| Sajha.com Archives | |
| Username | Post |
| ashu | Posted
on 20-Oct-03 12:18 AM
Nepal can now generate cheap electricity with locally-built and locally-financed hydropower schemes like this one on the Chilime. BIKASH PANDEY Last month, three Nepali power projects with substantial local rupee investments were tested and commissioned: Chilime (20MW) in Rasuwa, Piluwa (3MW) in Sankhuwasabha and Jhimruk (12MW) in Pyuthan. Nepals hydropower development took a wrong turn 25 years ago, and it has finally come back on track. Individual aid-funded projects are now being replaced by projects that enhance our own technical and financial capacity to meet energy needs. From the late 1970s onwards, foreign aid completely dominated the power sector. High-budget, glamorous, aid-funded projects like Kulekhani I and II, Marsyangdi, Kali Gandaki and even the ill-fated Arun III became much more attractive to politicians and policy makers than building smaller projects using local resources. These mega-schemes were funded by multilateral banks or bilateral donors, and the Nepal Electricity Authority (NEA) effectively lost control over its hydropower strategy. The strict conditions of these donors meant that projects had to be designed and managed by international consultants and built by outside contractors. Not even Indian or Chinese companies, which were building much larger projects in their own countries, could pre-qualify for construction contracts in Nepal. Unfortunately, these externally funded, designed and constructed projects did little to enhance national capacity. The projects were expensive, and the country was forced on a path of longterm dependency and unaffordable energy costs. People began to question whether hydropower was even an asset. The irony of one of the poorest countries in the world building some of the most expensive projects was lost on our policy makers and civil society. It took 15 years and the restoration of democracy, when Arun III exposed the contradiction between the Nepalis need for cheap electricity and the high cost of production of foreign-built mega-projects. Nepali engineers, economists and civil society finally started looking at cheaper, indigenous projects. Although initially met with skepticism, it has now become clear that only through locally-financed, locally-built and locally-managed smaller projects would the price of electricity in Nepal come down to affordable levels. Outside investment, it became clear, should supplement national expertise and resources. Not substitute for them. Today, projects like Piluwa and Chilime are living proof that the paradigm shift in Nepali hydropower planning have brought real change. These and other projects have extensive involvement of both in-country financial institutions and technical manpower. And the beauty is their cost of electricity generation is $1,500 per kW, less than half that of larger aid-funded projects. The success of the Chilime model is largely due to one man, Dambar Nepali (see interview). And it is such a success story that the management is already thinking of starting on the 26MW Upper Chilime next, and in future it wants to take on the 250MW Upper Tama Kosi for less than the per kilowatt cost of Chilime. he Butwal Power Company (BPC), newly privatised in January 2003, is a consortium of Nepali and Norwegian investors who have invested Rs 952 million for 75 percent share of the company. The company owns Andhi Khola (5.1MW) and Jhimruk (12MW). BPC has rebuilt Jhimruk, and is selling energy to NEA at Rs 3.67 per kWh. The construction of Piluwa (3MW in Sankhuwasabha) and Syange (183 KW in Lamjung), undertaken largely by investors from the districts they are based in, were made possible under NEAs policy announced in 1998 to purchase energy from below-5MW hydro producers under a standard contract. The credit for this goes to Shailaja Acharya when she was Minister of Water Resources. It is clear that the cost of construction of hydropower projects in Nepal depends strongly on the financing modality. The per kW construction costs of locally financed projects are lower than either large donor-funded projects or the International Independent Power Producers (IPPs). Interestingly, the mode of financing and the contracting that goes with it has a much stronger impact on project costs than economies of scale. Larger projects financed through aid are the most expensive, followed by medium scale projects built by the international private sector and the least expensive are the smaller, locally financed projects. One possible reason for the relative high cost of aid funded projects is that they are generally designed for storage (Kulekhani) or for daily pondage (Marsyangdi and Kali Gandaki), and in the case of Arun III there would have been a 120 km access road whose cost was also included in the project. Such projects incur higher civil construction and land compensation costs compared to run-of-the-river projects. However, it still does not explain the two-and-a-half times higher cost compared to the rupee financed projects. |
| ashu | Posted
on 20-Oct-03 12:19 AM
