The Government of Nepal’s decision to purchase 200 million units of energy efficient LED bulbs has created a big controversy. While the decision in itself has been projected as being in the national interest, the NEA has been facing suspicions of corruption for having bypassed the public procurement law, and having resorted to the special power of the cabinet for buying light bulbs.
Granted that the NEA is acting in the national interest and there is no corruption involved, there are still other reasons to why the procurement of LED bulbs by the NEA is wrong.
1. Going beyond the NEA’s mandate
Nepal Electricity Act, 2041 states that the primary objective of NEA is to supply the power by generating, transmitting and distributing electricity efficiently and reliably, making it accessible to everyone. That is to say that NEA is tasked with only generation, and management of supply of electricity to make it affordable and accessible to all Nepalese. Therefore, procurement of LED bulbs falls beyond the mandate of the NEA as it is clearly not indispensable for either the generation, or the transmission and distribution of electricity.
2. The flaw in the proposed financing model
To finance the procurement, the Government of Nepal is granting a loan of Rs. 2.08 billion which the NEA seeks to repay by selling the bulbs through its distribution centers. In a country where 25.2% of the population lives below the poverty line, it is not pragmatic to expect people to spend money in purchasing energy efficient bulbs in the name of contributing to national interest. In this scenario, the government is likely to provide subsidies to make it affordable to the poor, reducing the retail price (which may even be below the cost price). As soon as that happens, the NEA will face similar fate as the NOC where the dysfunctional subsidy policy rendered it unable to even attain break-even, making it impossible to pay the loans.
3. Crowding out private investment
The NEA, as it is a public enterprise, enjoys few privileges that private enterprises do not. It neither has to depend on investors for capital, not on consumers for profit. With the unlimited government backing, it can afford to procure goods at economic cost and sell them in the market at social costs, even if it makes loss after loss. This disrupts the playing field for private enterprises for they cannot compete with state-backed competitors. This will eventually crowd out private investments.
4. Policy insecurity; lack of predictability
The most important factor affecting investment decisions of private investors is predictability, which is a function of policy stability. The fact that the state-owned enterprises can, at any moment, use the special powers of the government to curb the law of the land makes it further challenging for private investors. In this case, Honorable Minister of Energy, Mr. Janardan Sharma has cited the provision in the public procurement law that allows direct procurement with an international inter-government organization but he has conveniently left out the condition of the provision being applied only in the case of pre- existing supplier of the said goods or services. These kind of malpractices also set negative precedents that can be borrowed by other sectors of the economy as well, which has the potential of making it impossible for private investors to operate in any sector in Nepal.
The Alternative Solution
The rationale given for the purchase of the bulbs by Honorable Minister of Energy, Mr. Janardan Sharma and the MD of NEA, Mr. Kulman Ghising, is its potential to reduce the national electricity consumption by up to 200 MW. Nepal has adopted a liberal economic policy and there are private enterprises that are offering the same service as the NEA is attempting to. If the goal is to lessen the peak demand, then the government could very well relax some of the taxes that apply to these products, making these energy-efficient bulbs affordable to most, if not all, consumers of the grid electricity.