Undoubtedly, Nepal’s vertically-integrated power sector is a proven example of yet another failure story in the country. The ongoing planned power outages of 11 hours per day should be taken as a wake-up call to restructure and remodel the electricity sector. In any case, the current model is not conducive for a sustainable low-carbon economy, which every nation will have to eventually converge to in the future.
At present, no real competition exists in the generation or supply of power in the Nepali power sector. For instance, there is no choice for end users to switch suppliers and hence are forced to pay the declared tariffs. The model as a whole provides no incentive to operate efficiently. The cost of inefficiency and mistakes are directly passed on to the public. By default, the sector suffers from frequent undesired government interventions with various stop-go policies. Although, market entry has lately eased with generation access granted to the Independent Power Producers (IPPs), their real impact and influence in creating a competitive market is marginal and questionable. The government always favors its own generation in granting transmission access to the grid.
On the other hand, the time period involved in securing Power Purchase Agreements (PPAs) is unnecessarily prolonged due to bureaucratic bottlenecks. Hence, under a business-as-usual scenario, the power sector cannot meet the soaring domestic and industrial demand for electricity at a socially-desirable price level.
Investments in the power sector should have been high and steady overtime in state-owned monopolies but such has not been the case in reality. In a nutshell, the model is not suitable for the long run as it has failed to deliver. But the question remains: Do we have a choice?
As long as we have options, choices always exist. In one of my articles published in Republica titled “Time to break free’’, I had discussed the issue of unraveling the Nepali power sector. The government seems reluctant to unravel its network segments for sheer political reasons. Some argue that unraveling is not desirable as it is akin to surrendering control of a key aspect of country’s infrastructure. But, I am of the opinion that the power sector should no longer be seen in that manner and aspect. If our domestic demand for energy is met from increasing power imports from India, any claims of having strategic control of the power sector is just spurious and ludicrous. So, what’s next?
The answer in one word would be ‘competition’. Our primary focus should be to fuel competition in electricity generation and do away with state monopoly. This is one of the fundamental ways to scale down the costs of generation and lower the tariffs rates while meeting the energy demand. The provision of IPP involvement in electricity generation is plausible but the results have not been as plausible. Personally speaking, I am well aware of cases where ‘dirty politics’ led to delays in project start-up as the IPPs find it difficult to obtain the necessary planning permissions from the central authority.
On one hand, the government as well as the private banks should provide the financial support (such as secured loans) to big entrepreneurs willing to invest in power projects. Eliminating the possible legal and financial barriers is the only way to encourage market entry in generation. On the other hand, the government could purchase the power from private entrepreneurs at a higher rate than what is currently being offered. This will create incentives for increased private sector participation in power generation. A possible way would be to provide renewable subsidies.
Likewise, such practice will also induce an environment to increase renewable power generation in the country. However, increasing generation would be futile unless there is efficient transmission system in place. Most of the transmission grids in the country need maintenance and upgrading while new investments in transmissions are needed for grids expansion across the country. The inefficiency in the grids has resulted in about 25 percent power losses annually. This is a humongous wastage considering the dire need for more electricity. So, creating separate markets for transmission networks could attract more investments in this network segment.
However, it cannot take place unless it is separated or weaned from the current regime. Also, this could prevent overstaffing in NEA, which is causing unwanted diminishing returns. The dark side is that the government has been turning a deaf ear to this issue for quite a while.
Efficient, liquid and transparent power markets will have to be the future bases to stimulate our economy. But it requires actions from today itself. After all, we all want secure power supply at competitive prices, don’t we?
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