Nepal | January 18, 2021

Clear policy on benefit-sharing sought

Study says lack of comprehensive provisions hindering development of hydro projects

Himalayan News Service
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Kathmandu, March 24

The government must come up with a clear-cut policy on benefit-sharing with locals affected by hydropower projects, as developers are being compelled to fork out huge sums of money in absence of a legal framework, says a report released today.

“There’s a general consensus that locals who bear risk and give up their way of life should benefit from the project. Private developers of hydropower projects in Nepal are aware of this and are willing to share benefits with locals,” says the report titled, ‘Benefit Sharing in Hydropower Projects in Nepal’, released by Samriddhi, The Prosperity Foundation, a libertarian economic policy think-tank.

But the root of the problem, as per the report, lies in ‘absence of clear legal provisions on benefit sharing whereby, demands from locals balloon, and failure to meet these demands results in repeated halts in projects’.

This calls for need to develop a ‘policy framework that is comprehensive, defines the basis and scope of benefit-sharing clearly, and provides clear guidelines that take into account the size, budget, source of funding, and feasibility of the project’, says the report.

“There is also a need for a clear disbursement mechanism that ensures benefits reach local communities so that further disruptions can be eliminated once the developers provide benefits to local community as defined by law.”

Locals generally place a list of demands once developers propose to build hydropower projects in their community. Some of these demands include building of health clinics, roads, schools and irrigation infrastructure. Locals also demand developers provide them jobs at project and electricity for free or at preferential rates. Also, demands for establishment of or contribution to community development fund are made.

Average cost of such benefit-sharing stands at Rs 4.96 million per megawatt for projects with installed capacity of less than 10MW, says the report. “This cost is 3.8 per cent of per MW construction cost of Rs 130.03 million for projects with installed capacity of less than 10MW.” The average cost of benefit-sharing is Rs 18 million per MW for projects with installed capacity of 20MW to 60MW. “This cost is 7.96 per cent of per MW construction cost of Rs 226 million per MW for projects with installed capacity of 20MW to 60MW.”

These figures were derived based on survey held among 10 hydro projects, of which six were with installed capacity of less than 10MW and the rest with installed capacity of 20MW to 60MW.

However, experts, who spoke at an interaction held today, said sample size of the survey was too small, making it difficult to generalise the outcome of the study. Also, construction cost of hydro projects appears to have been inflated, as it currently stands at around Rs 180 million per MW.

Despite this, experts said benefit-sharing at local level was a problem and should be addressed through policies. “A strict guideline has to be introduced on benefit-sharing so problem of unnecessary bargaining and even extortion at local levels can be eradicated,” said Kumar Pandey, general secretary of the Independent Power Producers Association of Nepal.

Nepali Congress lawmaker Gagan Thapa also called for well-defined legal regime to address this problem.

Due to absence of a clear policy framework on benefit-sharing, developers currently have to deal directly with locals of the area where the projects are being developed.

Lately, developers have started forming a stakeholder committee, comprising local political leaders and other members of local community, to negotiate with locals. “However, enforcement of these verbal contracts is problematic as these stakeholder committees are not legal entities,” says the report.

This raises the risk of disgruntled factions hitting the streets, vandalising property and blocking roads and vehicles that carry supplies to the project site. These problems ultimately delay project implementation, forcing developers to lose potential revenue.

Average foregone revenue emanating from these problems is Rs 17.61 million per MW for projects with installed capacity of less than 10MW and Rs 166.04 million per MW for projects with installed capacity of 20MW to 60MW.

Keshab Dhoj Adhikari, joint secretary at Water and Energy Commission Secretariat, said cost of benefit-sharing and costs related to mitigating impact on environment and society are two different issues and should not be mixed.

A version of this article appears in print on March 25, 2016 of The Himalayan Times.

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