Large aid-funded projects are very expensive partly because of the rigid conditions of competitive bidding to the highest international standards. These standards are so high that only a handful of companies in Europe, the US and East Asia even pre-qualify. Many are also bound by tied-aid rules under which equipment purchases have to be made from the donor country. With international IPPs, the cost comes from dollar loan financing at interest rates ranging from 8-13%, which is higher than Nepali rupee loans and have to factor in rupee depreciation, and their perception of the risks in investing in Nepal. There are, therefore, three main reasons why locally designed projects are less expensive: " The cost of capital borrowed from local banks is at its lowest point in many years. " Developers had complete flexibility in where they source their equipment and how they pick contractors, and they can get the best prices. " Smaller projects mean fewer technical complications and the ability to breakdown contracts into small components that could be bid out among a large number of competitive Nepali, Indian and Chinese companies. Besides being cheaper, local investments also benefit the national economy through much stronger backward linkages in construction and manufacturing. Usually, it is only the equipment (25-40 percent of total cost) which has to be imported from overseas. There is now plenty of evidence that Nepals hydropower sector can attract substantial local investment both in equity and debt. Nine prominent Nepali business houses invested in the BPC, by far the largest privatisation so far in the country. Nepal is earning over $1 billion every year in remittances from overseas workers. Channeling just 10 percent of this will meet most of our hydropower needs. Nepali consumers suffer among the highest electricity prices in the region. The cost to the consumers is ultimately dependent on the Power Purchase Agreements (PPA) signed by independent power producers with NEA. PPAs signed in dollars will cost the Nepali consumer around Rs 25 per kWh in 2010, while local rupee based PPAs would cost less than half because of contractual escalation in tariffs and rupee depreciation. There are some things that need to be ironed out. At present, there is a large difference between the PPAs signed between NEA and various private producers, even those with full local investment. For instance, with escalation by 2012, the PPA tariff for Chilime will be Rs 7.55, for Piluwa Rs 4.35 and for Jhimruk Rs 6.57. There is no longer any justification for negotiating different prices for energy from each supplier for future run-of-the-river schemes under 25MW. One of the big changes in the last 10 years is that Nepals donors have finally realised that large projects have diseconomies that make them expensive for Nepal. The World Banks recently approved Power Development Fund will be financing smaller projects in the under-30MW range. Future support from the international community to Nepals power sector will be most effective if it is used to support both NEA in the public sector, and private Nepali sector companies to increase their capability to build low cost, high quality projects. The hydropower sector in Nepal needs technical support and financing to carry out projects of the size that it can manage itself. (Bikash Pandey is an energy specialist and country representative of Winrock International.) |
| Bhunte | Posted
on 25-Oct-03 06:03 AM
Bikas ji, (hope he visits Sajha/or Ashu can invite here) Though I am not an energy veteran, but I read your article with a great enthusiasm. I have few suggestions in this article. I am bit skeptical of the title "People Power". People power generally implies for some kind of successful political achievement by people (like removing Ferdinand Marcos from power in Philippines, etc), which is not so in your article. The good aspect about the article is that Nepal can generate cheap electricity with locally-built and locally-financed hydropower schemes. But, this shouldnt be taken more than a mere temporary energy strategy in the country. In the other hand, the article demonstrates a classical case of myopic vision and lack of sound economic planning in the country by real economists. Sorry my friend, I am bit harsh here, but I am trained to be critical&eheheh Take it easy la. Ok, here are my few other questions. What proportion of total economical power potential would be represented by projects like Jhimruk or Chilime? How many more such projects are on their way? So far I know, we won't be able to replicate Jhimruk like project in that whole Jhimruk basin in Pyuthan, and may be able to replicate one or a maximum of two in the Indrawati river basin in Sindhupalchok. I don't know of Chilime, but I can ask my friend, who is currently the project chief of the project, if I come across him. Further, many villages around Jhimruk itself are devoid of electricity. Therefore, that doesn't mean we would be able to make our all Gaun- Besi jhili ra mili with these anecdotal projects. Why are you quite for the long term economic costs to the country with our desire to assimilate smaller projects but not going for bigger projects? What you mentioned of few comparative costs are the financial costs but you failed to depict the broader economic costs and benefits. Yes, these smaller projects may be able to fulfill the country's domestic power needs for household consumption and some industries temporarily, but I am not sure if we can generate surplus energy out of these projects and be able to export. These questions need to be seriously sorted out. You are advocating large projects are costly primarily due to foreign financing and technical expertise involved for the sake of qualities. Because of blah blah reasons, int'l financer line Worl Bank has realized dis-economics associated with large projects. Hmm...this