Published On: September 24, 2019 01:25 AM NPT By: Bishal Thapa
When Nepal is finally poised to take advantage of its water and hydropower potential, the benefits are going to the rich instead of poor farmers and the discarded agricultural sector
For the first time in its history, Nepal looks poised to realize its famed hydro power potential.
Load shedding [grid blackouts] has ended. Nepal Electricity Authority (NEA), the national power utility, is profitable. There is a strong pipeline of new hydropower plants. Rural electrification is expanding rapidly. This newfound confidence has led Government to double its generation plans for the next decade from 10,000 MW to 20,000 MW.
But just like the first hydro plant built in Pharping a century ago was intended solely to power Rana palaces, the bounty of Nepal’s hydro potential will benefit only the few rich. The impacts of Government policies will mean that the benefits of Nepal’s abundant hydroelectricity will bypass most Nepalis, particularly those that rely on agriculture.
Nepal must reorient its approach to ensure that the benefits of Nepal’s electricity are spread just as much toward enhancing incomes, productivity and livelihoods in agriculture.
The great electric vehicles scam
A stark illustration of how the benefits of abundant energy will accrue only to the rich can be seen through government policies on electric vehicles.
Faced with the hundreds of mega-watts (MW) of new hydro power plants, Government and NEA are worried that there will not be enough domestic electricity demand to absorb the growth in generation. Efforts are underway to export electricity to India and Bangladesh. NEA has launched a campaign to increase domestic consumption.
The promise of electric vehicles couldn’t have come at a better time. Electric vehicles are now reliable, proven, affordable and can be deployed in a wide range of applications.
Electric vehicles offer Nepal many simultaneous benefits. It will help to greatly increase domestic electricity demand, displace oil imports, reduce local air pollution and curb the trade deficit.
Around the world, electric vehicles are being actively promoted.
The Government of Nepal is following suit, offering significant tax cuts and fiscal incentives to promote electric vehicles. It has slashed import duties on electric vehicles. It is underwriting NEA’s investments to develop a network of electric vehicle charging stations at concessional rates.
The Prime Minister has himself inaugurated new electric buses.
For Nepal, however, electric vehicles offer little socio-economic benefits. It touches only a small fraction of the population and generates little new economic activity. It is merely a shift in fuel choice, from the dirty diesel or petrol to clean electricity produced domestically with our own rivers.
That transition from conventional (petrol and diesel) to electric vehicles must occur. But why should the government finance this transition with public money when it will happen on its own without tax-payer support? When public resources (government finances) are limited and our development needs large, why should public finance go towards financing purchases of electric vehicles.
To encourage consumers to purchase electric vehicles, Government doesn’t need to provide tax subsidies and fiscal incentives. All it needs to do is adjust the relative rates such that conventional fuel vehicles cost more than electric vehicles. It can do this in several ways: increase taxes on conventional vehicles even further than what they are today; levy additional taxes on petrol and diesel for transport; or simply ban the import of conventional fuel vehicles.
Similarly, there is no need to divert government’s limited resources to underwriting the construction of electric vehicle charging station infrastructure. Electric charging stations, including the initial infrastructure, are already commercially viable. All government needs to do is open the sector and the private sector will come flooding in.
With or without government funding, the transition to electric vehicles will occur and just as quickly.
With tax and fiscal incentives for electric vehicles, Government is merely financing the purchases of the wealthy, those that could afford to buy far more expensive vehicles are now being subsidized in their purchase of electric vehicles.
Those that couldn’t afford to purchase a vehicle in the first place are still using the bullock cart to ferry their produce to the market. Half of their produce will rot or be damaged on the way. What will Nepal’s great electricity potential have done for them?
The farmer must benefit
The primary driver of electric vehicles in Nepal currently is the need to increase domestic electricity demand. It has many other co-benefits—pollution, import reductions—but electric demand growth is the primary motivation.
In comparison, enabling the mechanization of agriculture in Nepal could do more and yield broader comprehensive socio-economic benefits. Not only would it help to increase domestic electricity demand, the socio-economic benefits could be immense: modernization of agriculture, improved quality of electricity in rural areas, higher agricultural productivity, higher farm incomes, greater investments flowing into rural areas, food-security, reduced imports—the list is long.
Approximately only 25 percent of Nepal’s agricultural production currently involves mechanical energy. Most of the production involves the use of human and animal energy. The scope for modern energy in Nepal’s agriculture is immense and will lead to significant increases in electricity demand, much more than electric vehicles would.
Nepal currently has approximately 50 cold storages. A refrigerated cold chain network using a mix of cold storages, packing houses and reefer vehicles (these could be electric) will help ensure that quality agricultural products reach the marketplace and increase farmer incomes. All of this requires energy and translates into electricity demand.
Our abundant electricity could also be used to support a dense network of chilling stations so that we produce enough milk for domestic consumption instead of having to import milk or for it to be more profitable to export all our cows and buffaloes to slaughterhouses in China and Bangladesh.
NEA is hesitant to count rural areas as a source of electricity demand because rural electricity tariffs are extremely low. At Rs. 3 – 7/kWh (unit), rural electricity tariffs are below its cost of supply. But rural areas don’t need such low rate. Rural consumers would happily pay much higher tariffs if it were accompanied by reliable services—electricity you could count on when you need it.
Across the agricultural value chain, the availability of reliable energy for irrigation, mechanical agricultural methods, storage, packing and transport could radically transform Nepal. It would spur investments into rural areas, increase farmer incomes and become the biggest driver of strong electricity demand for NEA.
It isn’t that Government is not investing in agriculture. All sorts of incentives, waivers and initiatives are already available. But more is needed. Unlike the transition to electric vehicles, which will happen even without government subsidies, the mechanization of agriculture needs direct government intervention.
When was the last time the Prime Minster inaugurated a cold storage facility, a milk chilling plant or a water-pumping irrigation facility?
Instead of tax rebates for electric vehicles, what would happen if electric vehicles were to face import duties of 250 percent (the current tax rates for conventional fuel vehicles), if conventional fuel vehicles were taxed at higher rates of 400 percent and all these tax receipts went toward investments for the mechanization of agriculture?
If that happened, electric vehicles would still displace conventional fuel vehicles, and for the first time in our history, the benefits of Nepal’s abundant electricity would go to where it really belongs—the people of Nepal instead of just the palaces of the rich.
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