Optimism has replaced hopelessness with the end of the decade-long conflict. Nepal will no longer remain one of the poorest countries in the world. This hypothesis is based on the assumption that the nation’s unexploited immense water resources, if used rationally, will generate enough resources for its sustainable development. As a top leader of CPN-Maoist puts it, we are poor amidst rich natural resources. He rightly indicates that water resources should be utilised to make our country healthy and prosperous. As Nepal’s hydropower potental is huge, it’s among the best alternatives to achieve the desired/anticipated development. It’s time to rethink the opportunities missed in the past in order to build a better Nepal by converting our immense water resource potential into electricity. We can achieve economic prosperity and secure better living standards for the people if we develop rational progra-mmes to generate electricity.

But what constitutes this rationality? In the first place, hydroelectric power generation depends, in large measure, on devoloping sound water resources policies and attracting foreign direct investment with emphasis on regional cooperation in particular, and economic policies in general. Generation of hydroelectricity depends on the political stability and policies aimed at attracting domestic and foreign power producers.

Secondly, Nepal has always favoured regional and international cooperation in hydropower generation from the proposed projects like Arun III (402 MW), Upper Karnali (300 MW), and Upper Tamakosi (309 MW). India can play an important role in the development of these projects. Undoubtedly, the Indian market is huge and its projected demand shows that the available power will not be sufficient as there is already a peak shortage of 10,000 MW (i.e. 13% of installed capacity). India will definitely enter into hydroelectricity generation with a view to meet its increasing energy demand (10 per cent per annum) but the electricity generated in Nepal should be cheaper than India’s domestic production, as well as cheaper than that of Bhutan. In addition, Indian investors, both public and private, will invest only when they see reasonable participation from both countries and a reasonable sharing of cost and benefit accruing from the projects. To harness the untapped water resources, the existing hydropower development model which has failed to attract multinational companies should be modified with a view to selling power through cooperation of the neighbouring countries, India to the south and China to the north.

Thirdly, the unit cost of electricity generated in Nepal is high as compared to the international costs, including the costs in India and China. In this context, hydropower development requires a deep and rational analysis of cost, taking into account the comparative costs in the neighbourhood. Electricity generation cost and tariff is so high in Nepal that it can constitute a major barrier to power trade with neighbours.

Lastly, hydroelectricity development has been limited to slogans after 1990s although its development started nearly a century ago. The Eighth Plan (1992-1997) brought about a number of changes in hydropower development policies to attract both foreign and domestic private producers. One recent study reveals that, in the context of Nepal, “more generation will create its own demand”. At this juncture, Nepal should focus on the management of supply side rather than on demand.

We can also increase the domestic demand for electricity. Reform in domestic power market is necessary to attract foreign and domestic investment in this sector. Private power producers seek greater power market. Industrial development is the prerequisite for power market expansion and reliable and adequate power supply. Construction of parallel electric railway lines from Mechi to Mahakali along the East-West Highway, development of trolley bus service, construction of electric railway tunnel from Hetauda to Kathmandu and developing the ropeways on the Kurintar-Manakamana model would expand the domestic power market.

The slow development of hydropower has been attributed to various factors. Conflict and political instability undoubtedly played a major part, because state resources were channelled from development to security. This further discouraged FDI. Every product has a life cycle, which passes through four distinct phases, namely, introduction, growth, maturity and decline. In the case of hydroelectricity, it seems as if Nepal did not follow this cycle, as, for instance, the decline phase directly followed growth. No effective mechanism for developing and reforming the institutional base is in place. The hydropower policy is not conducive to large investment from both domestic and foreign agents. In recent years, the private sector has appeared reluctant to take up large hydropower projects for the lack of market.

Dhungel is associate professor of Economics, TU