Friday, April 12, 2024

Colonization of Nepal’s Hydropower

Signing of the “long term power trade agreement” between Nepal and India in January 2024 was hailed by Nepal's most politicos, bureaucrats and intellectuals claiming that Nepal would earn a huge amount of foreign currency - "hydro-dollar" - and become prosperous by reducing the trade and payment deficit. Some described it as another anti-national activity. Hence, it is necessary to examine whether Nepal's treasury will actually receive foreign currency by exporting hydropower. It should also be examined whether Nepal’s economy would prosper if hydropower is used domestically. Basically, there are two schools of thought: export to earn hydro-dollars and use domestically to add value in the economy. Value addition takes place as a result of industrialization due to increased production which can be used for import substitution or to export, that in turn reduces trade and payment deficit while generating employment. A comparison is being made in the following lines between the benefits of exporting hydropower and using it domestically. During the Panchayat era, while planning to implement 402 MW Arun 3, there was debate as to whether to use hydropower generated by it to produce artificial fertilizer in Nepal or to export. Later, when the then Indian Ambassador Arvind Ramchandra Dev was approached by Nepali leaders to export electricity from Arun 3, he instead suggested establishing energy intensive industries in Nepal; which Nepali side didn’t wish for. Export by NEA As Clause 5 of the agreement specifies that 10,000 MW will be exported in 10 years, it is necessary to examine if the Nepal Electricity Authority (NEA) can meet the target. NEA had signed an agreement with India to export up to 655 MW last year: up to 321 MW from hydropower plants owned by NEA and up to 344 MW owned by IPPs. And, till last fiscal year, there was 2,538 MW hydropower generation capacity under NEA including IPPs. If this proportion is to prevail, in order for NEA to export 10,000 MW it should have 40,000 MW under it including IPPs. Meaning, in the next 10 years, 37,500 MW should be added by NEA and IPPs. Which doesn't seem possible because after the establishment of the 500 kW Pharping hydropower plant in 1911, hydropower generation capacity under NEA reached 2,538 MW in 112 years. It is beyond imagination to add 37,500 megawatts under NEA in the next 10 years. Export oriented projects Besides, India would not wish to import just the spill/surplus hydropower (that otherwise would have gone waste), which NEA exports. Economically, the quality of such electricity is low and accordingly the tariff too is low. After reinstatement of parliament in April 2006, the then prime minister Girija Prasad Koirala's government started the process of handing over hydropower project sites to the Indian private sector by making them export-oriented, deemed anti-national by many. It circumvented the need of signing treaties with the Indian government, which would require parliamentary ratification and have to repeat the struggle of getting the Mahakali Treaty ratified by the Parliament. In this manner, following hydropower sites with a total capacity of 4,649 MW have been handed over to Indian private companies as export-oriented projects:
These projects will not only export surplus hydropower that could not be used in Nepal, but also high-quality electricity during dry season and peak power. Nepal itself will not be exporting hydropower from these projects. The project sites located on the rivers of Nepal have been handed over to Indian companies. Further, in the same manner additional 5,351 MW capacity hydropower project sites could soon be handed over to Indian companies and the target of 10,000 MW would easily be achieved. Therefore, the ulterior motive of this agreement is to hand over hydropower sites on Nepal’s rivers to Indian companies totaling 10,000 MW, which is absolutely anti-national. As Indian companies own export oriented projects and since electricity would be sold in India, the export proceeds will not enter Nepal. Because if the export proceeds are channeled through Nepal's banking system, those companies will have to pay unnecessarily huge banking charges, and, further, if the money is stuck in Nepal for just one night, a large amount in overnight interest will be lost. Therefore, export proceeds from 10,000 MW export oriented projects, which would amount to $1.7 billion/year if exported at 5 US cents, would not mitigate Nepal’s payment deficit. However, the export statistics would increase on paper, but since the proceeds will not enter Nepal, the trade deficit would not be mitigated in reality. Deprived of value addition in economy According to a USAID study report, if one kWh (unit) electricity is utilized in Nepal, it will add value in the economy by 86 US cents (equivalent to Rs 113 at current exchange rate). Of 4,018.87 GWh average annual generation by 900 MW Arun 3, deducting 21.9% that Nepal gets for free, export of 3,138.74 GWh would deprive Nepal’s economy by $2.69 billion/year in value addition; which would be equivalent to Nepal providing a grant of that amount to India. The export proceeds of Arun 3 of $156.93 million/year, if exported at 5 cents/kWh, will not even enter Nepal. In case 10,000 MW is to be handed over to the Indian companies in Arun 3 format (Nepal receiving 21.9% free electricity) Nepal's