KATHMANDU, Dec 27: Presence of corruption, lack of transparency and accountability has led to low integrity levels in the hydropower sector in Nepal, according to Transparency International Nepal (TIN).
Unveiling a report entitled 'A Study of Nepal's Hydropower Sector' on Monday, TIN said that cost overruns and time overruns, which have detrimental effect on overall profitability and efficiency of the project, and compromise on the quality of products and services are some of the major issues that have cropped up as a result of corruption in the sector.
TI has cited the case study of exit of StatKraft, a Norwegian energy firm, from Tamakoshi III, as increased technical and bureaucratic hurdles for foreign investment in Nepal.
StatKraft left the 650-megawatt project, citing lack of viable off-take option, lower demand and electricity price forecasts, and insufficient transmission for power evacuation, among others, in January.
TI has also noted cost overrun in Madhya Marsyangdi Hydropower Project which was escalated to US$ 400 million from $181 million. Similarly, in Kaligandaki Hydropower Project, contract defaults arising from project management inefficiencies and external risks increased the costs of the project.
NEA had to pay $50 million to an Italian contractor as a settlement to its claim and the payment was equal to 38 percent of the original contract price.
TI has also cited the purchase of substandard transformers and corruption charge against 21 NEA officials, including the managing director and the general manager, which inflicted loss of Rs 411 million NEA, in the report.
TI has stressed different measures to promote transparency, integrity and accountability in the hydropower sector in Nepal. "A move toward a major objective, practical and receptive Power Purchase Agreement (PPA) will lead to greater investor confidence and also attract more foreign investors in the sector. Electricity should be charged as a commodity therefore the tariff should be below the production cost," the report added.
The government can play a major role by intensifying inspection as well as deploying third party agencies to identify possible fraud and poor governance practices, the report said. "Project specifics and procedure should be documented upon completion for future usage and such documentation can act a model for future hydropower projects," it added.
This practice is normally absent among implementing agencies associated with hydropower. TIN says such project completion reports can also help in solving project management inefficiencies and external risk events.
"A move from denial to acceptance of such problems and building a coalition of management, employees and consumers in regards to solving the problem of corruption is also essential," the report added.