Power play and currency risk

SUJATA AWALE
KATHMANDU: There is no doubt that Nepal has great potential in hydropower. While the government is inviting foreign investors for hydropower projects, its reluctance to sign Power Purchase Agreements (PPA) in US dollars tariffs is demotivating potential investors. At present, Nepal Electricity Authority (NEA), is the only authority that purchases generated power from producers. Except for three agreements NEA has signed all PPA in Nepali currency.

Cause and effect

Devaluation of Nepali currency is one of the main reasons for insecurity among the investors. The Nepali currency is depreciating against the dollar every year creating high risk for lenders, investors and developers. Experts warn that investors may gradually lose interest in investing in hydropower projects that take decades to reap returns. Khadga Bahadur Bisht, President of Independent Power Producers Association of Nepal (IPPAN), said, “As the Nepali currency gets devalued by four to five per cent on average every year since the 1960s, foreign investors hesitate to invest in the hydro power sector.”

“Investors invest in projects by taking loans from banks and financial institutions and they face problems during payback period since their payment is not made in dollars by NEA,” said Radhesh Pant, CEO of Investment Board. Informing that investors invest in projects by taking loans on equity basis, Pant said, “As much as 30 per cent investment is done by taking loans, funding agencies are wary about taking risks that comes with fluctuating foreign exchange rates.” The World Bank and Asian Development Bank are major financing institutions that assist with funds in hydropower projects. 

Probable way out

Since the exchange value of the dollar against Nepali currency is unpredictable, some level of risk is involved for both investors and purchasing agencies. A new provision is required to bear such risks associated with foreign exchange fluctuations. 

The board members of NEA have decided to purchase power produced by Lower Solu (82 MW) hydropower project in US dollars for the first 10 years to assist the payback period considering foreign investment in November 2013. Pant stated that Lower Solu hydropower project set the best example of PPA in dollar. “The same kind of mechanism for other foreign lead projects can be adopted,” opined Pant. However, NEA has had bad experiences in the past with Bhotekoshi and Khimti hydropower projects where the PPA was in dollar. He said, “There is also no compulsion that the government agency should bear total loss. There should be a mechanism among all stakeholders such as developers, investors, lenders and the government to minimise the risk factor.”

According to Bisht, full investment in a project by foreign investors is not good for the nation and domestic investors also should be at play. As per Bisht, the government should create a risk mechanism fund. Opining that since cent per cent investment by foreign investors ‘is harmful for the nation’, he said, “The investment should be partially of domestic companies and partially funded by foreign companies so that PPA is not subjected to dollars entirely.” According to him, it would be appropriate to introduce a haggling mechanism to mitigate the risk for both parties. 

Need of the hour

According to NEA, the demand for electricity will drop by 2016 during monsoons. Sher Singh Bhat, spokesperson of NEA, said, “Power purchase by NEA depends upon the requirement of the consumer. There is no hard and fast rule that NEA should make a purchase for the benefit of private sectors and investors.” He added, “There is no new model developed for PPA in dollar. For now, recommendations from board members of NEA are awaited to conduct PPA in dollar.” On this, Bisht said, “It would be problematic for developers if NEA refuses to purchase the produced power,” adding that there is already the inevitable problem that fluctuating exchange rates of foreign currency brings. 

According to the Ministry of Finance, Rs 26.5 billion has been invested in hydropower sector by the government, NEA and foreign investors. “As Nepali currency is not convertible to dollar and PPA cannot be in dollar, project promoters are getting discouraged,” informed a source at IFC. To lessen the risk of waning investors, IFC plans to launch a ‘local currency bond’ within two to three months. 

Stating that the dollar exchange rate also hampers the project cost, the source said, “Unlike in other countries we do not have any provision to recover the loss incurred by investors due to fluctuating exchange rates. For further assistance, discussions among the stakeholders usually take place.” Stating that the demand for electricity will not decrease in the market anyway, the source said, “If the country becomes self sufficient for electricity, it could be used for industrial growth which ultimately decreases the loss in fuel imports. Every year, Nepal imports Rs 50 to 60 billion petroleum oil for various purposes including operating generators, if electricity becomes cheaper and accessible, the production cost of the industry will automatically decrease.” The source stated that if power surplus occurs, export of the same to India and Bangladesh is a viable option. The main hurdle in the process is the project being delayed, the source added, “Project Development Negotiation faces delays and there is an utter lack of political willingness to see the implementation of the project.”

