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Daily Archives: December 25, 2013

Multiple Buyers in Nepalese Electricity Market

Multiple-Choices-Nepal-Electricity-Authority

The perennial problem of load shedding in Nepal will never be resolved unless we get over temporary fix mindset and start considering longer term solution. The answer lies in constructing storage type projects and expansion of cross border electricity trade with India.

The large reservoir based projects provide a suitable alternative by generating sufficient amount of electricity even during the dry season.

What makes this proposition even more viable is, that there is a complementary demand-supply relationship between the two countries regarding the use of electricity. An average Indian household in the neighboring states of West Bengal, UP and Bihar demands more electricity during the summer season when the use of electrical appliances like refrigerator, cooler and air conditioners is at its maximum. Ideally, this is the time when the generation capacity of the project would be peaking due to increased volume of water in the snow fed rivers of Nepal.
But besides power generation, Nepal also faces serious challenge in terms of efficient transmission and distribution of power. Nepal Electricity Authority (NEA), which is a monopoly buyer in Nepali electricity market also has sole control over its transmission and distribution system. Often NEA is blamed for prioritizing construction of transmission lines in projects where it is involved while ignoring projects built by private sector without its involvement. It is also blamed of spiking up Power Purchasing Agreement (PPA) for such projects. Thus, an unfair playing field is created in the market which discourages national and international private developers.

Sadly, despite all the unfair advantages NEA has an operating loss of over eight billion rupees annually due to inefficient management, overstaffing, institutional corruption, over politicization and misuse of resources. For all the reasons mentioned here, it has not been able to strike a PPA deal with majority of private developers who are now running out of patience.

To cut the argument short, Nepal’s electricity market needs multiple buyers because the state owned NEA run by employees instead of entrepreneurs simply lacks strong motive to earn profit. Additionally, a salaried bureaucrat sitting at the top of a public institution does not have incentive to take unpopular decisions because these organizations are regulated by departments and ministries which have the final authority over the use and abuse of its resource.
Nevertheless, the private developers are still willing to invest in large storage type projects if they are provided higher rate in Power Purchasing Agreement (PPA) and if the government is willing to bring effective resettlement and land acquisition policy. This is possible when there are multiple buyers in electricity market who are compelled to provide higher price to sustain their market in the long run. Multiple buyers in Nepali electricity market will attract more private investments, increase efficiency of human resource, enhance technical growth and improve customer satisfaction as different parties compete to win their market share. It also promotes innovation and lowers the costs of production by taking risks on new ideas which have greater public value.

Nepal has seen positive changes in telecommunications after restructuring of Nepal Telecommunication Authority and opening market in this sector for other players. Today, price of various telecommunication products and customer services has become more competitive in every respect. Similar changes are seen in education, health, media, banking and entertainment sector after the end of government monopoly and arrival of domestic and foreign private players.

However, privatization is not without challenges in a developing market like ours. And in hydropower sector which has limited number of players given the size and level of investment required, the risk of price cartelling and syndication instead of competitive market pricing is unusually high. When that happens, the strategy of deregulation could easily backfire, taking monopoly out of state’s hand only to give it back to a bunch of crony capitalists hungry for unlimited profit.

Therefore, the government must play it smart and open up Nepali electricity market to multiple buyers, but with proper policies that helps us harness and access this resource at an affordable price. The mantra should be to make profit but the intent must be to provide public service as well because quality electricity is not just a product anymore, it is also a right.

Pramod Rijal

About Pramod Rijal

Pramod Rijal is a Research Associate at Samriddhi, The Prosperity Foundation. He is also a lecturer of Economics at Mega National and Unique College of Management and has contributed a number of articles in various national dailies.

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