The centenary ought to have been a time for soul-searching. A hundred years after the Rana prime ministers first powered up their palaces, the vast majority of Nepalis continue to live without access to electricity. Those fortunate enough to have a connection have to make do with long hours of load shedding. For many of us, Nepal’s failing power sector has been nothing more than a reflection of our dire, uncertain political environment. But placing the blame solely on the political climate misses a deeper rot.
Nepal´s power sector operates on a decayed vision – a strategic outlook that is almost as old as the Pharping Power House. As much as Nepal’s power sector needs political certainty, it also needs fresh thinking: A contemporary view that sheds old fallacies and articulates a modern vision.
COUNTING THE UNSEEN
The decay begins right at the starting point – in the estimate of electricity demand. Nepal Electricity Authority (NEA) reported electricity demand of 4,367 million units and peak demand of 967 MW for 2009 – 2010. NEA met 85 percent of that demand through domestic generation and imports. Load shedding made up for the remaining 15 percent.
The problem is that NEA significantly underestimates demand. It fails to account for the fact that consumers avoid many purchases because they know that NEA will not be able to meet their requirements in the first place.
Many of us avoid purchasing electronic goods simply because we know that a reliable supply of electricity will not be there to run such gadgets. An industrialist avoids building a factory because she knows that adequate supply of electricity will not be there to run the machinery. In many rural parts of the country that have been electrified, residents still use non-commercial energy simply because electricity supply to their homes is not reliable, or in most cases virtually non-existent. Unlike load shedding, these avoided purchase decisions are never recorded and miss the most important part of our story.
NEA’s reported demand implies that, on average, we currently consume approximately 150 units of electricity per person. Comparative cross-country analysis suggests that our electricity demand should be closer to 500 units-per-capita. By that count, our true electricity demand should be 3-4 times higher than is reported: It should be closer to 14,500 millions, not 5,000 million units; peak demand should be closer to 3,000 MW, not 1,000 MW. Current shortages will not be15 percent, but may be as high as 95 percent.
The problem is that NEA significantly underestimates demand. It fails to account for the fact that consumers avoid many purchases because they know that NEA will not be able to meet their requirements in the first place.
Acknowledging the full extent of our demand is the game changer we need – the first necessary step in modernizing Nepal’s vision for its power sector. It might, just as a start, help us realize that our great potential for hydro power exports to India may possibly be the longest running hoax in the country.
WAITING FOR ANGELS
Private participation in Nepal’s power sector, long considered to be the magical panacea, has lost some of its sheen. It has not led to as many new plants as expected. Competition has often been counter-productive, degenerating into a free for all with players peddling hydro-licenses and political influence. The market place is bogged down by a large number of license squatters, those that acquired a license purely with the intent of selling it later.
Private sector advocates will be quick to point out that these failures may have been the result of inadequate clarity in the rules, poor institutional or structural arrangements and endemic corruption. Sure, all of these have had a role to play. But the dramatic failing was that competition rapidly sunk to the lowest common denominator: Who could acquire the hydro license. For all the grand promise of hydro in Nepal, it seemed the only way to make money was to get a hydro license.
Nepal’s power sector is broader than hydro licenses.
There are many other ways to profit from it – everything from supplying cement to supplying security guards. Some of this, no doubt, can only be realized when the broader electricity supply chain, such as transmission and distribution, is open to the private sector. At the same time, though, the private sector must also challenge its perceptions of Nepal’s hydro as a zero sum game, where one business’ gain is another’s loss. It must evolve collaborative, broader supply chains that allow the gains of the hydro business to be more widely spread. The trick is to recognize the broader scope of opportunities so as to wean competition away from the unhealthy unitary focus on hydro licenses.
All of this requires a model of managed competition with a strong NEA at the centre.
Unfortunately, NEA is in serious disrepair. The company is broke with over NRs 20 billion in the red. It has little fiscal credibility, except for the government’s implicit guarantee. Minor symbolic steps taken by the last energy minister, like establishing an apolitical method for selecting its managing director and removing the minister from its board, hasn’t done enough. It is no wonder that experts have recommended taking a machete to NEA: Chopping it into separate distinct pieces for generation, transmission and distribution, along with a host of other institutional reforms.
It is always tempting to want to cut a monopoly down to size. But we need to move beyond the rhetoric of boiler plate solutions toward reform measures that are better suited to our unique circumstances. We have a small power system that is at an elementary stage of development. Private sector is yet to demonstrate its ability to develop and manage complex projects. Affordable electricity remains an essential development objective.
We need to get on with strengthening NEA. Remove the overhang of its debt. Require it to be more transparent. Empower it to withstand political pressure. Cleanse NEA’s current board and pack it will civil society, sector experts and industry representative. Provide NEA’s managing director wider authority. After all, we might be better off betting on horses on the course than angels in the sky.
Rather than tinker around with sexy institutional arrangements, we need indigenous reforms that rapidly move us toward physical outcomes – new plants, new transmission lines and a functioning system. A model of collaborative, managed competition may be the only way to get there.
The requirements are as simple, as they are challenging. Allow NEA to collaborate with the private sector across the entire electricity supply chain. Open transmission and distribution to the private sector. Move toward evolving a meshed transmission network that provides a better framework for tapping Nepal’s diffuse hydro potential.
Frame rules that protect smaller entrepreneurs pursing small projects from being overwhelmed by large firms. Protect bigger players pursuing large projects from being needled by smaller irritants. Through all this, NEA must remain at the centre, shepherding competition to ensure that the gains of the industry are more widely spread.
TONIGHT´S POWER CUT
It is hard to be excited about long-term prospects when tonight’s power cut is our immediate concern. Talk of deeper shortages is redundant in the face of already long hours of load shedding. But sometimes a crisis might be exactly what we need to rebuild afresh.
We must recast how we respond to the current crisis. Bracket the shortages to prioritize how unmet demand will be served. Broaden the scope of who responds by creating public-private special purpose vehicles with the authority to fast track investments. Allow a model of collaborative, managed competition to take roots.
Rather than be overwhelmed, we need to approach current shortages with an honest appreciation of what got us here and what we need to rebuild for the future. If we begin to rebuild right, we really will have something to celebrate at our next centenary.
The writer is Vice President of ICF International, a global advisory services firm. Views are personal
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