And this one too,(a little bit old)
The Myth of the Hydro-Dollar
Sunil Thapa
It has been taught in our high schools and reminded time and again that Nepal is second in hydropower potential in the world after Brazil. This is a lie sold by the unscrupulous Nepali politicians in the form of the “hydro-dollar†that Nepal can earn by exporting electricity to India, which itself has a potential of 301,000 MW. China has the potential of 376,000 MW. The United States has an economically feasible potential of 146,700 MW. So is Russia rich in hydropower potential.
India’s Power Scenario
As of January 2005, India had installed a capacity of 115,544 MW with the generation mix of 80,201 MW thermal, 30,135 MW hydro, 2,720 MW nuclear and 2,488 MW wind power. India, like Nepal, has high mountain ranges, steep hills and extensive plains criss-crossed by rivers which are an ideal geographical setting for hydropower generation. According to a 1980 study, India’s theoretical hydropower potential with a 60% load factor was 301,117 MW. However, the economically viable potential is 84,044 MW. Nepal with a theoretical potential of 84,000 MW and an economically viable potential of 43,000 MW is not the second richest in hydropower potential. India has so far developed 24% of its viable potential and the remaining 76% is yet to be developed.
Presently India is in its tenth five year development plan (2002-07). In the ninth five year plan (1997-01) India planned to add 40,245 MW of power but was able to add only 19,015 MW i.e. 47.2% of the target. It was expected that the addition from hydropower alone would be 26,000 MW. Presently 7% of India’s total hydropower potential is being developed. The demand for power is increasing at a rate of 10% per annum, and the available power is not sufficient to meet the growing energy demand as there is a peak shortage of 10,000 MW (i.e. 13% of installed capacity). In addition, the potential of small hydro is (up to 10 MW capacity is small hydro in India) 15,000 MW.
Electricity Tariffs
According to the 2002 Annual Report of the Planning Commission of India, the average production cost per unit (1 kwh) is IRs 3.50 and the average cost of sale per unit is IRs 2.40 incurring a total loss of IRs 26,000 crores per year. Major sectors enjoying state subsidies are the agricultural sector and domestic consumers. The financial health of the State Electricity Boards is deteriorating every year giving rise to the reluctance of the private sector to invest in power generation in India.
The cost of Nepali electricity is unaffordable for Indians. The average tariff in Nepal is IRs 4.15 per unit. The Nepal Electricity Authority (NEA) is making huge losses for the last three years even after selling the costliest electricity in the region. Calculating from NEA’s balance sheet (published in the Annual Report 2005), the per unit production cost is IRs 4.97. The production cost depends upon factors like the economy of scale, project and contract management skills and selection of the right projects. Nepal is yet to develop 99% of its hydropower potential and there is a lot of room to make the projects cost effective by using local expertise. This is why private sector projects are cheaper than NEA’s.
Will India Buy Nepali Power?
Since India itself has huge hydropower potential, its first priority will be to harness its available potential within the country itself. Secondly, the cost of generation in Nepal is much higher than in India, making Nepali power exorbitant. It may be argued that if India can purchase power from Bhutan, why not from Nepal? However, the issue is sensitive as Nepali people have the feeling that they have been cheated by India in all the deals made in the past including the Tanakpur treaty. Moreover, the political relationship between Bhutan and India is not comparable with that of Nepal as Bhutan is considered to be the ‘easy partner’ for India. In addition, Bhutan’s electricity generation cost is cheaper than that of Nepal. Hence, Indian investments in Nepal are possible only when the feasible sites in India are exhausted. It is time Nepal should stop dreaming of becoming rich by exporting power to India.
The only project being developed solely for export is the West Seti Hydroelectric Project. The license for this project has been issued to Australia’s Snowy Mountain Engineering Company (SMEC). It has been almost a decade since SMEC acquired the license but no significant progress has been made. Every year SMEC issues press communiqués to show some kind of progress. Last year, it claimed construction will begin in December 2005. However, a tender for the construction has not been floated till date. The delay is not only because of the country’s internal problems but also could be due to India’s reluctance to buy the power or SMEC’s failure to mobilize resources. Most of all it may be SMEC is not able to get the guarantee from the Indian government for tariff payments as most state electricity boards are incurring losses.
Prospects
If Nepal has to industrialize in the next 50 years, 43,000 MW is not a huge potential. Switzerland, a developed country with less than a third of Nepal’s population, has installed a capacity of 12,000 MW. At this rate, Nepal needs 40,000 MW. In 50 years when Nepal’s population will be over 55 million, this potential will not be enough. Therefore, any power export treaty with India should not be long-term like the Koshi agreement.
West Seti therefore should be developed to meet internal power needs. If Nepal could think of developing the 402 MW Arun project in the 1990s, the 750 MW West Seti is today no longer a large project. NEA has no other project under construction except the Middle Marsyangdi. Even with the suppressed load demand forecast of NEA with a 10% annual increase, Nepal still needs an additional 350 MW in five years. The power purchase agreement between India and SMEC mentions the average rate of 4.95 US cents/unit or NRs 3.51/unit, which is half the existing tariff in Nepal. The consumers will thus benefit from cheaper electricity and the consumption will go up more than the present load demand forecasts. It will help reduce petroleum import bills. The surplus power can be exported to India.
(Sunil Thapa is a hydropower engineer. He worked as a design engineer on the Kaligandaki’A’ and Middle Marsyangdi HEP projects.)
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