Lost in transmission

Published on April, 2014 in Perspectives/ THT

SUJATA AWALE
KATHMANDU: The country is reeling under power cuts and the government has committed to resolve this problem in three years. However if this promise is to see the light of day, the onus now falls on Nepal Electricity Authority (NEA) to ensure that transmission lines are set up as per schedule. As of now delays and problems plaguing the construction of transmission lines makes meeting this target almost impossible.

In fact the task to set up transmission lines within stipulated deadlines is already starting to look like a fairy tale as NEA has run into problems over the construction of transmission lines in a couple of places. 

Problems galore

NEA is having a tough time with issues of land acquisition, forest clearance and compensation for right-of-way and has been compelled to halt most of projects even though they were started a decade ago. The Khimti-Dhalkebar Corridor Project, which commenced in 2004, was supposed to be complete in 2010. However, this project has not been accomplished due to obstruction by locals at Sindhulimadi. The Thankot-Chapagaun-Bhaktapur Transmission Line Project, which was expected to start a decade ago, is yet to begin. Similarly, another NEA project to install a second circuit to the existing Hetauda-Matatirth Suichatar project line has been stopped due to agitation by locals. The problem of land acquisition is massive in sub-urban areas such as Sindhulimadi, Thankot and Chapagaun.

Politics and political will

“The NEA is having a tough time dealing with these issues and the authority alone will not be able to deal with it,” said Arjun Kumar Karki, Managing Director of NEA, adding that there is the need for state intervention. “Despite several attempts to resolve the problem, we could not come to a logical conclusion till date,” he added. 

According to him, few people backed by certain political parties have been the major hurdle in the process of project development. Stating that specific criteria for land acquisition, compensation of right-of-way and strict law enforcement is required, he said, “The existing policy and enforcement of laws seriously need some sort of amendment immediately.”

The growing disconnect

Though NEA has been working on transmission line development projects for the last few years, it has been often criticised for not completing projects on time. The progress of transmission development is halted time and again due to unclear and ambiguous policies, lack of a transmission master plan and networks, poor coordination among government authorities and no synchronisation between hydropower and transmission line projects.

The Nepal India Electricity Transmission and Trade Project — the first cross border transmission line of 400 KV double circuit — is currently under construction and targeted for completion in 2016. If this project is completed on time, Nepal will be able to exchange power with India in same frequency.

Not in sync

“The World Bank has funded USD 200 million in transmission line projects that constitute 740 km,” said Rabin Shrestha, Senior Energy Specialist at The World Bank. According to him, 220KV Berdaghat–Bharatpur–Hetauda (150 km), 400KV Hetauda–Dhalkebar (285 km), 232 KV Damak–Kabeli (90 km), 220 KV Khimti–Dhalkebar (75 km) and 400 KV Dhalkebar–Muzaffarpur (140 km) are some of the big transmission line projects funded by the bank, which are under construction. The Asian Development Bank and Norwegian government have also shown interest to develop transmission line projects.

Citing that lapses in the development and synchronisation of transmission lines is also one of the major reasons behind current power cuts, Shrestha said, “With the construction of the cross border project, Nepal will be able to import over 1,000 MW power to relieve the current power cuts of 12 hours.” Explaining that Nepal/India power has no synchronous system till date, he said, “Nepal generates power through hydropower while India generates power via steam turbine. Hence, it creates problem in synchronisation.” 

Stressing that there is lack of coordination between government authorities, Shrestha articulated, “The Ministry of Forest takes a minimum one year to settle the issue of forest clearance, which will further delay the project,” adding that NEA should coordinate with government authorities so that works can progress at pace. 

“The counseling for landowners is lacking. There is still no clear policy at what per cent should the government compensate them for right-of-way of transmission lines,” said Shrestha, adding that the government should provide consultation along with resettlement and rehabilitation programmes that could easily convince locals about the need for transmission lines.

Lacking a master plan

“Out of total 101 towers, we have accomplished around 95 towers for Khimti-Dhalkebar Corridor Project,” said Sanjay Kumar Yadav, project manager of Himal Hydro Company, adding that the installation of six towers has been delayed as there was objection from locals in the land acquisition. However, he informed that, The World Bank has given an ultimatum of three months to NEA to complete the project. Stating that there is no alternative route, he added, “Locals demand more compensation for right-of-way.” 

For a smooth power evacuation system, The World Bank is planning to support a transmission master plan that will study and develop probable transmission links and networks.



“There is no synchronisation with hydropower and transmission line projects,” said Khadga Bahadur Bisht, president of Independent Power Producers Association of Nepal (IPPAN). Marshyandi Corridor has many hydropower projects in its pipeline. But due to lack of transmission line, it seems that Upper Dorji I (25 MW), Upper Dorji (27 MW) and Marshyandi A (50 MW) will not be able to evacuate energy to the national grid. “NEA will have to compensate 95 per cent to Marshyandi A if it fails to construct the transmission line at the time of generation,” he informed. “If these transmission lines cannot be constructed on time, NEA will have to face big problems in connecting new hydropower projects to national grid in days to come,” he added.

