Reform Nepal Electricity Authority
- Energy is not merely a commodity but also a catalyst for economic and industrial growth
May 12, 2013-
Bureaucracy is often referred to as “the permanent government.” With frequently changing governments formed by politicians, bureaucrats in Nepal not only have experience working under various politicians but also under regime changes. Acclimatising to a new political climate and new political personalities has become the norm for Nepali bureaucrats. Thus, their capacity to adapt and understand the volatile governance system and their weak/strong affiliation with a party gives them enormous ‘soft power’ to influence incoming governments—either positively or negatively. My conversation with Chief Secretary Lilamani Poudel at his office dealt with some of these elements and the role of the bureaucracy in the governance of the energy sector, and in turn, its impact on the Nepali economy.
Obviously, as an entrepreneur, I had some institutional interest in the meeting which was to give a formal memo requesting the secretary to bring in wind power policies as soon as possible. The aim of such a policy is to allow Nepal to move towards energy diversification through renewable sources and reduce its imports of fossil fuels which costs almost one-sixth of the total annual budget of Nepal. Inevitably, our discussion headed to energy issues of Nepal and its overall impact on the economy. Despite preferential treatment for Nepali goods in many countries, can our goods really compete in global markets? Specially, given the irregular power supply and the need for many industries to rely on expensive diesel or coal (coal in Nepal is almost two and half times more expensive due to logistic costs). For example, tea farmers in Ilam can sell their tea for Rs 200 per kilo if tea is processed using electricity supplied from Nepal Electricity Authority (NEA). But the current retail price is Rs 250 per kilo due to the addition of diesel cost in the marginal cost of production of each kilogram of tea. To make Nepali goods more cost-competitive affordable energy is required to reduce the marginal cost of production which reduces prices for consumers, who to a larger extent bear the increased cost of production.
This is true for other small, medium or large enterprises that tend to either rely on diesel or expensive coal as well. The chief secretary clearly stated, “The cost of power from diesel generation is much more than Rs 35 per unit. If we take the fluctuation of diesel prices and depreciation of the diesel plant into account the cost can go higher than Rs 45. If, say, that diesel plant is connected to the grid, which has about 25 percent loss, the price can go even higher up.” He further explained, “In the proposal to establish a diesel plant in Hetauda, the rationale was based on a master thesis which was used to persuade then Prime Minister Baburam Bhattarai.” He had to cancel the proposal as its economic logic was astounding. The chief secretary clarified stating, “There is a lack of economists in politics, bureaucracy, as well as business houses in Nepal.” This impacts sound economic analysis; therefore, there is a high possibility of twisting facts to serve ones interest in a project.
The chief secretary also spoke of the institutional structure of the NEA. According to him, there are around 3,000 political recruitments in the NEA who are not properly engaged and often influence it negatively. Now, they are demanding permanent positions within the authority. Since this problem was created by the political parties, it is their responsibility to forge consensus on how to deal with this issue. The solution does not mean large-scale lay-offs, but with the commissioning of more hydro power, they need to be engaged more constructively in new jobs that will come about. Furthermore, if anyone goes through the NEA’s 2011 Annual Report, page 8 and 9 clearly shows 10 chief executives and 17 directors and department chiefs in the NEA. Hierarchical reform is vital in namely three areas: generation, transmission and distribution. Similarly, steps should be taken to ensure gender balance, the presence of an economist, a leader from civil society, the business sector and a media personality as a spokesperson in the eight seats of the NEA board. This can help make some performance-enhancing changes in the functioning of the authority. The minutes of NEA board meetings, which show which board member introduced/voted for what agenda and authorised what sort of deals, should be made publicly available, along with the bidding documents of all projects.
Energy is not merely a commodity that project developers sell to the NEA but also a catalyst for economic and industrial growth. Since energy issues affect the price of consumer goods, inflation and economic growth, initiating some reform within the authority can assist in easily achieving these economic objectives. The chief secretary perhaps agrees with the fact that 21st century management and institutional strategy can prepare NEA for the potential investment that may come if politics were to be more stable. Time has come about to put the house in order as Nepal prepares to welcome its neighbors in a sector that can be a game changer for Nepal’s economy.
Dhakal is the COO of WindPower Nepal Pvt Ltd
Published: 12-05-2013 08:58
- SAROJ DHAKAL