really puts me to think somewhat deeper now. Actually I am a believer of the familiar Nepali vernacular "Sunar ko saye chot, Lohar ko ek chot". Having said that, economics of scale is indeed with larger projects given they are properly planned, executed, and managed. I was bit surprised why you didn't put in forefront the real interest or politics behind opposing for large projects. At this juncture you need to put your candid opinion rather lobbying for some. The energy strategy in the past 25 years you said as a wrong turn, but I take it as a learning phase with many twists and turns then. Further, politicians are not only for bigger projects but also for smaller one. How come you close your eyes for the real story behind Arun III? Dont we know that Arun III was overturned over night due to domestic politics? Had there been a Nepali Congress government, the project would have been financed by WB with a grand celebration. But, the project was withdrawn solely for the political reason, as the then government was UML (sorry I dont belong to NC or UML or RPP, etc. I am apolitical). World Bank didn't put the project back for face saving and probably some environmental groups pressure in the international arena. But, Arun III was never given a chance to show how successful would it have been. Why we didn't try to learn from the successful project like Chukha power project (430 MW) in Bhutan which has similar geologic, socio-cultural, economic, political and many other similarities as Arun III. Why Chukha is a grand success in Bhutan, and why it can't be for Nepal? You mentioned that the larger projects may run up to Rs. 25 by 2010 and smaller projects around Rs 8. I am not sure how the figure is there. But I wonder if there were any second thoughts in place for a task force to negotiate for PPA, alternative arrangements for bidding for cheaper construction from diff international bidders (including India) without compromising quality, negotiation with the Int'l lender for cheaper financing scheme, i.e., to bring the interest rate down to 2-3%, attempts to control for corruptions, etc. There are a number of ways which will substantially bring the speculated price to much lower than anyone had imagined. What comparative advantage do we have in exporting power? We may still have comparative advantage for exporting power even at Rs 25. By the way, is Rs 25 a nominal or real figure? Yes I agree with domestic savings to be mobilized in these smaller hydro-electricity projects, but are they giving interest rate benefit lower than 8-13%? You didnt tell anything about that. Actually I wanted a comment from Neural. Probably he is busy in some other stuff. But I would like to hear from other Sajhites. Ashu, what do you think? Thanks. |
| Bhunte | Posted
on 25-Oct-03 06:05 AM
Bikash's orginal article is found here: - http://www.nepalnews.com/ntimes/issue166/resources_1.htm |
| Neural | Posted
on 27-Oct-03 11:31 PM
To, Date: 10/28/2003 Mr. Bikash Pandey c/o Ashu Winrock International Purano Baneswor, KTM. Subject: reply to "People Power" In reference to your article entitled People Power published in Nepali Times under Resources section, I have few queries, recommendations, and suggestions not only personal to you but also via you to Electric Sector of Nepal. Firstly, I am incredulous about the title of the article as People Power . Initially, I thought it was related to political stuffs (I was about to ignore) but wondering too why it was in resources section. If I were you, I would have given any of the following titles as Micro Hydro Power For Rural Development in Nepal and Benefits to the Consumers or Technical Assistance to Nepal For Power Pricing Strategy: Tariff Setting and Regulation or Comparative Study of Micro Hydro Power Projects vs. Mega Hydro Power Projects of Nepal, And Its Effect on Electricity Pricing or& so on&or like this& I mean the title given by the author is not quite appropriate. May be I am wrong and not up to your expertise level. With the emergence of three power projects: Chi, Ras and Pil (micro hydro power projects), the capacity addition to our electricity sector is 35 MW only. Do you think, power demand in Nepal is fulfilled with this much of additional MW only. Load growth in Nepal is increasing at the rate of around 8% annually. At present, system capacity is approximately 550 MW (I have not gone through the recent 2003 annual report published by NEA, however in 2002, it was around 550 MW, including Kali Gandaki-144). Furthermore, only about less than 40% of Nepal's population currently has access to electricity Hence, I don agree with what you have mentioned Individual aid-funded projects are now being replaced by projects that enhance our own technical and financial capacity to meet energy needs. I found that you are fully biased on these micro-hydro projects only, ignoring other Mega hydro-projects and candidate projects. As you being an energy expert, you have not even mentioned the word Power sector reform , restructuring , deregulation of the electricity supply industry and lesson to Nepal electricity sector. As you know that the electric power industry in many countries all over the world is moving from a centralized operational approach to a competitive one. The understanding of electric power supply as a public service is being replaced by the notion that a competitive market is a more appropriate mechanism to supply energy to consumers with high reliability and low cost. And in most