Late realization?
While I do not question the Committee´s right to examine the deal because of obvious lapses and lack of transparency on the matter, there is certainly a positive element in the Save the West Seti campaign by the local denizens who have long been denied of the potential benefits and the economic prosperity which the development of hydropower could have brought to the impoverished but resource-rich region. If this is an indication of the people´s late realization of what the country as a whole and the region in particular is losing in the absence of timely utilization, and frustration over excessive politicization, of this precious resource, this can be taken as a welcome development. It would however be unfortunate if this were not so but just an exercise of another politics.
Politicization has robbed the country of immense benefits, which the development of Pancheshwar project -- which the parliament had approved 15 years ago -- would have brought. If the project had taken off on time, it would have been completed by now, and the nation´s economic scenario would have been different. But politicization of the project stood in the way of its execution. We are still waiting for the Detailed Project Report (DPR) to complete.
The fate of Arun 3, a project which saw its demise even after the completion of all preparations including the financial closing when the country´s left political forces and subsequently the government under the influence of national and international NGOs contributed to shoot down the project, is too well-known to be recounted. The country would not have met the current fate of power shortage, and load-shedding, if the concerned party had not made the costly mistake. Even now, it appears that some political forces have not learnt the lesson from history.
No bad politics please!
The Water Resources Committee of the Unified Communist Party of Nepal (Maoist) recently issued a diktat against any further work on some fourteen hydro projects under joint ventures mainly with Indian companies, the argument being this would go against their policy of national self-reliance. Among major projects included in the list are Upper Karnali and Arun 3 whose survey licenses were awarded to two prominent Indian multinational companies, following a global competitive bidding. These companies have offered the most attractive package of free energy and equity.
The opposition to Indian investment in hydro would mean more reliance on expensive power import from India resulting in further outflow of foreign exchange which will widen the BOP gap, thereby making the country India-dependent further. Through such acts, the Maoists are only displaying their bankrupt economic thinking, which will only push the country to further backwardness.
Therefore, if the current protest in Far-West is the result of realization of the past mistakes and not just another politics, then one would expect similar public pressure for the immediate execution of other projects including Upper Karnali, Pancheshwar and Arun 3. Bad politics has done us enough harm in the past. The nation can no longer afford to repeat it.
It is generally said that hydro resource is Nepal´s white gold. In fact it is more precious than gold, since gold mine is exhaustible and water resource is not. It is a perennial and permanent resource. By delaying and postponing its development under one pretext or the other, we are neither helping the present generation nor preserving it for the future. We are losing millions of dollars each day by not taking advantage of the water flowing from our rivers. The present generation is robbed of its benefits any way; we are adding burden on the future also. Rising production cost will erode our competitiveness, when new sources of energy will have been discovered and invented.
Value of West Seti
As far as the value of West Seti is concerned, it is the only well studied ready-for-implementation reservoir project capable of meeting our peak power demand at least in the medium term, which Nepal cannot meet in the foreseeable future from other sources other than expensive imports. Peak hour energy commands premium price and is in great demand. Attempt to develop it by Snowy Mountain for more than one and a half decade in the past failed basically due to the inability to find investors. Obviously it was not an easy project. High dam projects are not simple in any case in view of large scale displacement and resettlement requirement which the project obviously involves.
In this context, the interest shown by a reputed Chinese company is a welcome development and the opportunity should not be allowed to slip by. But that does not mean the project can be awarded without proper appraisal and guarantee of appropriate benefits for the country. Theoretically, an open competitive bidding can bring benefits to the country, if reputed companies are attracted, as seen in the case of Upper Karnali and Arun 3. But this need not be the case all the time, as experience elsewhere has shown.
Conditionality and cost
No high-dam project can proceed without appropriate provision for resettlement and environmental damage mitigation that is built in the project design itself. There are well-known internationally accepted practices and regulations which the project must comply with. The procedural lapses in the deal must also be corrected in conformity with the country´s laws and relevant regulations. But extra conditionality out of line with normal practices, which add to the project cost or make the project implementation complicated, will make the project unviable or push up the energy price that will eventually be borne by the consumers. Such conditionality will delay project execution and even scare away investors.
Nepal´s status as an investment destination is already low, and in hydro sector hardly one percent of the potential remains utilized. One should realize that presence of world class company operating in a business-friendly environment under internationally accepted rule can attract similar other investors which only will eventually raise our bargaining power to place new conditionality
Energy pricing- key issue
The principal concern of the government at the moment should be how will the energy be priced when the Power Purchase Agreement (PPA) is signed. The MoU says that Nepal government will arrange PPA with NEA at a price that will "ensure viability of the project and reasonable rate of return on investment". But project investment cost is not free from manipulation by promoters. How will the government protect its interest against this possibility? The MoU also commits the government to award the survey license once the technical and financial evaluation of the project is completed by the promoter. It is not clear whether the government can refuse the Chinese contractor a survey license if the project cost estimate is shown too high making the electricity practically unaffordable.
According to government officials, the reason for not asking for free energy from the CTGIC as offered by the Snowy Mountain previously is to lower the project cost which would make the production of cheap electricity possible for domestic consumption. Snowy Mountain considered the project financially viable even after providing free energy. The officials will have to ensure that the country will receive equivalent benefit in the same form or lower PPA price.
Another critical consideration is the proportion of payment in foreign exchange for energy use and the associated exchange risk. These are very tricky technical issues, which the competent authorities will have to deal in the best interest of the country when the final deal is signed after the completion of financial and technical studies. The country has learnt enough from the experience of Khimti and Bhote Koshi that should make us wiser.
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