciously allowing India to colonize Nepal’s natural resources. As has been pointed out above, the value of lean season augmented flow that is to be availed to India is worth $390.5 million/year while electricity generated by it is worth only $124.75 million/year. Moreover, doubling the installed capacity costing more than thrice with incremental electricity generation of only 35% is another serious blunder. Instead this project should be implemented at 600 MW along with 750 West Seti at the total cost of $1,974 million for both, resulting in a saving of $576 million. (N.B.: The US dollar values mentioned here are at prices of different years and adjustment must be made to levelize them. Besides, such adjustments may result in deviation by a few million dollars, not exceeding $10 million.) Moreover, total installed capacity of the two would be 1,350 MW and it would generate 6,131 GWh, resulting in incremental generation of 2,748 GWh. However, unfortunately, the West Seti project has already been handed over to India. Implementing this project would result in flooding of 63 square kilometers in Nepal, while India will benefit by flood control in Bihar. But no arrangement has been made to receive recompense from India. Installed capacity of this project was doubled by way of optimization. But optimization should mean least cost increase to maximize the benefits. Contrarily, the cost increases by more than 3 times while incremental electricity generation is only 35%. While India capitalizes on the benefits from flood control and lean season augmented flow. This project is an extreme example of reverse colonization of Nepal’s water resources. Without even signing an MoU, agreement or treaty with India, without any financial involvement of India, India is going to be afforded benefits from flood control and lean season augmented flow and this is not only anti national but it amounts to outright sedition. Publisehd in Peoples' Reivew of November 24, 2022 Ratna Sansar Shrestha