Tag: Reform

The Energy Crisis in 2016 and the Government of Nepal’s Policy of Prevention since 1992

The Government of Nepal (GON) has had in place a policy to prevent the country’s current energy shortage crisis since at least 1992. At that time the country boasted of an installed capacity of just 278 megawatts (MW) of energy generation (233 MW from hydropower). The GON’s hydropower development policy at the time claimed that Nepal would have to add between 300 and 400 MW more electricity to national grid system by 2001 to keep up with then current demand. Many in the hydropower development industry since that time often talk about Nepal’s great hydropower potential. In 2001, GON estimated that Nepal had a total hydropower generation potential of 83,000 MW of which 43,000 MW was financially feasible using 2001 era technology. At the beginning of 2016 and Nepal has only reached 829 MW of installed capacity, but the peak demand for electricity is at least 1,423 MW and this will reach 3,200 ten years from now according to a rather conservative estimate from the Nepal Electricity Authority (NEA). Other projections estimate the peak demand could reach three times this number. So just how does Nepal plan to meet, not only its current shortfall, but the expected increase in demand? In other words, how will Nepal generate an extra 9,000 MW of electricity by 2026?

This post will highlight some of the findings of 2016 concept paper issued by GON to address Nepal’s national energy crisis and explains how Nepal will develop enough electricity for the next ten years.

Current Developments

The big news this year is the Dhalebar-Mujaffar Transnational Transmission Line bridging the electrical grid systems of Nepal and India. The project was completed around the same time of Prime Minister K.P. Oli’s recent visit to India, but the project has long been in development. The project has introduced an extra 80 MW, mostly from geothermal sources, into Nepal’s electricity grid. Once the rest of the substations along this line are upgraded to handle the extra load, this number will increase to 200 MW. The GON’s goal is to end load shedding during the rainy season in one year and end load shedding during the dry season in three. So far the Dhalebar-Mujaffar Transnational Transmission Line has only allowed the NEA to keep up with its published load shedding schedule and occasionally beat it. Another project, the Dhalkebar-Hetauda Transmission Line, will likely be completed within two years.

Future Plans

There is a lot more hydropower in the pipeline. Currently, 48 hydropower projects are operating and generating 776 MW of power. Another 99 projects are now under construction and promise a further 2,382 MW. Surveys are underway for another 79 projects to generate 5,148 MW. Power Purchase Agreements (PPAs) have been signed between GON and project companies for another 2,568 MW and Grid Impact Studies are under way for 53 more projects expected to generate 1,100 MW.  An “all-of-the-above” strategy will plug the gaps between Nepal’s current installed capacity and the time when these future projects come online: a mix of solar, wind, biomass, and geothermal power generation.

Challenges

There are grave challenges indeed to fulfilling these lofty numbers. Currently, the NEA is the only entity that transmits and distributes electricity in Nepal and there is no independent regulatory agency. This could be why the NEA puts out a much more conservative estimate of the country’s needs or why it negotiates PPAs to buy less electricity than some planned power plants can supply. In any case, the NEA will need some help if Nepal is to reach its 10,000 MW goal within ten years. Prevailing laws are confusing and outdated at best and duplicative and inconsistent at worst. The NEA is also the only authorized wholesale buyer of electricity. Private companies cannot negotiate better deals with anyone else even if they wanted to. If private companies want to sell electricity to a thirsty South Asian energy market, they still have to pay NEA’s wheeling charges to use its already overburdened transmission lines. There are further problems relating to the environment, the government procurement process, and distribution and leakage, such as the tendency of overtaxed power transformers to explode as many Kathmandu residents well know. There is also a lack of development in alternative energy production and other issues caused by the recent earthquakes.

The Goal of Ending Load Shedding

The Government of Nepal plans to end the NEA’s current practice of load shedding. Currently Kathmandu residents face as many as 14 hours of each day without electricity, on purpose. These are planned power cuts that the NEA forces on alternating areas of the city in order to equitably share what little power it can distribute during the dry season. The GON has plans to end load shedding by addressing various issues of generation, transmission, and distribution as well as reforming various policies, administrative procedures, and laws.