countries, public utility company own hydro plants, as in Nepal Nepal Electricity Authority (NEA) is the only public utility involved in planning, generation, transmission and distribution. The current electricity sector of Nepal can not go for deregulation. However, reforming of power sector is possible, restructuring is possible. Basic operating functions of a power system such as unit commitment, economic dispatch, fuel scheduling and unit maintenance require load forecasting. In Nepal, we are still adopting traditional techniques for load forecasting. Load factor is not proper. The system is not fully reliable. You have not mentioned impact of uncertainty in micro-hydro power sector planning . Risk management, Asset management et cetera all should be well considered for the proper planning. Is not that? >>>>>U said: Besides being cheaper, local investments also benefit the national economy through much stronger backward linkages in construction and manufacturing. Usually, it is only the equipment (25-40 percent of total cost) which has to be imported from overseas. I am surprised to hear that you are just giving emphasis on micro-projects and they are the only source of booming our national economy. Mr. Pandey, how about the candidate hydro-projects like Karnali (10800MW), West Seti (750MW), Budhi Gandaki (600MW), Arun-III (402) and the Pancheswar (6480MW), which are some of the export oriented hydro projects of Nepal. I think ( I am not sure), in October 2002, Australia's Snowy Mountains Hydro (SMEC) signed an MOU for the development of the 750-MW West Seti hydroelectric dam, which is scheduled for completion in 2005 and will primarily export power to India. If you just swerve yourself towards Bhutan (for instance), Bhutan's hydropower potential is estimated at 30,000 MW (Nepal: estimated theoretical potential of 83000 MW and economic potential of 40000 MW). Hydropower is currently the dominant source of commercial energy for Bhutan (our Nepal too) and sales of hydroelectricity exports to India provided 45% of the government's revenues and constituted an 11.6% share of GDP in 2001. Currently, India's Tata Power Company and the Power Grid Corporation of India Ltd. have formed a partnership to construct the 1020 MW Tala hydropower project in Bhutan and a 750 mile transmission line to export power produced by the Tala project to New Delhi and surrounding areas of India. The Tala project is scheduled to be operational by 2005. Why you are against these mega projects? Wont these hydro projects be helpful in improving our economy? Electricity sector is one of the major sectors, which has a vital role for the development of the country. Cheaper price is not the only objective of an electricity sector. I do agree that your main objective of the article is devpt. of micro-hydro power projects and its benefit to the consumers in the form of lower tariffs/prices. ...to be cont. |
| Neural | Posted
on 27-Oct-03 11:33 PM
.....cont. HOWEVER, I would like to add few things regarding the benefits of Mega-hydro projects. A study was carried out a year back. I will give you a brief glimpse of that. Hydroelectric generation relies on the exploitation of Nature's resources - do you agree? Therefore, can be expected to give rise to economic rent. We can evaluate hydro rent of the candidate hydro power projects, i.e., domestic hydro rent and export hydro-rent. As you know, power system of Nepal is not so big. Hence, real rent does not exist if the system is small and resources are more. We have sufficient amount of surplus energy. In other words, real rent is not coming with domestic use. Also, the royalty on hydro in Nepal is not scientific. Nepal cannot consume all the resources available in the country. While there is power scarcity in India and Indian market is too big while compared to that of Nepal, Nepal hydropower resources can be utilized in India. And with the power export to India, an economic rent of hydropower project of Nepal can be obtained. A research has been carried out in which hydro rents of two Nepalese candidate hydro power projects (West Seti and Arun-III) have been evaluated both in domestic (Nepal) and export market (India: Northern Regional electricity Board). In export market, under mixed hydro-thermal system, the results showed that these candidate projects gave rise to maximum hydro rent ($/kWh) in export market rather than domestic market. However, cases to meet only the domestic demand of Nepal, the value of hydro rent of Arun-III hydro power project in the hydro-only system is found to be higher than that in the case of mixed hydro-thermal system. West Seti was not selected by the system during planning horizon in mixed-hydro-thermal in domestic market. In case of oil, gas, mining, forestry and fishing sectors, economic rent is captured from resource developers and it is then delivered back to the resource owner. But in case of hydropower sector, the rent flows to electricity consumers in the form of lower tariffs. Is not that another way of giving benefits to the consumers as well as to our economy???? Of course, large hydro projects has high capital cost, but operation and maintenance cost is comparatively very low, and a hydro project can run up to several years meeting energy needs. Many other benefits too. Your goal of study is a kind of short term only as Bhunte has also mentioned. However, it would have been better if it is planned/thought for the long term rather than concentrating for few yrs ahead only. You have done good study. But only thing is that you are not giving importance to other mega projects, which will certainly be helpful not only lowering the price but also to the advancement of our economy. The above is just my thought. I may be wrong cuz I am not an energy expert. Just showing interest related to this. Thank you. Always after optimization and luv to discuss on Power System Economics stuffs Neural |