Where does the buck stop?

Bisht blames the Department of Electricity Development (DoED) for providing licence without determining transmission lines to project sites. He also added that there is lack of coordination between DoED and NEA in planning. Dilli Bahadur Singh, director general of DoED, said, “It is not our responsibility to plan energy evacuation for private companies. There would be hundreds of projects application on our table and it would not be possible for us to research on all of them.” Citing that it is the applicant’s responsibility to plan the evacuation process and coordinating with NEA before applying for license, he said, “Independent producers themselves have to conduct studies and plan for evacuation. On the basis of that plan, we decide whether to provide license or not.”

“Lack of clarity in policy to construct transmission lines is another hurdle,” said Bisht, adding that the unclear policy causes problem in development of projects. “NEA has given permission to construct required transmission lines for the project but the question is whether private companies are able to construct big transmission lines or not,” he said, adding, “Is there any master plan for constructing transmission lines?” He opined that if there is no master plan, it will poise a big threat that there would be unmanaged transmission line tangled here and there. According to him, private companies should be given permission to construct transmission line up to 50 KV while NEA should take responsibility of constructing high capacity projects. 

 

Is power really a priority?

Article published on July 2014

SUJATA AWALE

KATHMANDU 

Though repeated assurances have been given by the present elected government that the hydropower sector will be prioritised and problems will be addressed, it is inspiring little or no confidence in the sector. The reason being that while words are eloquent, the action is lacking and the committment unseen.

Budget ceiling constraints

While the finance ministry is busy preparing a new budget policy, the Ministry of Energy (MoE), private sector and concerned stakeholders would like major issues plaguing this sector to be addressed. To start with the announcement from the National Planning Commission (NPC) to place a budget ceiling of Rs 30.68 billion for the hydropower sector has shattered the expectations of stakeholders. According to NPC, of that total budget ceiling, Nepal Electricity Authority (NEA) will get Rs 26.84 billion and the MoE will get Rs 3.84 billion by.

Stakeholders pointed out that the budget ceiling set for the sector is not enough to minimise power cuts within three years. MoE recently submitted its plans and programmes to the Ministry of Finance (MoF). Sanjeev Baral, Deputy Spokesperson of MoE, said, “We recently submitted our programmes for the upcoming budget demanding Rs 55 billion from the finance ministry.” Citing that the MoE plans to end the present power crisis within three years, he added, “Without adequate resources the development of the hydropower sector is impossible.”

Priority areas

According to Baral, the ministry has prioritised the construction of transmission lines and alternative energy. Besides, it has outlined minimum common programmes that include new hydropower projects, feasibility study, maintaining existing power projects, east west transmission highway, river basin wise programmes, et cetera. While Rs 40 billion is allocated for transmission lines and hydropower section, Rs 15 billion is segregated for alternative energy. As immediate relief from the power crisis MoE plans to produce 100 MW solar energy. Baral informed that to encourage public interest in hydropower, this fiscal they have come up with a public private partnership model ‘Janataco vidhyut janatakai laganima’ which translates as ‘Public energy by public investment’. He said that the programme will help minimise objections from locals and the public will have a sense of ownership in hydro projects.

While the government is preparing to introduce the budget for the upcoming fiscal year 2014-15, the Independent Power Producers’ Association Nepal (IPPAN) has also submitted its 11-point demands to be addressed. For uplifting the sector from various problems, they urged the government to increase VAT concession from Rs one million to Rs 10 million per MW, conduct power trade agreements by establishing a special committee, power purchase agreements in dollars and to pace up the construction of internal and cross border transmission lines, among others.

Not connected

As the government has not connected generating projects with transmission lines, power produced by private companies is also wasted. There is no synchronisation between load centre and generation power projects. “To mitigate these problems, there is a need to invest in transmission grids as soon as possible and to use produced energy through grid lines,” said Baral, adding that for constructing a transmission highway it requires funds. He further added that it will take more than three years to overcome the present power crisis if funds are lacking.

Amrit Man Nakarmi, Professor and Coordinator of Energy Systems Planning and Analysis Unit at the Institute of Engineering, said, "Development of the nation is only possible through developing and investing in the hydropower sector. The government should allocate around 15 per cent of the total budget for this.” He stated that the usual allocation of budget for the hydropower sector is nominal and hardly five per cent. Stating that the major focus should be on transmission lines, Nakarmi said, "Produced 24 MW electricity is wasted due to the lack of grid line connection and it seems the number will increase in the coming fiscal as many projects are on the verge of completion.”

