"Hydropower development helps to ensure energy security of Nepal"

Nepal Power Exchange Limited, a private sector power trading company and India’s Manikaran Power Limited signed a Memorandum of Understanding (MoU) on energy trading in January. It represents the first private sector power deal ever reached between the two nations. As per the MoU, the Indian company will not only buy 500MW of electricity from Nepal over time but also hold a 15 percent stake in Nepal Power Exchange Limited.

 In this regard, corporateangle.com caught up with Ashish Garg, Managing Director of Nepal Power Exchange Limited, to ask for his views on the very deal.  Garg, who is also vice-president of the Independent Power Producers’ Association (IPPAN), talked about why the private sector is interested in power trading as well as its ramifications on the Nepali hydropower sector. Excerpts:

 Efforts are being made by private electricity producers to acquire power trading licences from the government. What is the progress made in this regard? 

We are waiting for the government to introduce a licensing policy allowing the private sector to be involved in power trade.  It is said that the draft of the licensing policy is sent to the ministries pertaining to Finance and Law for their feedback.

 We want the government to issue power trading licences at the soonest. It is because we look to export power during the rainy season, which is just a few months away.

Two private power sector companies of Nepal and India-Nepal Power Exchange Limited and Manikaran Power Limited respectively- signed an MoU for mutual power trading in January. Has there been any further progress in this regard?

As per the MoU, Manikaran plans to purchase 50 MW out of the total of 500 MW in the coming monsoon for four months at INR 4 per unit. However, it will be hard to fulfil this plan as our company is yet to acquire trading and export licences from the government.  That is why we have already handed over Manikaran's proposal to the Energy Ministry.  

Likewise, Manikaran has already forwarded a proposal to the Nepal Electricity Authority for power bartering. As per the proposition, it will buy 500 MW of power from the NEA in the next monsoon when Nepal has surplus energy.  Likewise, Manikaran shall provide the equivalent amount of power in the winter to the country when it faces power shortage. Our company could sign such a deal if we were provided the trading and export licence. Essentially, our power should not be wasted irrespective of who sells power to India.

 Manikaran is also supposed to hold a 15 percent stake in Nepal Power Exchange Limited as per the MoU. Is there any progress in this connection?

Manikaran has already initiated a process to get approval from the Indian authority to invest in Nepal. Our company’s paid up capital is Rs2 billion and Manikaran will inject Rs 300 million to a shareholder. As Manikaran is our strategic partner, we have not set any premium price for our shares. 

As per the Indian government’s policy, it will refrain from buying electricity from the hydro projects in which there is either Chinese investment or technical involvement. In this context, how easy will it be for the private sector to sell electricity to India?

In a list of the hydro projects sent to India for approval, the NEA had also included those in which there was involvement of Chinese contractors such as the Upper Tamakoshi Hydropower Project. That’s why the southern neighbour delayed the approval process. We had asked the NEA that it could include private sector projects too in its list where there has been no Chinese involvement. After signing the power purchase agreement with the private sector, the NEA is bound to pay the agreed price to the private sector developer. So, it is up to the NEA to decide regarding which project it wants to include to export electricity to India.

There are very few hydropower projects in which there has been Chinese investment so far. Upper Marsyangdi A and Madi are only two completed projects where there is Chinese investment. Likewise, there are very few projects developed by the private sector where Chinese contractors are involved. Most of the independent power producers have employed domestic capital and Nepali contractors. Nepali contractors are involved in 95 percent of the projects being developed by the private sector.

 So, there is hardly a problem for the private sector to export electricity to India by adhering to the Indian government’s policy. NEA cannot exclude Chinese contractors in international bidding because it has to follow the public procurement law of the government. The private sector can exclude the Chinese contractors for the sake of selling electricity to India from their projects.

Is there any problem related to transmission lines to export electricity to India because there is only one 400kV Dhalkebar-Muzaffarpur Cross-Border transmission line project between Nepal and India?

The Dhalkebar-Muzaffarpur Cross-Border has the capacity carrying 1000MW or less. There is no other cross-border transmission line. But we can export through another cross-border transmission line to be built by the 900MW Arun-III Hydropower Project whose construction is undergoing. A section from Dhalkebar, Dhanusa to Sitamadi, Bihar is under construction and it has the capacity of carrying 3000MW of electricity. Maybe, this power line will be completed in the next one year. So, there will not be a big problem for exploring electricity in India.

Nepali is facing a huge trade deficit with India. Will export of electricity help reduce the trade deficit with India?

One thirds of the total imports of Nepal is petroleum products including diesel, petrol and cooking gas. Their prices have skyrocketed due to the Ukraine crisis. Vehicles are also being imported in large scale and they are consuming these petroleum products. So, if we promote electric vehicles, import of petrol and diesel will decrease. Nepal’s electricity will be consumed here. Import of gas will also be decreased if we promote electric stoves. On the other hand, we can surplus electricity to India. We can sell around 1000MW electricity to India worth Rs10 billion in the next monsoon. 

Besides your company, several other companies are coming to engage in the electricity trade. How is the business prospect for all these companies?

If 3-4 companies get involved in power trading, it would be good. They will offer competitive prices to developers. They will also partner with Indian companies for export and import of electricity. Monopoly is not good for any business.

How much additional power will the private sector be supplying to the NEA in the next one year? In the last monsoon, energy was wasted due to low demands compared to supply of electricity causing losses to the NEA. Can the NEA continue this trend?

The private sector will supply an additional 1000 MW from around 25 projects in the next one year.  Without substantially increasing domestic consumption, there is no other way than exporting electricity to India. 

How has been the impact of the current liquidity crunch in the banking system and price escalation of everything including fuel to the hydropower projects?

Due to the current global crisis, energy is an expensive commodity.  Now, hydropower is a big strength of Nepal in such a crisis because its cost does not escalate. Hydropower development helps to ensure energy security of Nepal. As far as the impact of the international crisis is concerned, it has increased the input cost for the under-construction hydropower projects due to inflationary pressure caused by the crisis. For the projects to be developed in the future, the cost of the turbines, cement and steel among others will increase which will contribute to increase the construction cost of the hydropower projects.

When it comes to the impacts of the liquidity crunch, banks have halted disbursement of loans. Around 50 projects with combined capacity of around 1000MW are feeling the impact of liquidity crunch.  So, it is necessary that hydropower projects get international funding.

How has been the impact of climate change and natural disasters on Nepal’s hydropower projects? How big of a concern is it for the hydropower developer?

Hydropower depends on nature. The hydropower projects are very much vulnerable to climate change and natural disasters. We have observed that the water levels in our rivers are growing every year gradually because of melting Himalayan glaciers. Studies have shown it too. So, we may face water shortage after 50 years in our rivers. Likewise, there is risk of glacier lake outbursts. Thirdly, landslides and flooding in the rainy season is another problem for the hydropower projects. So, it is necessary to have an early warning system and good insurance coverage for the hydropower projects.