Go through any study or write-up that refers to Nepal’s trade potential, and consider it an accident if it does not identify hydropower as an area of high comparative advantage and export potential, exalting it to a level on a par with tourism and high-value agricultural products.
FANTASY WORLD
Ask any of our media-visible economists what we can/should export, they are most likely to mention the proverbial “white gold” without batting an eyelid. Some would even go to the extent of asserting that exporting hydroelectricity to India will enable Nepal to bridge most, if not all, of its trade deficit with its largest trading partner.
Never mind that Nepal’s net foreign currency earnings from export-oriented hydropower projects with foreign investment—thanks to low domestic retention of value addition—would amount to only a few billion rupees in contrast to the staggering Rs 96.63 billion trade deficit recorded with India in the first seven months of the current fiscal year.
Another specious argument being advanced of late in support of foreign investment in hydropower meant for exports to our neighbor—this one by a section of our own business community—is that the surfeit of Indian Currency that such investment entails will make IC shortage history.
How a temporal spike in IC reserves—fated to be reversed when the projects’ imports are paid off and earnings repatriated—will correct a structural, chronic trade deficit begs specifics that the spin-doctors do not deign to provide.
The worst is yet to come. Ministers and policymakers insist in dead seriousness that Nepal’s load shedding woes will be history in four years as export-oriented hydropower projects come on stream. Ask them how that is possible, they hem and haw. On the rare occasion you do get a straight answer, its preposterousness makes you cringe.
A high-ranking bureaucrat explained in a discussion forum that Nepal needs to export electricity to India in order to have a convincing ground to demand supply from the other side of the border to tide it over its power crisis! That he said so without a trace of jest speaks volumes for the level of intelligence he attributes to the hoi polloi.
NATIONAL WELFARE
That we have comparative advantage in hydropower does not automatically imply we need to export it. Certainly not when even suppressed domestic demand remains unmet, not to mention the stark reality that at least 60 percent of the population do not have access to electricity.
All it means is that we can potentially produce hydroelectricity comparatively efficiently, relatively cheaply, courtesy of our topography. Overall long-term national welfare considerations should determine its utilization.
There are plenty of avenues for utilizing hydropower domestically that promise rich dividends. It can be used as an input to domestic industrialization. Agricultural productivity and production can be substantially increased through expanded irrigation powered by electricity. Cold storage needs electricity, as do agro-processing units.
Availability of electricity at competitive prices will make it feasible to opt for electric modes of transportation that will help wean the country off its dependence on imported fossil fuel that accounts for over 14 percent of its total imports. Reduced in-country transportation costs will also contribute to reducing trade costs. All these will directly or indirectly help improve the competitiveness of our exports, including tourism, creating a strong foundation for sustainable export growth.
The employment thus generated and foreign exchange earned will be on a scale that easily dwarfs the hydro-ICs—not hydro-dollars—that export-oriented hydropower projects can possibly earn for Nepal. In exporting hydropower, the country will be exporting away all the potential multiplier benefits without even solving its power crisis.
Only after catering to domestic demand fully can we consider exporting. This is what any other people in our shoes would have done. We are different, at our own peril.
Where will the funding come from? Partly from the over Rs 600 billion of deposits in the financial system fuelled by remittance inflows. Partly from multilateral and bilateral lending agencies (on our terms, though).
Partly from private foreign investors—yes, genuine foreign investors can be attracted in projects meant for domestic consumption. For micro and small projects, resources would not be a problem. A tall order? An ever taller order would be building a “new” Nepal, then.
A few bonafide water resource experts have been strongly highlighting the advantages of putting hydropower to domestic use and why the current spree of awarding export-oriented projects is not in the national interest. Some of them have had the opportunity to give expert advice to parliamentarians—no doubt, at the invitation of small parties, not the big ones. Practically none in the audience has been able to convincingly challenge their views with counterevidence. It is the tragedy of our times that their arguments have fallen on deaf ears of those who matter, external interests being too powerful. Such voices run the risk of being labeled as “ultra-nationalists”, “anti-development elements” and pratigami.
SELL-OUT
The result is that some of the choicest projects with low generation costs—Arun, Upper Karnali, West Seti III—have been designed as export-oriented ventures. The selling price is to be less than our average domestic electricity tariff as well as less than the price we pay for electricity imports from India. It is to be further way below a price that captures not just generation cost but also the potential positive externalities downstream. Perhaps this is not trade in the traditional sense, where one buys cheap and sells dear.
Perhaps it is an expression of our magnanimity that induces us to sell cheap and buy dear, and help ameliorate our neighbor’s power crisis by exacerbating our own. Apologists of these projects proudly point to the free energy we are to receive. The volume of the free energy is peanuts compared to our needs. And “free” is a misnomer here, considering the opportunity cost.
Calls for subjecting export-oriented projects to parliamentary vote in the spirit of the constitutional requirement that treaties or agreements that have “pervasive, serious or long-term” impact on the nation must be ratified by parliament with a two-thirds majority have been dismissed on the grounds that these are not state-to-state agreements and that a private company is involved in generation and export. Such an interpretation of Article 156 of the Interim Constitution permits of circumvention of Nepal’s constitutional process through the mere introduction of proxies or non-state intermediaries.
As a corollary, then, Tanakpur and Mahakali treaties would not have required parliamentary ratification if they had been packaged as “projects” involving non-state parties on either side of the border! It naively ignores the reality that governments can easily use private companies as fronts to pursue strategic goals without igniting another Mahakali-like controversy. It is high time that follow-up actions be taken on the Situation Paper on evaluating the “pervasive, serious or long-term” impact stipulated in Article 126(2) of the 1990 Constitution (Article 156 of the interim one) issued in 2002/03 by the Ministry of Water Resources, then headed by Dipak Gyawali.
No point in blaming any single government. For all their belated and half-hearted protests against the implementation of the export-oriented projects, the Maoists cannot also be absolved simply because “we were not aware of the conspiracy” or “that happened just before/after we joined/quit government”. Instead of obstructing work and resorting to less-than-peaceful means now, they, as the largest “revolutionary” party, could have proven their mettle back when the projects were awarded. They could have stalled parliament no end or brought the nation to a halt—surely not the most democratic of means, but certainly ones they do not hesitate to employ for political purposes without reservations.
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