Realizing energy potential

June 12, 2018 01:30 AM Bishal Thapa


Nepal’s approach to developing its hydro-power for export to India appears to have missed the larger context of India’s developments

Nepal’s long-term energy aspirations are centred on developing its immense hydro-electric potential. That vision rests in part on the idea that Nepal will be able to sell excess electricity generation to India, or other regional countries like Bangladesh, for a handsome profit.  

In theory, all of this is a great idea. There is just one big problem: Nepal never really does anything to realize that goal. Instead, Nepali governments seem content to merely peddle the same set of promises about shinning futures with abundant energy. Unless Nepal can adjust to the reality of the times and pursue the goal with intent, its famed hydro-power potential with great export potential to India will remain just that: a great potential. 

Where’s the market?

It isn’t clear yet that there is a market for Nepali hydro-power exports in India. To begin with, Indian power markets demonstrate very little confidence that Nepal will emerge as a reliable source of electricity generation. Thus far, the idea that Nepal will develop its hydro-potential and seek to export to India has only been a suggestion of governments in official communications or conferences that they have sponsored.

No one quite takes it seriously. Within India’s broader power market, the development of Nepal’s hydro and export to India is perceived largely as a government to government issue. Beyond the ministries, visiting prime ministers and their official delegations, there is little discussion of Nepal as potential electricity supply source. 

Nepal has also done little to challenge or change that perception. It presents hydro-power, particularly as it relates to India, as a key diplomatic issue. There are no parallel tracks directly with the private sector. Its approach to electricity infrastructure financing reinforces the view of electricity trade as a diplomatic issue. Nepal’s proposal on the development of another cross-border transmission line, for instance, is to have it pursued with government financing, thus reinforcing the appearance of electricity trade being largely a government-led initiative.

The perception of Nepali hydro-power as a diplomatic issue has meant that it remains largely outside of the public consciousness of the Indian power sector. And because it remains outside of the public consciousness of the Indian power sector, Nepal’s hydro-power export remains at the mercy of what the Indian government can enable. 

There are many other technical reasons why Nepal’s hydro-power exports may not easily find a market in India. But the biggest challenge is simply that the promise of Nepal’s hydro power development with exports to India isn’t yet a story that sells in India. 

At the same time, to fully realize its hydro-power potential, Nepal must be able to tap the Indian market place. For that Nepal must move the discussion of its hydro-power out from just diplomatic circles to ones that resonate better within India’s broader economy. 

Economic integration

One of India’s tremendous successes in the power sector has been the creation of electricity markets. This market remains a bit rough on the edges, perhaps even a bit nascent in some areas. Government continues to wield significant influence through regulatory oversight and state-owned companies that participate in the markets. Further regulatory and structural openness is required. But despite these current limitations, the core of India’s electricity market is sound. As it continues to evolve, it is this market place, and not the government, that will be basis of the sector’s growth in India. 

The emergence of Indian power markets reflects the broader evolution of the Indian economy. Across the sectors, markets have become far more institutionalized and rule based. They are also much broader, encompassing a wider swath of India across sectors and geographies. Government continues to play a leading role in shaping the evolution of the markets. But in several key aspects, markets have taken on a life of their own, independent of government.

Perhaps the bigger impact of these markets has been on the Indian psyche. Just as Indians looked at their cricket team and believed they all had a chance of getting in if they were good enough, so it is with Indian markets now. In the public consciousness, these markets are now credible—they represent a believable source of opportunity.  

It is these markets that are shaping India’s emergence as a vibrant economy.

Nepal’s approach to developing its hydro-power for export to India appears to have missed the larger context of India’s developments. 

While cross-border electricity trade has emphasized the need for physical integration (ie transmission lines), economic integration is what is more desperately needed to kick things off. Nepal must engage more directly with the Indian market place. 

Nepali firm in India

There may be many ways to achieve economic integration that enables better cross-border electricity trade. One option may be to register a Nepali firm in India tasked to handle all of Nepal’s energy trade. 

Imagine this construct. 

Government of Nepal establishes a company in India mandated to handle all of Nepal’s energy trade with India. The company is part owned by the Government of Nepal and listed in the stock exchanges of Nepal and India. This way many ordinary Indians and Nepalis, as retail investors in the company, will directly participate and profit from cross-border energy trade between the two countries. 

The company would aggregate Nepal’s purchase of all energy (electricity and other fuels) and provide a single conduit by bundling different contracts in India. Similarly, it would aggregate all of Nepal’s energy exports and release it through multiple contracts in India. You could extend it further, for instance, say by allowing it to serve as a conduit for international investment into the hydro-power sector in Nepal.

Of course, this construct will need to be far more detailed before its value can be fully considered. But here are some preliminary possibilities. If established, this company could be one of the most profitable companies in Nepal and India. It could reduce our import bill by introducing greater competition in the supply chain and seek out the best value for our exports. It could significantly increase investment flows into Nepal’s energy sector, enhance economic integration and allow for the hydro-power potential to be fully realized. It would create tremendous business and economic opportunities. And perhaps the most important, there would be no more blockades that cut off energy supplies.

An energy trading company registered in India would help to professionalize Nepal’s energy import (and future exports) while minimizing disruptions from political and diplomatic vagaries. It would enable Nepal to tap into India’s justice system, when recourse is required. It would afford Nepal access to India’s capital markets and broader business networks. It would allow for greater efficiency and costs reduction through downstream supply management.

Most importantly, an energy trading company registered in India would allow Nepal to directly tap into the engine that powers India—its economy and market place. To take advantage of the opportunities that India offers, and realize the great hydro-potential that Nepal holds, Nepal must engage more directly with Indian economy and market place.    

Nepal cannot remain a friend that is introduced by India at the card table. To play the game, we need to be seated at the card table.

bishal_thapa@hotmail.com

Twitter: @BishalThapa5

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