| Bhunte | Posted
on 28-Oct-03 06:07 PM
Neural, very healthy comments! I hope Bikas got a chance to read it. |
| jhor | Posted
on 28-Oct-03 09:15 PM
Dear fellas, As an ordinary citizen of Nepal, here is my small understanding of things as they stand. 1. More micro projects mean greater monetary and other interest for winrock. The main interest group of small micro hydel projects in Nepal is winrock international. 2. It was people like Deepak Gyawali and Winrock international that were partly responsible for abandonment of ARUN III in Nepal. 3.If there is any big project in the offing or pipeline, these people will be the first one to oppose. Mark my words.Vested interest. 4 There are financial ways to offset the loss if dollar becomes strong. There are many financial ways and instruments for this. 5. I am sure that if Winrock or Deepak were involved with big projects in any way, we would have seen a turnaround in their stance. More to come. |
| bhunte | Posted
on 28-Oct-03 09:44 PM
agree with jhor for most and deepak like thinking must go for the real development of nepal...sometime i also feel them as "kabaf ko haddi", i meant a real obstacle for development... |
| saunak | Posted
on 28-Oct-03 09:54 PM
That's a great news! Let us hope it inspires other nepalis to use their creative energy in something people can benefit from. |
| Neural | Posted
on 30-Oct-03 12:57 PM
Bikash Pandey's "People Power" does not resemble with Mr. Damber Nepali's interview. It is totally exaggerated. Mr. Nepali is not found to be biased with Micro-Hydro Projects. It was a huge and respectful effort by him. We whole Nepal and Nepali should salute him who has inspired others. This is not a shaggy dog story to publish such things in Nepali Times by Bikash Pandey who is known as well "ENERGY SPECIALIST" and belongs to such a reputed organization, none other than "WINROCK International". I wonder how a person who has extensive skill or knowledge in an Energy field can inscribe such things. I wonder!!!! wonder!!! and wonder!!!! |
| Bhunte | Posted
on 30-Oct-03 08:27 PM
Dr. Dambar Nepali will definitely be unhappy to read the article, as things have been so much exaggerated and full of biased views without any firm support/facts. Apparantely the article itself looking very cheap by the lack of careful analysis there. Do people and policy makers will buy the message contained in the article? Cheap bijuli is is no more than a sponsored propoganda! I believe the bunch of this type of people are obstacle to the real development of Nepal and they are mesmerizing and misguiding donors and policies of Nepal. |
| jhor | Posted
on 30-Oct-03 08:47 PM
Talking about `WINROCK`, you must have all read a news a few months back that a new bank `Energy Bank` was coming up in Nepal with the interview of Sansar Bhakta Shrestha in some newspapers saying that they have deposited 20% of the equity with Nepal Rastra Bank and obtained Letter of Intent. He also said that the bank will be provided 3 YEARS OF FREE TECHNICAL ADVICE BY `WINROCK`. Was he the right person to call press and inform of the proposed bank`s progress?Now why was Sansar Bhakta so excited about it? He was representing WINROCK and had no equity stake. Where were the investors? I later learned that some of the investors withdrew from the project due to WINROCK. WINROCK wanted to have full management control without any stake while they were publicising in public `free advice`. They wanted to make it a DUHUNE COW for themselves. If any `WINROCK` people read it , please enlighten me. Whats your interest? The bank would have already come up had it not been the kich kich of `WINROCK`. `WINROCK` people in Nepal think that they are indispensible when it comes to anything about ENERGY.Remember that there are thousands of INGOs like `WINROCK` and anyone is free to deal with anyone. |
| Bhunte | Posted
on 31-Oct-03 06:24 PM
WINROCK wanted to have full management control without any stake in lieu of `free advice?? Definitely laughable one to seek management control without any significant stake on the bank... So far I know Winrock (formerly called Agricultural Development Council, and now Winrock International Institute for Agricultural Development) is a reputed international INGO. I haven't recently updated about it for Nepal's case. So far Energy Bank, if we have one there, might be for the energy development of less than 5mw power plants. I don't know how far it has progressed. Will we be able to fulfill the energy needs of the country and can create energy surplus for an export @turtle's pace? |
| funnyface | Posted
on 02-Nov-03 08:30 AM
guys , guys ,guys.. thats some heavy research u have done!! do pat yourselves on your backs if can manage to reach behind your back or better still . do it for one aother! no satire intended! anyway. when is this cheap bijuli supposed to happen.(im afraid i got glassy eyed somwhere in the middle ?!) one thing i do know for sure is that my dad wud be hopping with joy, hes always watchigin the meter run when we use the microwave and any other electricity devouring device.:( |