Nepal | September 21, 2020

Crisis highlights need for energy security

Problem is country is too dependent on fossil fuel, mines of which are not present here

Rupak D Sharma
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Kathmandu, October 7

Many cars and motorcycles have suddenly disappeared from erstwhile bustling streets of Kathmandu Valley, as they have run out of fuel. Household members, on the other hand, are wondering when their cooking gas cylinders will go empty. And many private enterprises are bracing for total darkness during loadshedding hours, as diesel that feeds their generators are petering out.

Life has suddenly turned upside down in the Capital due to severe shortage of petroleum products. If this situation continues, possibility of the country facing humanitarian crisis, as warned by Finance Minister Ram Sharan Mahat last week, cannot be ruled out.

The Valley is facing a severe petroleum crisis because of protests in the Tarai and irregular supply from India.

As a stopgap measure, the government is mulling over bringing in fuel from countries other than India, the sole supplier of petroleum products for Nepal. And over the days, the government and political leadership may even call a truce with agitating Madhesi parties that will clear the way for petroleum products to enter the Valley.

But is there any guarantee that the country will not face such a crisis in the future?

“The problem is that we are becoming too dependent on fossil fuel, mines of which are not present in the country,” said Ram Chandra Pandey, deputy managing director at Nepal Electricity Authority (NEA). “We should, therefore, look for resources with which we can generate energy on our own and become self-sufficient in the energy sector. This will ensure energy security.”

This resource, according to Pandey, is hydro.

Nepal, home to around 6,000 rivers, rivulets and tributaries, boasts of having potential to generate over 50,000 MW of electricity through hydro plants.

But as of last fiscal year, the country’s installed capacity stood at 782.45 MW, whereas peak demand stood at 1,291.10 MW, shows the Economic Survey 2014-15.

There is big gap in demand and supply of electricity because Nepal has not been able to build relatively bigger hydropower plants since 70MW Middle Marsyangdi Hydroelectric Project, located in Lamjung, came into operation in 2008.

So, installed capacity of the country has gone up by mere 121 MW, or 18 per cent, in the period between 2008-09 and 2014-15, shows the Economic Survey. On the contrary, the number of electricity consumers in the country jumped by 66 per cent in the same period to 2.79 million.

State-owned NEA says 11 hydro projects, with electricity generation capacity of 1,044 MW are currently under construction. And if all these projects are completed on time, Nepal will not have to face daily power cuts of eight to 10 hours in the near future.

But the problem is most of the projects undertaken by NEA take a long time to complete. This is because of delay in decision-making process, bureaucratic redtape, disputes with contractors and other scandals that erupt from time to time.

This is where the private sector should have stepped in, but domestic private investors do not have the capacity to mobilise billions of rupees to build relatively bigger hydroelectric projects.

This is the reason why the government has time and again been saying foreign investors should be encouraged to invest in Nepal’s hydro sector.

But foreign investors are wary of pouring money here because of lack of mechanism to cover foreign exchange (forex) variation risk.

Forex variation risk is high in the country, as Nepali rupee has been depreciating by 3.35 per cent per year for the last one decade. Devaluation of currency at such a rapid pace inflicts losses on foreign investors when they convert rupee-denominated earnings into dollar — the currency with which they originally invested.

A report recently prepared by Deloitte, one of the big four consulting firms in the world, said that foreign investors, who pour money into the country’s hydroelectric sector without assurance of forex risk protection, stand to incur losses to the tune of 26 per cent of project’s capital cost.

“We are aware of this problem and are conducting studies on creating a proper mechanism to cover the forex variation risk. We hope we will be able to come up with a solution soon,” said Sanjay Sharma, joint secretary at the Ministry of Energy.

A version of this article appears in print on October 08, 2015 of The Himalayan Times.

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