economy will be deprived of value addition by $29.99 billion/year, while value will be added to Indian economy by that amount – a case of Nepal giving grant to India. But the annual export proceeds that do not enter Nepal will be $1.74 billion, if exported at 5 cents/kWh. While India has proposed to provide a grant of ₹6.5 billion to Nepal next year, equivalent to $79.2 million only, at the current exchange rate. India budgets to provide less than a one-tenth of billion dollars as grant and makes a huge fanfare, while Nepal will help add value in the Indian economy by close to $30 billion/year without even calling it a grant. Reservoir Projects Both the 750 MW West Seti Reservoir Project and 450 MW Seti River 6 cascade project have also been made export-oriented and handed over to Indian company NHPC Ltd. These two can generate 4.54 GWh/year hydropower during peak time and dry season, which is more valuable than from the run of the river projects. Such electricity is much required for Nepal and will end up importing to meet demand for electricity in the peak time and dry season, while these two projects will be exporting. West Seti is a reservoir project and it would also generate 90 cumecs of lean season augmented flow. Nepal will be deprived from multidimensional use of such lean season augmented flow. As GoN has not made any plan to make this project multipurpose, India will stand to receive that lean season augmented flow free of cost. Lesotho was paid at the rate of $2.789 million/cumecs water by South Africa in 2020. Based on this rate, West Seti’s lean season augmented flow is worth $250 million/year. A case of double whammy: Nepal to be deprived of not only peak and dry season power but also of lean season augmented flow. When West Seti was awarded to China Three Gorges Corporation (CTGC), the parliamentary committee on Natural Resources had queried GoN in March 2012 as to the plan to use the lean season augmented flow in Nepal. After CTGC was forced to withdraw from it in August 2018 and hand it over to NHPC Ltd., Indian company, in August 2022, neither the parliamentary committee would receive an answer nor would GoN be able to put lean season augmented flow to use in Nepal. Further, GoN would not be able to recover the amount due for it according to Lesotho precedent as no mention of it has been made in the memorandum of understanding concluded with NHPC. Domestic use Nepal’s economy is not self-reliant because the contribution of the industrial sector to Nepal’s GDP is 13.45% only, due to which unemployed youth are forced to seek employment abroad where they face exploitation. Although the contribution of the industrial sector in India is already 28%, it has signed an agreement to import hydropower from Nepal to further industrialize and generate more employment there. Unfortunately, Nepal's most leaders, bureaucracy and intellectuals mistakenly believe that hydropower produced in Nepal cannot be used domestically. Most Nepalis are under the illusion that Bhutan became rich by exporting hydropower. They are unaware that her industrial sector's contribution to the GDP is 34%. Last year Nepal’s electricity consumption per capita was only 380 kWh while it was 1,297 kWh in India and 5,515 kWh were in Bhutan. The leaders that promise to metamorphose Nepal into Singapore ignore the fact that per capita electricity consumption there is 9,002 kWh. In order for Nepal to reach the level of India, Nepal would need to consume 9,161 MW and 38,953 MW to reach Bhutanese level. Nepal will need to consume 63,583 MW to reach Singaporean level. But economically potential electricity generation capacity of Nepal is merely 43,000 MW. Therefore, unless Nepal uses maximum electricity and increases the contribution of the industrial sector in GDP thereby adding value in the economy, neither the problem of unemployment will be solved, nor will deficit in trade and payment be mitigated. Also, Nepal imports petroleum products worth more than Rs 300 billion a year, which results in emission of pollutants that makes locals diseased and increases global warming. If entire transportation sector, excluding air transport, is electrified neither Nepal would need to export hydropower, nor import petroleum products. This will also help Nepal achieve the net zero emissions goal too. But Nepal imports petroleum products and exports hydropower. Colonization The reason ascribed by GoN functionaries for handing over above-mentioned project sites to the Indian companies as export oriented is that Nepal lacks funds for investment, which is not true. The very fact that IPOs of hydropower companies, banks, etc. are oversubscribed by more than 10 times disproves such contention. Moreover, Nepal receives over Rs 100 billion/month as remittances. Just 10% of it suffices to finance 2,400 MW hydropower at an average cost of Rs 200 million/MW. In this manner 24,000 MW can be financed from 10% of remittance in 10 years. Further, it is not to say that foreign investment should be disallowed in Nepal. Khimti and Bhote Koshi hydropower plants, although built with Norwegian and American investment respectively, the electricity generated by these were not exported but used in Nepal. Normal practice for a foreign investor is to repatriate return on their investment. Merely because a project is financed by an Indian investor, it does not mean that electricity has to be exported. The very concept