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March 2017 Interview

Published on: 2017-03-21 10:47:16     931 times read    0  Comments
“The government needs to work as per the 2072 action plan for hydropower sector development”

More than 100 private companies in Nepal are active in the hydropower sector at present. Shailendra Guragain was recently elected as the chairman of Independent Power Producers Association Nepal (IPPAN), the representative organisation of the private power producers. Guragain, who has already served as chairman of Arun Valley Hydropower Development Ltd, has worked as the chairman of Barun Hydro Power, executive director of Nyadi Group and director of Shubham Power, River Falls Power, Super Nyadi Power respectively. In an interview with Durga Lamichhane of New Business Age, Guragain talks about various issues undercutting the growth of the country’s energy sector. Excerpts:  

The energy minister and the executive director of Nepal Electricity Authority (NEA) are credited for reducing the electricity shortages in some areas of the country. How do you evaluate their work?
When Bharat Mohan Adhikari was the energy minister in 2011, the government declared an energy crisis for the next four and half years to tackle the problems created by the severe shortage of electricity. After that, a trend developed with each successive prime minister and the energy minister showing some levels of obligation to end the power crisis. Nevertheless, nothing happened in the implementation side. Under the erstwhile energy minister Top Bahadur Rayamajhi, a collaboration started between IPPAN and the ministry on what we wanted after 2011.  After this, the 99 point Energy Crisis Mitigation Action Plan- 2072 was prepared. 

The action plan has clearly shown what our problems are, what should be done and who should do it.  The present energy minister worked by focusing on the problems mentioned in the document and it made it easier for him to address the issues. He has a certain command over his area of work. He also found an executive director for NEA that has knowledge and experience in the technical field and who can fit in the Minister's style of work. 

Moreover, the NEA executive director Kulman Ghising was disappointed after he was removed from the Chilime Hydro Power Project.  This must have given him the impetus to do something to prove his mettle. He successfully focused on the management of available electricity. It was not a kind of magic that happened overnight, some groundwork had already been done. The coordination among responsible officials and their commitment made it possible.

What should be the power sector’s target now?
Ghising has found a way by proportionately distributing the available electricity.  Now, there is a need to find ways to generate more electricity quickly for maintaining this distribution.  There is now an additional 400MW from India, which is largely insufficient for industrial purposes or charging electrical vehicles. IPPAN and MoE have joined hands to produce 10,000MW in 10 years taking April 2016 as the base year. Under this, 200MW (which we have committed to) will be produced within one year. Similarly, our target for 2018 will be achieved as construction work on various hydel projects has gained momentum.  In this way, the 800MW (equivalent to what Nepal has produced in the last 100 years) target will be produced in the next 1-2 years.    

What are the main problems faced by private investors in the hydropower sector?
Besides the project feasibility study and power generation licenses, we are required to approach various government departments and offices frequently to get approval  related to the environment, felling of trees, using community forests, permits for the use of explosives and excise clearance. This is quite exhausting. The processes need to be made easier through a single desk mechanism.  

Secondly, there is a tendency to waste time for years in the acquisition of government land for hydropower projects. Developing a project requires support from the forest, environment and energy ministries.  But we have to deal separately with them and they have different rules, regulations and laws. These difficulties must be eased. 

Similarly, we lack transmission lines to connect the power to the national grid. Considering the construction period of the projects, the transmission lines have to be built quickly. The existing procurement policy of the government makes it difficult and causes significant delays in the straightforward task of constructing transmission lines.  It is also due to the fact that NEA is the only authorised body in the country allowed to construct the supply lines. All it takes is to open an LC at banks to purchase cables and poles/towers and install them to build a transmission line. 

We have been asking the government to allow us to develop transmission lines under the Build and Transfer (BT) or Build-Own-Operate-Transfer (BOOT) models.  It’s also been mentioned in the Energy Crisis Action Plan but has not been implemented yet. 

Besides these, a number of announcements in the action plan have not seen the light of day yet such as the VAT refund of Rs 5 million per megawatt to the developers and necessary arrangements for tree felling in the proposed project areas within a month after the developers apply for the projects. 

The government has also opened up storage-type hydel projects for private sector investors as demanded by private power producers. Is the private sector ready for this? 
Nepali private power producers are not the kind of promoters who have experience in constructing reservoir-based projects. There are no promoters who have come upfront to say that they are in the process of receiving a license for storage-type projects after the government announced the PPA rates for such projects in early January.       

Until it is determined from which year the PPA rate of Rs 12.40 per unit is applicable, it will be difficult to invest in such projects.  It takes at least 7- 8 years to complete the construction of such a project. I don’t think any promoter will come forward to invest in reservoir-based projects if this is the rate per unit of the produced electricity after the completion of the projects.  Investors will come ahead only when the government says that the rate is a base rate for now and a new rate will be determined upon the completion of the projects.

The private sector will come and it will attract domestic investment if the same type of rate as offered to Chilime Hydro is offered to them as well. We have long been asking the government to provide us with the same facilities, from the initial phase of the projects to the trading of electricity, which the foreign investors have been receiving here. 

