Thursday, October 12, 2023

Electricity Bill: Gift Positive Externalities to Neighbors

GoN has tabled Electricity Bill 2080 in the House of Representatives last month to supplant currently prevalent Electricity Act, 2049. First hydropower plant came into operation in Nepal; 80 years before the Electricity Act was promulgated and, in this period, total generation capacity had reached 278 MW only. After the Act was promulgated to attract private sector investment in the electricity sector, electricity generation capacity reached 2,684 MW till last fiscal year. An increase of 2,406 MW in 30 years is substantial progress compared to 278 MW in the previous 80 year period. History of Electricity Act After noting a number of flaws in over a decade of implementation of the Electricity Act, 2049, a new Bill was tabled in the Constituent Assembly in 2065. MCAs from a number of parties submitted amendment proposals to the Bill, totaling 142 proposals. Instead of incorporating the amendments recommended by MCAs, the Bill was allowed to lapse. Again, another Bill was tabled in 2077 in the National Assembly only to withdraw it in 2079. Bill and Water As mentioned above total electricity generation capacity in Nepal till last fiscal year is 2,684 MW and out of which 2,538 MW is hydropower (based on water resources), 53.4 MW thermal, 86.9 MW solar and 6 MW bagasse. Meaning 95% of the electricity generation uses water resources. Similarly, of 3,102.7 MW power plants are under construction currently, of which 3,073.7 MW is based on water resources and 29 MW solar; 99% is based on water resources. Further, of 2,631.6 MW awaiting financial closure, 2,607.4 MW is based on water resources and 24.2 MW solar; 99% again based on water resources. Of total power plants in operation, under construction and awaiting financial closure of 8,418.89 MW, 97.63% is based on water resources, while 0.63% thermal, 1.66% solar and 0.07% bagasse. From this, it is clear that the main source of electricity generation in Nepal is water resources. But the Bill is deafeningly silent about multidimensional uses of water and value of water from spatial transfer and temporal transfer as well as flood control benefit. It is but natural to expect this Bill to play an effective role in the development of Nepal by harnessing her water resources. But this Bill fails to meet that expectation by a huge magnitude as there are numerous flaws, blunders, weaknesses and aberrations in it, which warrant correction. For example, in the very first page of the Bill, while throwing light on the objective and goal of the Bill, the phrase “comprehensive development framework” is mentioned attributing it to a person named James D. Wolfensohn, identifying him as an American President. In fact, nobody by that name has ever been president of the USA. A person by that name was president of the World Bank Group from 1995 to 2005. This is a serious blunder in a Bill that is highly important for Nepal; it also demonstrates negligence or lack of seriousness on the part of those who prepared it. Of the numerous flaws a few are discussed below. Electricity generation by harnessing water resources Human beings have survived without electric light for long and some are surviving even now. But no human being can live without drinking water for more than 3 days. Similarly, human beings cannot survive without food for more than 3 weeks; water is required to produce food. Therefore, clean water is deemed invaluable. People buy water from utilities and also in tankers, jars or bottles. South Africa has been paying to receive water from Lesotho under the Treaty on Lesotho Highlands Water Project between the government of the Kingdom of Lesotho and the government of the Republic of South Africa. In 2020 South Africa had paid $ 69 million to Lesotho for 780 million cubic meter water (24.74 cumecs), which works out to $ 2.789 million/cumecs). This example can be looked at from Nepal’s perspective by using the example of the Budhi Gandaki Project on the anvil (installed capacity 1,200 MW). Annual average electricity generated by this project would fetch $ 124.7 million at the rate of US 5 cents/kWh. While lean season augmented flow of water that would be produced by the reservoir is worth $ 390.5 million using Lesotho precedent. But this Bill is silent about lean season augmented flow. Therefore, following provision must be added in Section 14 of the Bill: • Installed capacity of reservoir project shall be fixed on the basis on requirement of lean season augmented flow for consumptive uses including irrigation in lower riparian areas within Nepal. • If downstream country/ies is/are prepared to pay for lean season augmented flow for consumptive uses including irrigation, the installed capacity of reservoir project can be fixed on the basis of requirement of lean season augmented flow for consumptive uses including irrigation in Nepal and downstream country/ies. Moreover, downstream country/ies may stand to benefit from flood control benefits if a reservoir project is built in Nepal. To cover for such instances a provision must be added in the Bill to recover recompense for such benefit from downstream country/ies. There is precedent under the Columbia Treaty, according