Political stability and effective bureaucratic mechanism can only ensure the construction of Budhigandaki project and overall development of hydropower sector

Kathmandu

The hydropower sector in Nepal is rapidly expanding with the pouring investments in hydropower projects and consistent management of generated electricity — more than 150 hydro projects from private sector are under construction with the combined capacity of more than 3,000MW along with other projects submitted to NEA for PPA with combined capacity of 5,500MW. As a result, the country is unburdened from the problem of load shedding that harshly effected people’s life and stunted the industrial production within the country for a long time. However, Nepal is far away from being self reliant in electricity generation especially in the light of the recent political development as all hopes lies on the construction of big scale projects like Budhigandaki, West Seti, Upper Tamakoshi, et cetera.

Like every other productive sector in Nepal, the hydropower sector has not been able to fully operate under its true potential as it is also a victim of political instability, lack of leadership, unreliable environment for investment and ill intended political interference. Instead of navigating a proper course for the growth of hydropower sector, the political leadership has further halted successive progress and incapacitated the bureaucratic channel through political lobbying. Therefore, it’s high time that political establishments stop unwarranted intervention in the hydropower sector and develop proper policies to further strengthen the hydro sector in Nepal by ensuring that big scale projects are under operation and completed in stipulated time.

Fate of Budhigandaki project    

The government has decided to use domestic investment for the construction of 1,200 MW Budhigandaki Hydro Power Project which is based on reservoir model. A cabinet meeting held on November 24 decided to form the project on Engineering, Procurement and Construction (EPC) model.

Earlier, the government had annulled the contract awarded to Chinese Gezhouba Water and Power (Group) Co Ltd (CGGC) for the construction of 1,200 MW Budhigandaki Hydro Power Project on November 12. Before that the Pushpa Kamal Dahal-led government had handed over the Budhigandaki project to the Chinese company with Minister for Energy Janardan Sharma signing a memorandum of understanding (MoU) on June 4.

The much-talked about hydro project was supposed to be built in Engineering, Procurement, Construction and Financing (EPCF) model which ensures that Gezhouba itself generates the required fund for the project without any involvement of Nepal. Under this provision, the Chinese government had also agreed to provide fund to Gezhouba through the Export–Import Bank of China.

However, the MoU with the Gezhouba came under severe criticism over the decision to directly award the contract to Chinese firm with negative track record in Nepal by boycotting the competitive bidding process. Stressing that the assignment of contract to Chinese firm lacks transparency, breaches the legal procedure and Public Procurement Act, the parliament’s Agriculture and Water Resources Committee and Finance Committee had ordered the government to scrap the MoU and focus on building the national pride project through national investment.

With the cabinet’s decision to construct the Buddhigandaki project through domestic investment and technology, it is important to note that political willingness and commitment is compulsory for the success of the project.  Dinesh Kumar Ghimere, Joint Secretary at Ministry of Energy (MoE) said, “The contract with the Chinese company has been annulled and the government has decided to construct the Budhigandaki project through domestic investment under the EPC model. A special committee will be formed to study the financial as well as technical aspects of the project and the project will further move ahead with the findings derived from the study carried out by the committee.”

The project is expected to cost around Rs 260 billion as per the study conducted by French company, Tractebel Engineering. Meanwhile, Nepal Oil Corporation (NOC) has collected Rs 13 billion from consumers for the proposed project in the past 16 months. Former finance minister, Bishnu Paudel had included the provision in the annual budget of fiscal year 2016/17 to collect infrastructure tax of Rs 5 on each litre of diesel, kerosene, petrol and aviation turbine fuel sold for the Buddhigandaki project which was touted as the key project to solve energy crisis in Nepal.

Speaking with the THT Perspectives, Shailendra Guragain, President of Independent Power Producers Association of Nepal (IPPAN), said, “The decision to develop Budhigandaki project with national investment instead of depending upon foreign players is a positive development. It is important to note that previously the contract was awarded to the Chinese firm without adhering to the right procedure. Recently, the contract was scrapped in the form of political revenge which clearly exhibits the short sightedness and lack of seriousness in political leadership. So, political willingness and firm decision making is necessary for the completion of Budhigandaki project.”

