Nepal | August 13, 2020

COVID-19 in Nepal’s power sector

 Prabal Adhikari
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Electricity connects resources to the economy and is related to the well-being of the people. From that perspective, power sector development cannot be a unilateral approach. It demands national collaboration amongst the political parties, government agencies and private sector entities – probably unlike any in our history, given the urgency to accelerate the economic growth of our country.

A reflection of the past, clinched with unforgettable load shedding for many hours a day, should teach us a universal lesson that the role of blending management and leadership has the unique capability to beget amazing results. It was absolutely true in Nepal’s case even without adding significant megawatts of power to the system from internal and external sources and some power import from India. Of course, the importance of infrastructure and technical knowhow, and above all, the integrity shouldn’t be forgotten.

Power sector is one of the areas in Nepal where private companies have earned a high degree of success. It is remarkable and admirable also from the sense that they are not constructing hydropower projects alone, besides which their prowess in carrying out all engineering works has ruled out the need of foreign expertise in the projects right from the beginning. The emergence of the private sector in Nepal’s hydropower development has thus been a landmark activity for preparing the foundation to transform the entire power sector. It looks simple, but it isn’t ordinary anyway.

So far, Nepal Electricity Authority (NEA) has signed power purchase agreements (PPA) with 341 independent power producers, including some NEA-involved subsidiary companies, for a total power generation of 5,978 MW. Of them, 93 projects have already been injecting power totalling 651 MW in terms of their installed capacity into the national grid. The figure surpasses NEA’s own installed capacity of 635 MW, which also includes the idle thermal capacity of about 53 MW. As of now, 117 power projects, comprising some solar and bagasse ones, are under construction by the private sector, and their completion will be ramping up the country’s installed capacity by 2,837 MW.

The coronavirus (COVID-19) pandemic is affecting the ongoing activities in hydropower projects differently, depending on which stage of construction they belong to. Before the threat of COVID-19 emerged, a best case projection had led to about 1,000 MW of capacity addition from 50 new projects being developed by different generating companies by the end of the current fiscal year 2019/20. However, the prospect, as per the fresh estimation, has dropped to about 355 MW of capacity from 30 projects in total against the backdrop of the COVID-19 outbreak, which is now spreading, as if, apocalyptically throughout the world.

These projects were already at an advanced stage of construction and still carry hopes of commissioning by the end of this ongoing fiscal year, though uncertainties attributable to the uncooperative, viral weather cannot be completely avoided. In fact, the pandemic is above all creating an emergency in the infrastructure sector, with more long-term impacts on the developing countries, after the heath sector world-wide. Needless to say, everything depends on how long this cataclysm continues eroding us both physically and psychologically.

It is to be noted that any projected figures about capacity addition from the new hydropower projects may change time and again. The reason is that it is entirely a dynamic issue, and the progress of the projects under construction keeps on changing – its pace could be fast, slow, stagnant or accelerated. Despite the keen concerns of the media and the public over the anticipated projects and their installed capacity for a year, there is a growing need to be more concerned about the quality of power than the quantity which is being more agendised and emphasised through the orthodoxical psychology that has instilled the fear of load shedding in their subconscious minds.

If some projects on the cusp of completion cannot come this year, the projection for capacity addition in the next year will obviously be ratcheted up. In this regard, with the shift of the commissioning dates of some projects, we are expecting 52 power projects from the private sector to be grid-connected in the next fiscal year 2020/2021 so as to augment the power installed capacity of the country by 1,315 MW. In fact, hydropower construction is something like solving a highly non-linear equation with many known and unknown variables, and that’s why commissioning a hydropower project simply means that its developer has won a titanic battle, which if lost, could have culminated in ruinous consequences for him.

Since the country was caught in the vicious turmoil of the coronavirus followed by the nationwide lockdown instituted by the government to practise social distancing, several uncertainties are hovering over the power sector of Nepal, too. NEA’s revenue is being unprecedentedly slashed because the country’s demand has dropped significantly, that is, about 25 per cent off from the pre-corona peak. And, in the worst case, during nights, NEA’s own hydropower plants are bound to spill water even after taking all possible measures like no power import through cross-border links.

The daily energy consumption pattern has turned out to be gloomy when the system is experiencing its fall to about 15 million units of electrical energy, which could be at least 21 million units under normal conditions, clearly signalling that NEA’s monthly revenue is shrinking by around Rs 1.8 billion in the present context. Besides these impacts on the financial health of the NEA, revenue collection, too, from the consumers has abysmally decreased, leading to a probable liquidity crisis for the NEA to run its power plants, bear the minimum expenses of operation and maintenance of the system, and pay to the IPPs for power procurement.

NEA, as an off-taker of the power, albeit unwillingly and unavoidably, published a notice to the IPPs generating power from their respective plants, indicating that payments against their monthly invoices will be delayed under the Force Majeure clause of the PPA. This has led to a difficult situation for the IPPs whose power plants are in operation, since the NEA’s payment is the only income source for them to cover the overall expenses, such as operation and maintenance of the plants, payment of bank interests and repayment of the loans, if any.

A request to that effect has already been made by the IPPAN, the umbrella association of Nepali IPPs, to the NEA and the concerned ministry to consider their situation and resolve it through payments. Flexibly enough toward this, the NEA at its discretion is looking for some alternatives, like certain advance payment to the concerned ones since raising and processing invoices are difficult to deal now amid the lockdowns in the country, though NEA itself is reeling under cash crunch anomalies.

 

Should the pandemic last long, arrival at a situation in which the NEA may require external capital in order to meet the liquidity deficits in the future cannot be totally ruled out. As such, it’s high time that the government frame-worked a pandemic-combatting protocol for the power sector and created a fund for both the NEA and private generators to help the overall power sector function seamlessly.

The impact of the decline in power demand has been a critical challenge to the NEA’s Load Dispatch Centre, which is struggling not only to operate the power system from the economic dispatch point of view but also to save the system from seeing a collapse in case the situation is aggravated by further decline in the demand all of a sudden, maybe, due to faults in the transmission or distribution networks and isolation of a large area with a potential load.

So far as the under-construction hydropower plants are concerned, for extra-accelerating them in these difficult times and after the cessation of the pandemic, the allocation of construction materials or manufacturing supplies, requisite workforce and adequate cash-flow needs to be ensured. The role of the government is crucial to help the private sector entities accomplish them. No doubt, it’s related to their business, and it’s true that they will earn money by selling the power generated from their projects. After all, money isn’t everything, and these hydropower projects are the potential lifelines and saviors of the country’s economy.

The objective of the government is to generate 15,000 MW of power in the country in ten years, that is, by the year 2028. There are two major things to accomplishing it:  the first, the NEA should continue signing PPAs with the generating companies after sorting out the regulatory and other policy issues, if any; the second, the long-awaited financial closures of 131 power projects with a total capacity of 2,490 MW, for which PPAs have already been signed with the NEA, should be achieved as early as possible.

However, it has been experienced that financial closures are not taking place easily these days as in the past through the Nepali banks. The reason may be that the banks are either considering investment in power projects as an increasingly risky business with lots of uncertainties or simply becoming incapable of investing huge amounts in them in the context that other sectors of investment are still available. The government is required to address this issue through proper facilitation for loans at low interest rates.

Further, the country’s willingness to attract FDI in the construction of hydropower projects in the post-pandemic years should be exhibited through enough consideration and clarity in the government’s hedging rules in order to minimise foreign currency exchange risks to international companies.

The author is the spokesperson of NEA


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