Generation

The NEA and private companies plan to generate an extra 1,450 MW of hydropower within three years. The GON will also fix prices paid for wind and solar generated energy it the hope that these sources will make up around ten percent (10%) of the Nepal’s total energy production. In order to make this happen, the NEA will introduce a competitive bidding scheme for solar and wind energy companies and it will offer the winning companies favorable PPA terms. The NEA will also allow net metering in certain urban areas to account for net contributors to the grid. Households and commercial consumers will be eligible for 20,000 rupee solar panel subsidies and low interests rates for purchasing and installing solar panels. The GON will encourage sugar mills to sell excess biomass for energy production and GON itself will buy maize and other sources of bio-fuel to encourage commercial farming of these products. Finally, the government plans to phase out power bought from diesel plants, though industrial sector may still these as necessary at least until GON meets its goal of ending load shedding.

Transmission

The GON will hasten the construction of the Trishuli (Pahire Besi)-Matatirtha and the New Marsyangdi-Matatirtha Transmission Lines to Kathmandu. New Kataiya-Kushaha and Raxual-Parwanipur links with India will be constructed within one year to allow the import of another 100 MW. The GON will upgrade the transmission infrastructure of the Dhalkebar-Muzaffar Transnational Transmission Line. Transmission infrastructure upgrades throughout the grid system will take place in three phases. The first phase has already finished; Nepal is importing 80 MW more electricity from India. The second phase will enable an increase electricity imports from India to 200 MW by upgrading various transmission lines, such as the New Hetauda-Old Hetauda, Kimti-Dhalkebar, Bhaktapur-Harisiddhi-Matatirtha, Bhatatpur-Hetuada, Hetauda-Dhalkebar-Inaruwa, Hetauda-Kulekhani-Matatirtha-Syuchatar, Khimti-Lamosanghu, and a general strengthening of the Kathmandu grid system. The third phase will make importing 600 MW from India possible. The GON will expand the 200/400 kilovolt (kV) Dhalkebar Transmission Line and construct the New Khimti-Kathmandu and Hetauda-Naubise 200/400 kV Transmission Lines, along with other improvements.

Distribution

The GON will make a new master plan for energy distribution and leakage management within one year. This will include an electricity preservation program, Time-of-the-Day metering to encourage more efficient off-peak electricity use by consumers, and technical audits to target current distribution problem areas.

Policy

The GON will implement within six months a “National Energy Security Policy” for better land acquisition, Run-of-River PPAs, loan investments, force majeure provisions on the recent earthquakes, detailed actions plans for monitoring, and to address human resource problems relating to formulating necessary legal provisions and rules.

Administrative Procedure

For hydropower development projects, the GON will also ease the repatriation of foreign investment, simplify provisions on work permits and business visa for foreign investors or workers, let the Army or Armed Police Force give security to hydropower projects, improve PPA terms, and start an Industry Revitalization Fund. The GON also plans to remove requiring project company from having to seek Environmental Impact Assessments (EIA) or Initial Environmental Examination (IEE) approvals from the Village Development Committee (VDC) level.

An Energy Crisis Law

The GON also plans to push through an Energy Crisis Bill through the Constituent Assembly. This legislation would remove any restrictions on the amount of land called for in a hydropower project or transmission line. It would also create a cause of action against persons who hinder or create obstacles to hydropower projects. It would prohibit entry on electricity project sites when necessary. It would also offer certain tax incentives for the industry, make changes in the Electricity Theft Control Act of 1992, and  make it easier for the NEA’s to procure goods and construction equipment for its own projects.

Ensuring Sustainability through Reform

To ensure sustainably development of energy in Nepal, GON plans even more policy, procedural, institutional, structural, and legal reform.

Policy Reform

The GON will enact several policy reforms. The GON will give special priority to reservoir projects like the Karnali Chisapani. The GON will keep a balance over the types of projects it approves: 40-50 percent reservoir and pump storage, 15-20 percent peaking run-of-river, 20-30 percent run-of-river, and up to ten percent other projects. Policies will be made to preserve water basins for hydropower use projects, making this a national priority, revise electricity tariffs, make PPAs more favorable, make sure all projects funded by money from the Nepalese people will benefit the greatest number of Nepalese people as possible, set a fixed determination of NEA wheeling charges to carry electricity out of Nepal, encourage foreign investment in Nepal’s hydropower sector, engage the Army to build transmission lines, and reimburse community forests for lost land.  Efforts will also be made to support other community programs, revise Nepal’s procurement policies, install private transformers for large apartment blocks in urban areas, increase rural electrification, introduce smart metering, install more substations, form new policies supporting the national grid, enable high-voltage consumers to buy power directly, and fully exploit alternative sources of energy.

