NEPAL > My opinions regarding Indian’s fresh proposal for “Energy Cooperation”
There have been mixed reactions over the proposal put forwarded by Indian government. Some of the energy experts and politicians are blaming that it doesn’t protect the national interest of Nepal.
The Indian proposal seems to have drawn flak for at least three reasons. First, the proposal was kept a secret, even from some cabinet ministers, who were now demanding that the document be made public.
Second, it is being seen as a proposal that will allow India to dominate the abundant hydropower sector in Nepal.
Third, the Indian proposal on ‘Energy Cooperation’ if accepted by Nepal will not only bar third countries from investing in Nepal’s hydropower sector but Nepal itself will have to seek permission from India before harnessing its own water resources.
The Indian Embassy in Nepal immediately did a press release yesterday to defend. The embassy said in a statement: “Several Nepalese media outlets on Sunday picked the Indian proposal as dominating stories quoting some energy experts and political leaders that it undermines Nepal’s sovereign right to develop its hydropower potential in Nepal.
“In no way does the draft constrain Nepal’s sovereign right to develop its hydropower potential.”
“The proposal forwarded by India is a draft for discussion and would require bilateral negotiations prior to finalization.”
The row comes ahead of Sushma Swaraj’s three-day visit to Kathmandu, beginning on July 25.
This has created a lot of buzz in Nepal. By looking at the scenario and the limited information about Indian proposal, here is my opinion about why we should take this step as a positive sign. I believe we should welcome our Indian counterparts.
Unlike petroleum product, hydroelectricity cannot be transported physically. Transmission lines are needed to evacuate power. So there is no option for Nepal rather than signing deals with our neighboring countries either India or China. However, the option of selling our energy to China is not feasible due to geographical location.
Before moving to the context, let’s discuss the Nepalese border. Nepal shares its border with India and China. Nepal’s northern border is connected with autonomous region of China’s Tibet with 850 km long.
TIBET (CHINA)
1) Population: – 3,002,166
2) Area: – 1,228,400 sq. km
3) Population Density: – 2.2/sq. km.
The northern part of Nepal is the Himalayan range where the peaks are above 8,000 meters above sea level. So it will be extremely difficult to construct transmission lines. The cost of constructing transmission lines will very expensive not only because of the landscape but also due to sparsely distributed population of Tibet. There is a total of just 3 million in Tibet. The demand for energy won’t be that high.
On the other hand, the east, south and west borders are joined with Uttar Pradesh, Bihar, Uttarakhand and West Bengal states of India.
UTTAR PRADESH (INDIA)
1) Population: – 199,581,477
2) Area: – 243,286 sq. km
3) Population Density: – 820 /sq. km.
BIHAR (INDIA)
1) Population: – 103,804,637
2) Area: – 94,163sq. Km
3) Population Density: – 1,102 /sq. km.
WEST BENGAL (INDIA)
1) Population: – 91,347,736
2) Area 88,752 sq. km
3) Population Density: – 1,000 /sq. km.
UTTARAKHAND (INDIA)
1) Population: – 10,116,752
2) Area 53,484sq. Km
3) Population Density: – 189/sq. km.
By looking at the statistics, Nepal is surrounded by four Indian States that has a combined population of 400 million people. Unlike the northern part of Nepal, the landscape in the south is flat making easier to construct transmission lines. At the same time, Indian economy is booming. If India is to grow at 9 to 10 percent per annum, the biggest requirement is energy. India itself is an energy deficit country. According to one report, India will have a total demand of 800,000 MW by 2030 A.D.
On the other hand, Nepal has a potential of 44,000 MW. So, the ideal market will be none other than India. Countries like Laos, Bhutan are benefiting enormously by selling electricity to neighboring countries. So it is not a new thing. The second thing that we have to understand is that the proposal put forwarded by Indian counterparts is just draft proposal. Each parties can negotiate the terms and conditions before reaching to the final conclusion.
The political parties of Nepal are playing with the emotions of ordinary citizens claiming that agreeing with Indian terms and condition is like “selling your mother land”. This is utterly rubbish remarks made by some of our politicians. At present stage, we have to carefully analyze what we will get and what strategy we should adopt while negotiating with Indian counterparts to shape up the “energy cooperation”. One thing we should understand, no deal will happen if there is no “win-win” situation for both parties. At the same time, sentiments and emotions do not work in the business.
Before moving to “strategies” that we have to adopt during negotiation let’s focus on what we are going get financially at the prevailing laws.
Here are my assumptions
1) Out of 44,000 MW that is financially viable, Indian will take away 40,000 MW
2) Royalties will be charged at prevailing rate (export oriented RoR project)
3) Indian will sell the generated electricity at a nominal price of NPR 3.5 (INR 2.19) to their own country. (I understand the price per kWh is dirt cheap. But my analysis is based on the lowest price possible.)
4) All the projects will be RoR.
5) Plant factor will be 60 percent.
6) Corporate tax will be 20 percent.
7) 40,000 MW will be constructed at a same time (I know it is not a practical approach but it is just for a rough calculation).
Details regarding fees, tenure, taxation policy, royalty, VAT and custom
DIRECT FINANCIAL BENEFITS NEPALESE GOVERNMENT WILL GET.
1) Royalties: – Average of NPR 75 billion annually for the first fifteen year of operation. After 15 years of operation the royalty will be NPR 173 billion annually.
2) Corporate Tax: – Average of NPR 70 billion annually
3) The licensing fees have been ignored since it depends on how this 40 thousand MW will be distributed among the Indian Investors.
These will be the direct benefits to Nepalese government (my benefits calculations are based on the lower side to understand how huge prospects we have). Apart from this it will directly help to create employment generation, community development, infrastructure development (since construction of roads is inevitable)
So I see huge income for Nepalese government. I also believe that our concerned authorities should discuss internally and be prepared for the negotiation. While negotiating with the Indian officials, our focus should be on the followings.
1) Fulfilling internal demand first.
2) The developing company should be registered in Nepal. And the applicable laws should be the law of Nepal.
3) Employment protection for Nepalese.
4) Ensure downstream release benefits.
5) Use of local resource should be the utmost priority.
6) Strict rules regarding environment protection.
7) Nepalese government should be strict regarding the duration of generation license. Indians are always demanding the longer generation license period. At present, the generation license is for 30 years including five year of construction for export oriented project. Being Nepalese, the shorter the better for Nepal. After all, hydropower projects are constructed under BOOT basis. That means at the end of term, the project should be handed over to Government of Nepal.
8) Nepalese government should negotiate the terms and conditions after 30 years. There is no way 40 thousand MW will be consumed internally even after 30 years. So the PPA rates that Nepal is going to get after 30 years should be in favour of Nepal.
9) Nepalese government should focus on free equity.
To sum up, we have already wasted so many decades. It was Dr. Hari Man Shrestha who discovered that Nepal’s hydro potential during his PhD research at Moscow Power Institute; USSR in 1966 A.D. Nepalese finally saw light at the end of the tunnel and hoped that the generation of energy will lead towards prosperity. After so many decades passed by, we are still generating less than 800 MW only. This is a stark reality. We did nothing in this 50 years time. Now it’s time to wake up and get things materialized. Otherwise, another 50 years will pass by without any progress.
Nepal has a lot of opportunities besides hydro. There is a huge prospect for tourism industry. Likewise, agro business is promising. Nepal is one of the few countries where you can grow mango and apple trees within less than 50 km stretch. Our rugged topography offers a lot of opportunities. Now it’s time for our politicians and policy makers to act wisely to create our hydro resource a “reliable cash cow”
