By the end of 2017, contribution of independent power producers in the national grid will hover around 630 megawatts as compared to 574 megawatts from Nepal Electricity Authority. As the government has given high priority to develop the energy sector by implementing the announcements made by the previous governments, the private sector has been highly encouraged to transform the bleak picture of hydropower development. Pushpa Raj Acharya of The Himalayan Times spoke to Shailendra Guragain, President, Independent Power Producers’ Association, Nepal, on the private sector’s perspective on the recent initiatives taken by the government. Excerpts:

The government had issued a vision document for energy sector development called ‘National Energy Crisis Prevention and Electricity Development Decade’ last year and the current minister of energy has expressed his commitment to implement this document since he assumed office. How would you like to explain the initiatives taken by the government in power sector development?

There had been a lot of announcements made in the past for power sector development but they were hardly implemented. Almost all the energy ministers of the past have issued vision paper for the development of this sector. However, the incumbent Energy Minister, Janardan Sharma, has made a commitment to implement the announcements made by the previous governments. A vision document titled ‘National Energy Crisis Prevention and Electricity Development Decade’ was issued in February, 2016, which has envisioned developing 10,000 megawatts of hydroelectricity in 10 years. When Sharma assumed office as energy minister in August he had said that he will not issue any vision documents and implement the previously made announcement and we have witnessed significant changes since Sharma took over the leadership of the Ministry of Energy (MoE). He had vowed to implement all the 99 points included in the vision document, which was introduced as a revamped plan for power sector development. We have started witnessing some tangible reforms in the power sector through the implementation of this vision document. The major breakthroughs are end of load shedding, approval of projects with generation capacity of up to 100 megawatts from Department of Energy, implementation of ‘take or pay’ provision in power purchase agreement and withdrawal of hydrology penalty for small hydropower projects. These changes have brought a positive vibe in the power sector. IPPAN believes that these steps are encouraging for power sector development of the country.

Does it mean that the private sector can now trust the government to help overcome the obstacles witnessed in hydropower development?

After a long time both the MoE and Nepal Electricity Authority (NEA) have a committed leadership. The teams at both the MoE and NEA are commendable and have been able to deliver results within a very short period of time. However, there are some issues that need to be addressed to encourage investment in hydropower development. The major problem is regarding land clearance and environment related issues. There are various hassles from forest and environment ministries that have been causing delay in some hydro projects. Instead of facilitating the projects, these ministries most often only look at things from their perspective. The existing land ceiling needs to be reviewed for development of large scale hydropower projects. Not only private sector-led projects but also government funded hydro projects are facing similar problems from forest and environment ministries. The transmission line projects being implemented by NEA have been delayed for years due to the reluctance of the Ministry of Forest and Soil Conservation to expedite right of way clearance. There are local level issues, which also create hassles in the early completion of projects. Though the government has created a mechanism led by the chief district officer to facilitate the projects, this mechanism has been ineffective as it does not take any initiative unless it receives an instruction to do so from the central level. On the other hand, the MoE and NEA have yet to implement some other announcements that can provide necessary impetus to attract more investment in hydropower from the private sector.

Could you elaborate on what could be done in the near term to encourage independent power producers?

The government should not differentiate power producers as government and private sector because after 25 to 30 years of operation all the hydropower projects will be under the ownership of the government. Private sector developers have to recover their investments within a certain period of time before the projects are handed over to the government. This is why the government should not be conservative in its thinking about the private sector. There are some incentives announced by the government that have yet to be executed. The government had announced an incentive of Rs five million per megawatt for hydropower projects that start commercial operation by 2022-23 through fiscal budget of 2014-15. However, the Ministry of Finance (MoF) has been reluctant to implement this provision. Until and unless the MoF, the Ministry of Land Reform and Management, the Ministry of Forest and Soil Conservation and the Ministry of Environment cooperate for the implementation of the ‘National Energy Crisis Prevention and Electricity Development Decade’ that was endorsed from the Cabinet, the Energy Ministry alone will not be able to execute it properly. To achieve the desired results all the stakeholders need to work on a war-footing. Similarly, there is inconsistency in government policy. The NEA had fixed new tariff for power purchase at Rs 8.40 per unit during dry season and Rs 4.80 per unit during wet season in June, 2012. Then after it was also decided that similar rates would be provided to projects in the construction phase through the budget. However, it was withdrawn after a year. The present leadership at MoE has assured the developers to provide the aforesaid incentive and power purchase rate and we are eagerly waiting for this. Most importantly, the government has signalled new PPA rates for the projects. The MoE has proposed a rate of Rs 12.40 per unit during dry season (from December to May) and Rs 7.10 during wet season (from June to November) for reservoir projects and also Rs 10.55 and Rs 4.80 per unit for peaking run of the river projects during dry and wet seasons, respectively, which the NEA board needs to approve to bring it into force. Projects with generation capacity of over 700 megawatts that have achieved financial closure are waiting for the new rates to be introduced, however NEA has been delaying in implementing the new power purchase agreement (PPA) rate as recommended by MoE.

There has been delay in construction of transmission lines even after the generation projects have been completed. This happened with Mai hydropower project in the past and now developers in Solu corridor may face a similar problem due to delay in transmission line construction. How can NEA cope with this challenge?

The government has ensured transmission line for the generation projects. However, they are delayed due to procurement related disputes, delay in forest clearance and negligence of contractors. As the NEA has implemented ‘take or pay’ provision, the developers will be compensated if the transmission line projects are delayed but ultimately the power utility will have to bear the loss. This is why we would like to suggest that the transmission line projects can be built under the BT (build and transfer) model. Under this model, the developer itself will build the transmission line and transfer it to NEA, which will shorten the procurement related process of NEA. Likewise, as we will have additional 1,000 megawatts of electricity within two years we also require high capacity transmission lines and robust distribution system to maintain the reliability in power supply and reduce leakage. Increase in electricity consumption along with more generation will bring about a substantial change in our economy from next year.

How much energy will the private sector be able to contribute if the government implements the provisions of ‘National Energy Crisis Prevention and Electricity Development Decade’?

If the government implements all the 99 points of the vision paper, contribution from independent power producers alone will be around 10,000 megawatts. At present, there are projects with capacity to generate a total of 2,200 megawatts under construction, and among these there are projects with total generation capacity of 700 megawatts in the pipeline to sign PPA. Government has also been planning large scale projects like Budhigandaki, Nalsing Gad and West Seti. I think we have started a march to change the landscape of the energy sector of the country.