We need to realise that domestic consumption and exports are not mutually exclusive. Laos and Bhutan are relevant examples that these two can be achieved hand-in-hand. Hydropower export has helped both Bhutan and Laos in three ways: cheap electricity for domestic users, high electrification rates, and foreign exchange earnings. It is pretty obvious that Nepal is in dire need of all of these three things.

Laos and Bhutan

Laos and Bhutan have the required geographic features to make hydropower generation viable. Both Bhutan and Laos are currently exporting hydroelectricity to their neighbours: Thailand and Vietnam in the case of Laos, and India in the case of Bhutan. Additionally, these countries have signed agreements with their neighbours to export more by 2020. It would not be unnatural to think that these countries have exported hydropower at the expense of domestic needs. However, electrification has led to tremendous growth for both of these countries. The World Bank estimates that between 1995 and 2010, Laos’ electrification rate reached 70 percent from 16 percent. Laos hopes to get to 90 percent by 2020. Similarly, Bhutan achieved 96 percent electrification in 2013. Nepal’s electrification rate, on the other hand, remains at 55 percent.  

How is hydropower export helping Laos and Bhutan? Export revenues would be the logical answer. Revenues from hydropower export have different sources, including, but not limited to royalties, profit tax, turnover tax, personal income tax, import and export duties, and dividends. Experts at the World Bank believe that Laos can accumulate as much as $350 million annually by 2020. Similarly, profit and taxes to the government from DGPCL, a state-owned enterprise involved in generating electricity in Bhutan, stand at over a quarter of total revenues.

Additionally, hydropower exports have also helped people from Bhutan and Laos enjoy cheap electricity. The governments of these countries have been using earnings from hydropower to subsidise domestic energy prices. People in Bhutan and Laos pay significantly less energy tariffs than people in Nepal.  

Both Laos and Bhutan have been committed to reducing poverty by using earnings from hydropower export. Both of these countries are well on track to graduate from Least Developed Countries status to Developing Country by 2020. Nepal, on the other hand, as per the National Planning Commission, requires as much as $96 billion to reach Developing Country status by 2020/21. Although it seems impossible to meet the investment requirement by 2020/21, hydropower export might be one of the ways to get there eventually.

The logic behind hydropower development in these two countries is simple. They get someone from outside to build, operate, and export since they do not have internal resources to undertake such ventures. Rather than letting its rivers go untapped, Laos has turned to foreign companies, multilateral development banks, foreign governments, EXIM banks, and foreign commercial banks to invest in the hydropower sector. Bhutan has followed a different trajectory, relying on the Indian government to fund its hydropower projects in the form of grants and soft loans.

However, the developers of such projects also make provisions for some energy to be sold in the domestic market. Bhutan is entitled to meet its electricity demands before exporting to India. For Laos, there are hydropower projects that have allocated some portion of electricity for the domestic market. Nepal could also get electricity to the domestic market, either through free energy and power or through Power Purchase Agreements with developers, looking to export the bulk of their electricity.

Replicating in Nepal

In Nepal’s case, Narendra Modi’s rhetoric and the fact that he has provided a substantial line of credit to Nepal show that India is willing to help Nepal. The success of the Project Development Agreement for the Upper Karnali Hydropower Project and the Power Trade Agreement with India have given much needed evidence to this argument, and thus paved the way for Nepal-India cooperation in hydropower. Either through collaboration with the Indian government or through partnership with the foreign private sector and multilateral development banks, Nepal could reap export benefits in terms of cheap electricity for locals, high electrification rates, and foreign exchange earnings.

Furthermore, the flow pattern of our rivers also favours export. Since most of our hydropower projects are run-of-river or peaking run-of-river, and that our rivers have a tremendously greater flow during the wet season as compared to the dry season, energy production is significantly higher in the former than in the latter. If we analyse the consumption patterns, we could observe that the demand for electricity is roughly the same throughout the year. Thus, exporting in the wet season could be a solution to manage Nepal’s demand-supply scenario.

Laos and Bhutan have shown that domestic consumption and export of electricity are not mutually exclusive. Nepal could follow suit and gain significantly without having to make many compromises. We need to make sure that our waters do not go to waste, untapped.   

Pandey is a consultant at the Investment Board. Views expressed are personal