Procedural Reform

The GON will enact several government procedural reforms. The GON will restructure the Ministry of Energy and the Department of Electricity Development (DOED) to use more human resources for the licensing and study of hydropower projects. The GON will arrange extra support for all projects scheduled to come online in the coming years, develop government projects, and give priority to transmission lines and substations. The GON will facilitate studies of how hydropower projects will affect national parks, wildlife reserves, and environmental buffer zones. The GON will simplify the approval process for EIAs/IEEs for projects less 10 MW. The GON will expedite decisions on government land leases and permission for cutting down trees. The GON will fast track procedures for EIA/IEE approvals. The GON will no longer require community forest organizations to separately approve EIA/IEE reports. If a project company has to change the area of forestland impacted by its project by less than ten percent after its EIA/IEE is approved, then GON will not require supplemental approval. Project companies will be made to reserve ten percent of the equity in their projects for project-affected communities. The NEA will move certain electric lines underground in parts of Pokhara and Kathmandu. These and other cities, such as Biratnagar, Birgunj, Nepalgunj, Bhairahawa, Janakpur, and Hetauda will receive special 132 Kv lines.

Institutional and Structural Reform

The GON will enact several institutional reforms. The GON will form a Central Energy Crisis Prevention Coordination Committee made up of various Secretaries and headed by the Prime Minister. This committee will resolve any issues relating to hydropower development left unresolved at the Joint Secretary level. The GON will restructure the Water and Energy Commission for more discreet analysis of energy load demand forecasts, evaluation of energy consumption, and formulation of resource substitution policy. The Commission will draw up updated generation, transmission, distribution master plans. The GON will expedite the West Seti reservoir-based project with participation from the private sector. The government will also establish several new government companies: a National Electricity Generation Company, an Engineering Consultancy Service Company, a National Transmission Grid Company, and a National Power Trade Company. The GON will make other institutional improvements to support rural electrification efforts. The GON will outsource some responsibilities of the NEA to new smaller companies. Perhaps most importantly, GON will establish a Nepal Electricity Regulatory Commission complete with an appellate tribunal.

Legal Reform

Finally the GON will enact several legal reforms. A new Electricity Act to replace the now-dated 1992 Electricity Act and a bill creating the National Electricity Regulatory Commission will be submitted to the CA. These bills will address hurdles that have hindered hydropower projects in the past by allowing any difficulties to be addressed and removed by the Central Energy Crisis Prevention Coordination Committee. The roles of the Investment Board and Ministry of Energy in projects generating more than 500 MW will be revisited. Licenses will be issued consistent with GON’s transmission master plan. The Director General of DOED will be able to issue licenses directly for projects up to 25 MW.

Where does this all lead?

The Nepalese people need to understand what is being done in their name and hold the government accountable for reaching or failing to meet these goals. Just as the many Himalayan-fed rivers of Nepal boast so much hydropower promise, Nepalese politicians have made as many promises to the Nepalese people about ending load shedding through clean energy. Where I come from, when politicians fail to deliver on their promises, we remove them from office.

Dolalghat: A Place Where the Sun Shines All Day

 
I had the very unique opportunity of swearing in as an attorney here at the U.S. Embassy in Kathmandu before Vice Consul Michael C. Coker, himself a former practicing attorney in Arizona and Georgia. It was he who welcomed me as a new member of the Maryland State Bar just before Christmas. He enjoyed playing the part of a judge on the Court of Appeals of Maryland. It was quite an experience for the two of us, but even more so for my wife. She also had the opportunity to attend and then celebrated with me afterwards. I wore a new three-piece suit I had tailor-made here in Kathmandu and a certain blue tie that the City Attorney of Little Rock had once gifted me on Christmas while I was the Office Assistant his office in Arkansas.

Unfortunately cameras were not allowed at the Embassy for security reasons, but I have attached a few pictures from our recent company picnic. We went to Dolalghat, just outside of Kathmandu, where there is a beach by the river and sun shines all day long. It was a perfect spot for a wintertime picnic. We played games, ate lots of delicious food, held spirited conversations, and imbibed a few drinks. I even won an award.

I continue to meet new people in Nepal and foster my existing relationships with my colleagues and other contacts here. I enjoyed meeting Vice Consul Coker and other diplomats from the U.S. Embassy here.  I met an American named Brian who sells bacon in Kathmandu.  I also had the opportunity to meet some of the international journalists and writers who live and work in Nepal. It is interesting to learn from the perspective of those who are entrusted to be the world’s lens into Nepal.