to which the USA has paid to Canada for flood control benefits. In case downstream country/ies is/are unwilling to pay for positive externalities described above (lean season augmented flow and flood control), the installed capacity of reservoir projects must be based on requirement of lean season augmented flow for consumptive uses including irrigation in lower riparian areas just within Nepal. One should not lose sight of the fact that freely flowing water in the rivers does not have any financial value (nobody would be willing to pay for such water at the river bank). But value added water after construction of infrastructure on the river has value. For example, Melamchi Rver water after its spatial transfer from Sindhupalanchok to Kathmandu has high value. Similarly, lean season augmented flow after temporal transfer from a reservoir has high value also since the reservoir causes negative externalities in terms of inundation of valuable land and involuntary displacement of local populace, which would not be recompensed by the beneficiary downstream country/ies. Parliamentary ratification There is provision for parliamentary ratification of treaties and agreements, related to natural resources and the distribution of their uses in Article 279 (2). Therefore, provision must be inserted in this Bill for parliamentary ratification of any hydropower project from which lower riparian country/ies stand/s to benefit from positive externalities. Because building a reservoir project from which lower riparian country/ies stand to receive positive externalities is tantamount to distribution of uses of Nepal’s natural resources. In this manner supremacy of the Constitution will be established and the prestige of the parliament will be enhanced. Early last year the MCC compact, including to build a 400 kV transmission line with a grant of $ 500 million for 5 years, was ratified by the parliament. However, it was not necessary to ratify such a Compact, as such agreements do not fall in the ambit of Article 279 (2) of the Constitution. In this manner Nepal’s parliament has ratified an agreement which did not need to be ratified according to the Constitution, while many agreements that are related to distribution of uses of natural resources have not been ratified in contravention of the Constitution; which also amounts to contempt of parliament. Export oriented project The 900 MW Arun 3 project, licensed to an Indian company, is under construction as an export oriented project. Besides, GoN has already awarded Arun 4, Lower Arun, Upper Karnali, West Seti, Seti River 6 and Phukot Karnali to Indian companies as export oriented projects. Total capacity of these 7 projects is 4,649 MW. These projects would export all electricity, except for free energy to Nepal. These would export not just the spill/surplus energy of wet season and off peak energy but also dry season and peak time electricity for which there is high demand/requirement in Nepal. Such electricity can add value in Nepal’s economy at the rate of US 86 cents/kWh if used in Nepal according to a USAID study report. It is logical to export spill/surplus energy of wet season and off-peak period but export of dry season and peak time electricity is like committing hara-kiri. Because NEA is importing dry season and peak time electricity from India at exorbitant rates, while exporting spill/surplus electricity at rock bottom tariff. Therefore, no project should be allowed to be built as export oriented and all references to export oriented projects needs to be removed from the Bill. Conclusion On the whole this Bill is designed to provide electricity (clean non-polluting energy) at low tariff to neighboring country/ies and on top of that provide positive externalities free of cost to them (almost like adding insult to injury). An in-depth study of this Bill makes one feel that this Bill was prepared with a view to benefit downstream country/ies or it was prepared by an expert of such a country for the benefit of his/her motherland. If that is true then that expert is a patriot of that country, which is expected in every citizen. But it amounts to sedition/treason to table such a Bill in Nepal’s parliament. Further, if this Bill was prepared by leaders and bureaucrats of Nepal it amounts to unpardonable crime of sedition/treason. Such a Bill is not expected from any nationalist and patriotic citizen of Nepal. Matrik Koirala and Bisheshwar Koirala, former prime ministers of Nepal in 1950s, have not only been vilified but also demonized till now for signing Koshi and Gandak treaties respectively, under which India benefits in the form of water for irrigation and flood control free of cost, while inundating land in Nepal and involuntarily displacing Nepali people. If this Bill is passed by the parliament as it is then in the guise of hydropower development (entailing generation and export thereof), lower riparian country/ies stand/s to receive irrigation and flood control benefits without having to pay anything for such positive externalities. After that the Koirala brothers will not need to be demonized anymore. Ratna Sansar Shrestha Published in People’s Review on October 12, 2023.

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