is like a lender receiving a borrower’s daughter as mortgage till the loan is fully repaid, although the borrower pays interest to the lender regularly; a practice prevalent in Nepal till few years ago until it was banned. The colonial powers resort to extraction of natural/human resources of their colonies in order to add value to their own country's economy and achieve prosperity. Britain did so to India when it was a British colony. Nepal was never a colony. But handing over hydropower project sites to India in this manner means that Nepal itself is allowing India to colonize Nepal's water resources. However, it does not amount to colonization when Nepal exports surplus electricity, which would have gone waste. Also, gifting lean season augmented flow to India is another form of colonization. But the Indians are not at fault. As they are patriotic and nationalist towards their motherland and they ensure India’s benefit. But people in Nepal do not ensure that agreements are based on international laws, nor do they take international precedents into consideration while signing such agreements. Hence, the fault lies with the leaders, bureaucrats and intellectuals of Nepal who adhere to capitulationism. It’s water, not hydropower When the then prime minister Manmohan Adhikari presented the draft of the Mahakali package treaty during his Delhi visit in April 1995, it stipulated that Mahakali is mostly a border river. The slogan was: half water, half electricity. Whereas according to the Sugauli Treaty, the Mahakali River solely belongs to Nepal; its neither a border river nor common. In this way, 50 percent of Nepal's rights over Mahakali River water was ceded to India. Later, Nepal’s side agreeing to add the phrase "without prejudice to prior existing consumptive use" in the treaty was a further coup d'état. This resulted in Nepal admitting that 723 cumecs currently used by India out of the average annual flow of 730 cumecs of Mahakali river constitutes India’s prior existing consumption. In this manner it was established that 99% of the annual average flow belongs to India and Nepal will be entitled to only one-half of the remaining 1%. To add insult to injury, it was also agreed by exchanging letters along with the treaty that India can use the remaining quantum of Nepal’s share of lean season augmented flow from the Pancheswar reservoir that Nepal is unable to use, free of cost. Those involved in executing the treaty on Nepal’s side did not think of demanding payment based on Lesotho precedent; the value of such water amounts to $998 million/year. While the focus of Nepal’s side was centered on hydropower export, it ended up giving precious lean season augmented flow for free to India. Conclusion It is logical to export surplus electricity as it cannot be stored, which NEA is doing (and also incurring loss as it imports more than exports). However, it is anti-national to give up lean season augmented flow worth $250 million/year by making the West Seti reservoir project export oriented. On the other hand, hydropower used domestically would add value to the economy. If Nepal actually exports 10,000 MW, Nepal's economy will be deprived of value addition by $28.66 billion/year. India has budgeted a grant of $79.2 million to Nepal for next fiscal year, while Nepal will be providing a grant more than 360 times in terms of value addition in the Indian economy without even taking credit. Although all 6,000 rivers and rivulets flow down from Nepal to India (to West Bengal via Uttar Pradesh and Bihar), India is striving to import hydropower from Nepal. One should wonder why doesn’t India generate hydropower in those states after the rivers enter India. The answer is simple. Hydropower cannot be generated by water flowing in the rivers in flat land, it requires geographical and geological conditions. Hydropower is generated from the water falling from a height. Moreover, reservoir projects need gorges, valleys, etc. to store water. Both of these are not available in the Indian states of Uttar Pradesh, Bihar and West Bengal. That is why India depends on Nepal for hydropower. But they import from Nepal as if doing a favor. Nature gave the ability to generate hydropower from Nepal's rivers only to Nepal; which although eventually flow into India cannot be used to generate hydropower there. It can be compared with a lactating woman. She can breastfeed only as long as she is nursing her baby. At other times no woman can breastfeed. This is nature’s gift to women. Nature gives breastfeeding ability to women with infants, which should not be commercialized at all. Similarly, hydropower generation capacity is the gift of mother nature to Nepal for the prosperity of her people, the economy and country. While nature has not gifted other natural resources like precious and semiprecious metals, fossil fuel, etc. to Nepal. If a lactating woman has too much milk, it can be shared with other babies. Similarly, Nepal's surplus hydropower can be given to others rather than letting it go to waste. However, as a mother should not give milk to others thereby exposing her baby to the risk of malnourishment, exporting hydropower generated in Nepal, leaving the country and people impoverished and economy downtrodden amounts to colonization of hydropower. Ratna Sansar Shrestha Published in People’s Review on April 11, 2024.

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