I also have had tea with one of Nepal’s former Attorneys General. He served what has now, in these politically turbulent times, become an unusually long time as Nepal’s top solicitor and legal advisor to Government of Nepal. We talked about the recent changes to Nepal’s judiciary, Nepal’s new constitution, and the evolution of Nepal’s legal education system. We also talked about the 2000 U.S. elections and the time that he had met former U.S. Attorney General Janet Reno.

This month marked my first client referral. Thanks to my membership in the American Bar Association’s Section on International Law, a law partner at the Shanghai office of K&L Gates sent a potential client my way who wants some help expanding their business in Nepal. I arranged a meeting with their representative at our law offices and hope that it marks the beginning of a long, fruitful attorney-client relationship. I am grateful to the ABA for this opportunity and K&L Gates Shanghai for the introduction.

I am having a lot of fun here in Nepal and learning an awful lot. Lately, I have been working with a New York attorney to help a client raise some funds in the U.S. for some much needed hydroelectric power development here in Nepal. I have also recently drafted an engineering, procurement, and construction contract for an international non-governmental organization. I have brainstormed with another of my law firm’s long-time client about how to navigate the unique regulatory environment that is Nepal’s foreign investment regime.

Just yesterday, I helped one of my firm’s law partners draft an article, advocating for reform of some of these regulations and procedures, which will be published in a local business magazine. For example, Nepal’s Foreign Investment and Technology Transfer Act and its Foreign Exchange Regulation Act place the responsibility of approving foreign investment squarely in the purview of the Department of Industry within Nepal’s Ministry of Industries. The Nepal Rastra Bank, Nepal’s Central Bank, however also requires foreign investors to seek a secondary approval from the Bank. It is unclear what value is added by this second layer approval or what additional enforcement goals are achieved by the Bank’s involvement. What is clear, according to the attorney with more 30 years of experience in Nepal, is that it has discouraged some past foreign investors.

I also had the opportunity to sit down with the Chairman and Managing Director of an already established energy company operating in Nepal. He explained that the shares of successful hydropower companies in Nepal always sell out because they can offer a good return on investment,but more participation in the market by the Nepali investors would help encourage more confidence in foreign investors as well.

The Chairman’s biggest concern, though, was the lack of vision or long-term commitment from the Government of Nepal. He has heard for the last 30 years the claims about Nepal’s great untapped hydroelectric potential and a clean, energy independent future. As Nepal has rushed headlong into modernization, there also has grown a great demand for new electricity. This unmet demand is evident whenever the Nepal Electricity Authority (NEA), Nepal’s public and only electric utility company, announces another loadshedding schedule. Loadshedding is the name given to the planned rolling power cuts that the NEA forces on its customers because of the shortage of energy supply. Now, during the dry season, service areas of the NES are hit with up to 14 hours a day without electricity. The Chairman told me that the energy suppliers are ready to help the government build electricity transmission infrastructure, even up to Nepal’s borders, if only the government would take the initiative. The Government of Nepal could then sit back and collect its share in taxes or commissions.

One day the promise of a New Nepal will be fulfilled. There will new local elections: the first in more than twenty years. I recently read a book by Daron Acemoglu and James Robinson called Why Nations Fail: The Origin of Power, Prosperity, and Poverty. The authors drew a direct link between “inclusive political and economic institutions” and prosperity and the alternative link between “extractive political and economic institutions” and poverty. They opened the book by examining the differences between towns on different sides of the US-Mexico border. This example, they argued, cuts against the prevailing idea that prosperity is somehow determined solely by religion, ethnicity, or culture. Acemoglu and Robinson explained that “inclusive economic institutions” are those “that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are more conducive to economic growth than extractive economic institutions that are structured to extract resources from the many by the few. . . . Inclusive economic institutions, are in turn supported by, and support, inclusive political institutions,” that “distribute political power widely in a pluralistic manner and are able to achieve some amount of political centralization so as to establish law and order, the foundations of secure property rights, and an inclusive market economy.” Extractive political institutions are those that concentrated power in the hands of a few and are reinforced by extractive economic institutions that are built on the systematic exploitation of the status quo rather than innovation. Drawing on examples from Venice, Peru, Botswana, and the American South, the authors explained “sustained economic growth requires innovation” and “innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilizes established power relations in politics.”

I hope Acemoglu and Robinson are right. Nepal was mentioned by the authors several times as a destabilized place. I am hopefully curious to see whether the implementation of more inclusive institutions; envisioned by Nepal’s new Constitution (as amended) and new local elections; bring about a new era of prosperity for Nepal. In the meantime, I am blessed that to have so many amazing opportunities to learn new things, to be surrounded by supportive people, and presented with new and unique challenges every week.