Nepali private producers have long opposed the PPA in USD for foreign investments and in NRs for domestic private sector investment. As per the latest arrangement, foreign investors will be paid in USD until their cost is recovered and in NRs afterwards. Meanwhile, the other hand, storage-type projects have been opened for the private sector. What is your opinion on the new policy regarding the PPA in USD?
It is suitable to pay foreign investors in USD when there is no in investment coming.  However, we are now in a situation where domestic investors have already made a commitment to produce 3,000MW of electricity. The government needs to understand this. The government should become the guarantor when it comes to foreign investment. Domestic investors are investing using their properties as collateral.  There is nothing wrong in building large projects with foreign investment. But it is not appropriate to invite foreign investors by paying them more than to the domestic investors. 

At a time when India has been supplying power in rates cheaper than the domestically produced electricity, Nepali private producers are saying that the rate offered to them is insufficient. Isn’t it obvious to buy energy from cheaper sources?
We will never achieve prosperity through the imported cheap electricity from India. If India hikes the rate of electricity to Rs 30 per unit from the Rs 3 at present, then the situation will be like the time of the border blockade. We have suffered this frequently over the past 50 to 60 years. We need to ensure our prosperity by consuming power generated here.  Therefore, we should build our own projects as per the market price and the project costs. 

In your estimate, how much foreign investment will there be as the deadline of the payments in USD has been finalised?
I think the possibility is very low. It is due to the lack of an open market in Nepal to timely determine the market rates. Here, the rates are fixed on the banks of how it will benefit politically. But foreigners invest on the basis of ROI in a purely professional manner. I see very low chances of FDI in the Nepali hydropower sector because of this difference. It’s for this very same reason that no foreign investment has come after the Khimti and Bhotekoshi projects. Our government till date has not regarded the generated electricity as energy and a commodity for trade. 

Hydro electricity is only one percent of the total energy we consume. The rest comes from other costlier sources. If we make hydro energy a bit more expensive, it will attract investment and large projects can be developed. This will in turn check the outflow of money from the country for receiving energy from other sources. Meanwhile, it will also stop the felling of trees for energy in the country.  

Promoters are facing difficulties due to the ceiling on the purchase of land for hydel projects.  But some promoters are said to have also registered on their personal names. The land that is outside the project sites but which is integral to the project.  When the ownership of the projects is handed over to the government in the future, the ownership of such personal land will not go to the government. Won’t this pose a problem when the projects are handed over?
Firstly, the buying and selling of government land is not appropriate. After all, the land ultimately belongs to the government after the expiry of the lease agreement. The land is only leased to the projects. The government needs to lease the land determining the per hectare rate of land. The promoters are faced with bureaucratic red tape regarding the acquisition of land. 

During the development of a project I was compelled to buy land from an individual at Rs 300,000 per ropani, the value of which was only Rs 10,000.  Not much can be said about the future of land next to river banks and areas adjacent to the rivers. Also, most of the land taken for constructing access roads to the project sites is usually near rivers. Promoters cannot use that land in the future for purposes other than building access roads. And the main thing is no project would need more than two to three hectares of land except for the reservoir-based ones. In this regard, it is not a problematic issue. If a promoter needs more than that, it is to lengthen the access road. The land used for roads does not have any other business value. Only the villagers will use it. Therefore, there should be no ceiling on the land which will be used for the projects. 

Hydropower companies are required to replace forest land used in building projects. How do you see this? 
Nothing is more ridiculous than this. A project site covers a mere 3-4 hectares even if the area is said to be forest land. When a project is constructed, there is one building as a power house, another is an office, while the tunnel remains underground. Similarly, if there is a canal there is a watercourse and a pipe if there is a penstock. More land is only acquired to ensure there are no obstructions while working on the project. 

After completion, a project occupies less than two hectares of area. Therefore, the provision to replace the forest land needs to be removed. 

Different organisations like the NEA, WEECS and NPC all have energy consumption projections for Nepal. Which one do you think is realistic and what is IPPAN’s understanding on this?
These estimations are based on when and how long it will take us to achieve our goals. All three projections are correct. Therefore, none of them are wrong.

IPPAN refers to the example of Norway regarding the projection of energy consumption. The Nordic nation has a per capita energy consumption of 24,000 KW. It is 1,000 KW in India which is the average Asian level. Meanwhile, our per capita consumption of electricity is at 130 KW. We need 10,000 MW of electricity if we want to reach the Indian or Asian levels. Likewise, to reach the per capita energy consumption levels of Singapore, European countries or South Korea, we need to produce 25,000MW. 

The aim of IPPAN is to produce 10,000MW in the 10 years starting from April, 2016 to reach the Asian level.  It is not that the targeted power level is sufficient. After hitting the target, we need to further produce additional electricity and start developing the sectors to consume the produced power. We should move ahead with the export, exchange and banking after we have sufficient electricity.  There is the possibility of exporting to India, China and Bangladesh. We can utilise the electricity to run railways that will connect Nepal to India and China in the future.  If we want to export and operate electric railways, the 10,000MW will be insufficient.  

What do you suggest the government can do to correct the discrepancies in the hydropower sector?
At a time when ordinary citizens are very much surrounded by clouds of disappointment, the aggressive work carried out by both the incumbent energy minister and Executive Director of NEA are quite welcome. IPPAN and I personally respect them from the bottom of our hearts.

Moreover, there are tasks mentioned in the Energy Crisis Mitigation Action Plan that can be implemented immediately. The government needs to bring provisions for the immediate implementation of the plans so as to ensure quick completion of the projects that are currently under construction. This will also lead to a growth in confidence of both domestic and foreign investors.


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