Heavily politicised

The hydropower sector in Nepal is laden with political interference. The political instability has stopped the country from pursuing its energy goals through an effective course of action. The hydropower sector has been dealt severe blows with the enforcement of new policies and plans with every change in governance. Meanwhile, the fact that bureaucracy is not independent and relies on the will power of the political establishment also makes it difficult for the hydro power sector to remain unaffected by the political upheaval.

Besides the instability of domestic politics, the hydro sector in Nepal is also influenced by its geographically strategic location. With the country’s rich hydropower resources and untapped potential, both India and China are eyeing to make the best use of Nepal’s water resources by increasing their investment in hydro sector in Nepal. Stressing that the withdraw of Buddhigandaki project is influenced by political agenda Khadka KC, Assistant professor of International Relation and Diplomacy at Tribhuvan University said, “The annulment of Budhigandaki and the extension of deadline for ‘financial closure’ in the case of Upper Karnali undertaken by GMR and Arun III undertaken by Sutlej Jal Vidhyut Ltd has a very strategic and diplomatic implication. And, we must also understand that the general tendency to politicise development issues in Nepal is hindering the country’s ability to move to a developed status.”

The Nepali economy which bounced back from the effect of earthquake and economic blockade in 2015, with the increment in Foreign Direct Investment (FDI), is likely to take a hit from the recent development in Nepali hydro power sector the government’s faces flak on its credibility of doing business negotiation and agreements. Tanka Karki, Former Nepali Ambassador to China said, “In case of China, both the investor and Chinese government are eager to expand their investment in Nepal as Nepal is also a part of One Belt One Road (OBOR), so, we must be careful while inking any deal with our neighbour. The practice of revoking MoUs and abandoning deals half-way through will surely complicate Nepal’s diplomatic relations.”

Meanwhile, domestic independent power producers are also very critical of the government’s inability in the guidance and growth of hydro sector in Nepal. The domestic producers feel at a disadvantage and claim that our government prioritises foreign companies rather than supporting domestic investors. Stressing that the government is not concentrating on the development of hydropower sector by continuing the ongoing policy and framework, Gyanendra Lal Pradhan, Treasurer at Federation of Nepalese Chamber of Commerce said, “The Budhigandaki hydropower project should be built only after coming up with proper cost estimation because it is impossible to build any reservoir project in Nepal with the high interest loans from banks in Nepal. So, the government should opt for loans under OBOR initiative or any other programme with low interest rate to make sure that the cost of production of one unit of electricity does not exceed the normal rate after the completion of project.” He further said, “The government has committed various mistakes in the preparation of Detail Project Report, cost estimation and also while signing MoU and scraping it later.”

The fact that the government has not been able to expedite 21 flagship National Pride Project and has very poor track record in capital expenditure clearly indicates that serious reformations and commitment are needed in the government’s working mechanism for the development of Budhigandaki Hydropower Project. Sujit Acharya, Chairman at Energy Development Council says, “Nepal will be needing 40,000MW of energy in next 10 years and Investment Board of Nepal needs to come up with one-window clearance policy to expedite the time period for permit clearance and land clearance to one year in order to encourage FDIs for producing 40,00MW of electricity.”

Other issues that need to be addressed

With electricity generation capacity of 1,200MW, Budhigandaki Hydro Power Project surely holds a great promise for Nepal but there are other pressing matters at hand like lack of transmission lines, delay in projects completion that requires immediate attention. However, there are not enough transmission lines to transmit from the production unit. According to Guragain, lack of transmission is a major hurdle for power producers as there is no point of generated electricity if it cannot be transmitted in the absence of transmission lines.

One of the national pride projects, Upper Taamakoshi project with the capacity of 456MW is likely to come under operation by October, 2018 but its future remains bleak if the problem of transmission lines is not immediately sorted. Prabal Adhikai, Chief of Power Trade Department at NEA said, “Quantum wise, Upper Tamakoshi will make us self reliant on electricity during wet season but we also need to build transmission and distribution systems simultaneously. For the development of transmission system that can support the generated electricity, we need fast-track mechanisms to resolve issues like forest clearance, land acquisition and community pressure that lengthens the project completion time.”

Therefore, the scope of the hydropower sector can be widened if the political establishment is determined to put national interest and benefit before all else. Besides, prioritising big hydro projects, the authorities related such as MoE, NEA, Department of Electricity Development, IBN  should be left independent from political interference, lobbying and unnecessary infiltration. Once these issues are resolved, the hydropower sector will surely flow in the right direction.