According to him, there should be Rs 85 to 100 billion budget allocation if the government is serious about mitigating load shedding problems as well as promoting industrial and overall growth in GDP. Nakarmi also recommended updating the tariff system and introducing an Integrated Power Policy. Stating that 60 per cent of imported diesel is consumed for power generation in Kathmandu valley alone, he said, “The nation spends billions of rupees on diesel plants every year. Diesel power plants are not suitable for the nation as it produces expensive energy costing from Rs 31 to Rs 58 per unit.” According to him, import of petroleum products has increased by 131 per cent in 2013. Citing that the plan to invest in solar is a good option for some time, he stressed, “However, in the long run there is no option other than hydropower for overall development.”

Tall talk

Gyanendra Lal Pradhan, Chairman of the Energy Committee at the Federation of Nepalese Chambers and Commerce Industry, pointed out that the government has no will to uplift the country from the present power crisis. “The budget ceiling in the present situation is just another updated version of the previous plans and programmes where no new mechanism was implemented,” he said, adding that the nation does not seem to be aware of the importance of hydropower. Accusing the government of lacking political will to develop the country, he said, “It is our bad luck that our government could not get electricity at Rs 5.4 per unit but now talks big about investing in Rs 15 per unit solar energy.”

Citing that the country annually acquires losses, Pradhan added, “Nepal annually spends Rs 37 billion importing diesel which produces electricity at Rs 24 per unit while the whole hydro sector only gets Rs 30 billion from the budget.”

Lacking progress

There are 27 hydropower companies which are sick due to exceeding construction cost and lower rates of PPA. Pradhan said, “The government should introduce plans and policies to uplift developers and make a favourable environment to encourage foreign direct investments.” He accused the government of not approving the proposed Electricity Act 2007 till date. “All these delays and such attitude shows the government is not serious or willing to develop the hydro sector. If the same pace persists load shedding won’t end in another 30 years also,” he asserted.

“If the government widens the VAT concession for under construction projects, it will lower total construction cost by two to five per cent,” said Khadga Bahadur Bisht, President of IPPAN. However, he is not optimistic about the budget and any relief it will offer the sector. He said, “The budget is the ultimate indicator of the government’s priority. The government said that it will prioritise the hydro sector but with the ceiling it definitely shows the contrast between what it says and what it does.” According to him, of the total 1,200 MW under construction projects, almost 60 per cent work has completed. “We are hopeful that adequate budget on transmission line will come,” he opined.

Ray of hope?

Baikuntha Aryal, Joint Secretary at MoF, claimed that the government has prioritised the hydropower sector. Clarifying that MoF does not decide resource allocation, he said, “The ministry allocates budget seeing the significance and immediate plans and programmes proposed by the concerned ministry.” According to him, the budget for the hydro was finalised with the NPC ceiling. 

But it has now been reopened to discussion among stakeholders with the recently presented programmes by the energy ministry. “However, we still have to work on proposed programmes as we also have limited resources,” he added.

Fuelling concern

KATHMANDU: The increase in demand for petroleum products in the country gave birth to the mushrooming of filling stations. However, the condition of most pumps that were operating before the Dealers Bylaws 2008 was introduced has fuelled concern for the safety of adjacent Kathmandu dwellers.

Present scenario

According to Nepal Oil Corporation (NOC), there are around 150 petrol pumps in the valley, of which 110

stations are in Kathmandu, 20 in Lalitpur and 20 in Bhaktapur. Lilendra Prasad Pradhan, president of Nepal Petroleum Dealers’ National Association (NPDNA), says, “We have time and again voiced serious concern about giving permission to run petrol pumps in the city. Previously, with changing governments, permission was given haphazardly, which has resulted in the present

scenario of unmanaged and unplanned fuel stations.”

Opining that NOC should have looked into at least 10 years of feasibility before giving permission to operate petrol pumps, Pradhan further alleges, “The main problem started when the concerned authorities gave away permissions without conducting proper research of the location and the requirements to run a petrol pump.”

Claiming that the author-ities only considered easy distribution, Pradhan says, “We were not involved in the amendment of Dealers Regulation, which lacked the perspective of safety for workers and petrol pumps, which is why the present situation exists.”

Agreeing with him, Kishor Kumar Bhattarai, chief of Kathmandu Fire Brigade, states that the risk factors surrounding petrol pumps around the core city is extremely high. “The petrol pumps that are established in four and six aanas of land in densely populated areas

of the city pose high risks. Should a fire break out in any petrol pump, the entire city could go up in flames,” informs Bhattarai.

