Many Heads Creating Hurdle in Hydropower

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loadsheddingNepal achieved multiparty democracy in 1990 and a series of liberal and private sector friendly policies were formulated then after. Hydropower Development Policy, 1992 and Electricity Act, 1992 also came into effect which paved the way for foreign and domestic private sector participation in generation side. Electricity Act, 1992 made a provision whereby even the private sector could acquire licenses for undertaking survey and generation purposes.

In the beginning, survey license was very cheap to acquire; for eg., NRs. 100, 150 and 200 for 1-5 MW, 5-10 MW and 10-15 MW respectively. The bureaucrats were quick to act at this. Majority of licenses were acquired by the employees working at the Ministry of Water Resource (MoWR), Water and Energy Commission Secretariat (WECS), Department of Electricity Development (DoED) and Nepal Electricity Authority (NEA), or by their relatives. What’s more, the licenses were distributed on first-come-first-serve basis without conducting sound financial and technical analysis. The license holders did not even have to construct the project, but could sell it to developers at higher prices. Thus, began the license-holding culture. These people who held licenses cited cases of landslides, local issues and others to renew their licenses time and again, without really conducting any survey. Due to this, real investors did not get a chance to construct hydropower projects. Interested parties had to buy it from these license-holders, which increased the time and cost of projects. In order to discourage pseudo license-holding, the license acquisition fee has been reviewed three times till date.

Commission for the Investigation of Abuse of Authority (CIAA) recently directed Ministry of Energy (MoE) to revoke the licenses of 10 different hydropower projects as the promoters of these projects could not complete necessary procedures such as signing Power Purchasing Agreement (PPA), making financial closure, etc. Once the license is repealed, the entire process of development of these projects starts from the beginning i.e., acquiring survey license, conducting feasibility study, finalizing Environment Impact Assessment (EIA) and so on, which costs additional time and money. Therefore, it may not be a good step to scrap licenses of projects that have already initiated pre-construction works as this will further delay the development of hydropower projects. In case of Upper Khorang Khola Hydropower Power Project, the developers could not conduct PPA in time due to delay in decision-making process of NEA. The delay in signing PPA has further delayed managing investment from financial institutions for the project. Although the license period of Kabeli “A” has matured, it has already given Letter of Intention (LoI) to contractors, issued right shares and acquired land to construct the project. A lot of initial investments made in these projects will go in vain if the licenses are nullified and the construction of projects will be further delayed. The solution to these problem lies in initiating competitive bidding process instead of issuing survey and generation licenses for construction of hydropower projects because the nation gets more benefits as it receives free energy and equity ownership along with royalty through international bidding. For example, GMR, the company that won the bid on Upper Karnali Hydroelectric project, has promised to give 12 percent free energy and 27 percent free equity. Likewise, Satluj Jal Vidyut Nigam got permission to construct Arun III after providing 21.9 percent free energy. Additionally, the public limited company of India agreed on providing 20 units of free electricity to each house of Sankhuwasabha district, where the project is located. Furthermore, the promoter of the project has agreed on issuing shares to local people. The system of providing share to the local people helps to reduce level of inequality in society to some extent as they also get return from their investments. They can further utilize that sum of money for starting other income generating works, educating children, receiving vocational training and much more.

Developing hydropower by awarding a project through international competitive bidding is the most scientific way to solve the issues related to license regime in Nepal as it creates win-win situation for all stakeholders.

Dinesh Karki

About Dinesh Karki

Dinesh Karki is an independent researcher. He has Economics degree from Xi'an Jiaotong-Liverpool University, Suzhou, China.

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