Still waiting an Act
It has been 14 years since the government introduced the Hydropower Development Policy 2001, with the view to develop the hydropower sector. However, the policy was ineffective due to lack of an act to legalise the said policy. The Ministry of Energy (MoE) is still stuck in the process of drafting the Electricity Act since then. Nonetheless till date the government is nowhere near introducing the Act and the policy has grown old in the books.
Due to the absence of strong political will and unclear vision of leaders to address issues such as reforms in the power sector, addressing conflict of interest, power purchase agreements (PPA), land acquisition and other challenges, no concrete steps have been made.
Lacking political will
“The Electricity Act will not be introduced any time soon,” said Keshab Dhoj Adhikari, Spokesperson at MoE. Citing that there are many issues to discuss, he said, “Issues such as unbundling of Nepal Electricity Authority, dollar term PPA, reforms in the power sector and addressing conflict of interest on project development are major constraints on drafting the act.” He further said, “Everyone is aware of these problems, however, no one in political power has the courage to make bold decisions and break corrupt practices to reform and develop the power sector.” Despite stating these facts, Adhikari is sure that the act will reform the existing licensing regime, make power projects more efficient and introduce better guidelines to attract more investors.
The private sector viewed that the most important step for the development of the hydropower sector is to draft a new Electricity Act that will provide complete freedom from importing petrol, diesel, gas, kerosene and motor vehicles running on petroleum products and lead the country to prosperity. In this regard, Sujit Acharya, Chairman of Electricity Development Council (EDC) said, “I do not think the Ministry of Energy has the ability nor courage to draft such an important Electricity Act because it continues to prepare drafts for the Act in the cabins of Singha Durbar and stakeless stakeholders meetings at various star hotels in Kathmandu which are inaccessible to the people of this country.”
Citing that the Act must be in the best interest to convince investors to put money in the energy sector, Acharya said, “The basic contents of this Act needs to include the toughest laws to criminalise anyone or any groups obstructing construction of energy projects, creating local disturbances and so on.” He added that cutting-off electricity to homes of such individuals should be considered. He further added, “The Act must begin by issuing one unified license on a competitive bidding basis and giving all clearances to developers within a year through a one window policy.”
He opined that land acquisition must be abolished and land lease be started. Additionally, while giving better concessions to energy developers, he said stringent penalties for delays in financial closures and starting electricity production should be considered. According to him, local people must get 10 per cent investable shares prior to project construction so they share both the potential benefits and risks — but any local person affiliated with political parties or creating disturbances should be excluded from such shares. And all the contents of this Act should supersede or override conflicting content in any other prevalent acts or policies, thereby providing absolute and unequivocal clarity to the direction of Nepal's energy sector.
Post earthquake problems
The earthquake has affected almost every sector including hydropower. As per the data of Post Disaster Needs Assessment by Nepal Planning Commission, the hydropower sector suffered Rs 21.242 billion in damage and loss, of which private sector incurred Rs 15.569 billion loss and Rs 5.673 billion by public sector. Reportedly, more than 35 independent power producers’ (IPP) hydropower projects have been affected.
Developers have to incorporate seismic resistant designs to withstand major earthquakes and other probable calamities as per the status of the projects while constructing hydel projects. To protect themselves from such natural calamities, many developers insure their projects. Moreover, Force Majeure clauses exist in contracts and projects to consider any disaster.
“Earthquakes are anticipated while constructing the hydropower projects. In this situation, developers can recover losses through insurance and other contractual provisions in PPA,” said Adhikari. To assist project developers, he said, “The government can provide soft loans from different donor agencies for projects severely damaged. But, developers should be ready to take the risk of foreign exchange rate.”
However, IPP has requested the government to introduce relief packages to the sector. “The government should make provisions for IPP projects as they don’t have much funds to recover themselves from this disaster,” said Narendra Prajapati, Treasurer of Independent Power Producers Association of Nepal. He said, “As it will take minimum a year to recover to the previous situation, the government should make provisions for automatic renewal of generation license and extending deadlines for ongoing projects to be completed by a year.”
Impact on FDI
Electricity is the indisputable foundation of Nepal's economy because only with it being in place can other economic sectors like tourism, road construction, manufacturing begin to flourish. After the earthquake, developers and lenders in the hydropower sector are in a dilemma and the momentum that the sector had gained with signing of project development agreements and Power Trade Agreement has slowed down. However, stakeholders stated that lenders as well as developers are ready to bounce back in the sector. In this situation, the private sector stressed the need to introduce a conducive environment for foreign direct investment (FDI).
“First of all, the government should conduct intensive geological studies to determine the disaster prone zones for upcoming projects. Secondly, the government should assure return on investment to investors and provide the best incentives,” said Prajapati. He further said that the bureaucratic process should be prompt and with proper decision making authority to say yes or no for project development without lingering and delays.
Pointing to three basic roadblocks for energy development, Acharya said, “The bankruptcy of energy vision in our leaders, public obstruction of projects being constructed and creaking old existing institutions that were born from old laws and policies that do not fit the new Nepal anymore are major obstacles to FDI.”
According to him, the government has to draft a new Electricity Act from the public domain. He said that to attract FDI, the concerned officers should take reference of the electricity acts of those countries which were most successful in attracting FDIs.