As petroleum products are highly inflammable, if they catch fire, it is difficult to bring the situation under control. To top it all, there are way too many fuel stations in Kathmandu. Only around the Dasharath Stadium at Tripureshwor, there are three petrol pumps and more than eight petrol pumps from Tripureshwor to Soalteemode, a stretch of hardly 1.5 kilometres.

Bhattarai informs, “Many petrol pumps are situated on narrow and congested areas where it might be difficult for rescue teams to reach

and provide prompt service in case of a fire. That may invite unforeseen but massive destruction.”

Regulations and practice
The Dealers Regulation 2005 maintains that there should be at least 30 metres of length and 15 metres of breath in the facade of adjacent roads and the total area of petrol pumps in municipalities should be a minimum of two ropanis. All

materials, equipment and facilities used in petroleum operations should comply with generally accepted engineering standards, and be kept in good working order.

For fire safety measures, there should be at least two fire extinguishers with a capacity of 10 kilograms, four buckets full of sand, shovel, pick and a water tank of 1,000 litres in the vicinity. The regulation also states that there should not be any high extension line or transmitter in the compound of a petrol pump. While these instructions lie in the book, it also clearly mentions that petrol pumps that were operating before the regulations are exempt from these rules.

In this regard, Shiva Prasad Pudasaini, spokes-person of NOC, says, “The petrol pumps don’t bear much risk as storage tanks are built underground.” However, accepting that there are certain risks, Pudasaini stresses on the need to be careful while handling

petroleum products.

Bhola Prasad Baral, salesman of Sanjay Services Centre near Chinatown, informs that they have taken fire safety measures such as keeping two buckets of sand, four fire extinguishers, shovel, pick, et cetera handy as per the regulation. Although they have taken those safety measures, Baral does not feel safe in the petrol pump due to the transmitter in front of filling station.

Stating that government should ensure the safety of distribution centres, Baral says, “When the distribution centre is a safety hazard, it

is the responsibility of the government to guide us and direct us to a safer place.” Moreover, he informs that signs of ‘No mobile’ and ‘No smoking’ are placed on the board for general safety but he says that people simply neglect the notice.

Informing that they never received any training in fire safety, Baral says, “We do have a general idea about how to put out a fire using sand or fire extinguisher, but we haven’t received any formal training till date.” The 25-year-old petrol pump once faced the incident of fire. He informs it was due to technical problems in the generator. As the petroleum oil for the generator was stored near by, it caught on fire. In the incident, two workers were seriously injured and had to be hospitalised for months. Reportedly, Sanjay Services Centre has the capacity to store 9,500 litres of diesel and 24,500 litres of petrol in its underground tanks.

Hurdles and solution

Stakeholders state that they face practical difficulties in shifting and managing the existing petrol pumps. They further add that

policies, budget for compensating distribution centres and lack of coordination are the prime challenges in managing the petrol pumps.

Pudasaini says that there is room for correction and to mitigate the problem, stakeholders should join hands.

To maintain the quality of petroleum, NOC conducts regular monitoring of quality and fire safety measures in petrol pumps.

Pradhan opines that there should be massive awareness campaigns to minimise the risk factor to the public. Since petroleum requires careful handling, he suggests not to store petrol in plastic bottles and shifting high extension lines and transmitters from around petrol

stations. According to him, there should be proper research before providing license of operation. For the existing pumps, he suggests, “Nepal government should develop a disaster mitigation plans and other policies for overall safety.”

Are we ready?

In case of a fire in any petrol pump, Kishor Prasad Bhattarai, chief of Kathmandu Fire Brigade, informs that there is a rescue truck especially designated to put out the fire. Bhattarai says, “Petrol-eum fire falls under ‘C’ category, which means we will have to use dry chemical powder and protein foam instead of water to control the flames.”

Reportedly, the only rescue truck equipped with such machinery, chemicals and other required instruments was donated by Italy two-and-a-half years ago. The fire fighters received a general training about how to handle the equipment from the Italian government.

“Till date we have not used the truck as such an incident has not occurred in the past two years,” he articulates.

Informing that time is of essence in incidents of fire, especially in that of highly inflammable products, he says, “One has to regularly keep tabs on the fire extinguisher’s pressure and expiry date. And the pump owners and NOC need to be very vigilant about this. If a fire breaks out and the extinguishers are outdated, it will create a serious problem.”

Moreover, he says that compulsory trainings for new staff on workplace safety and how to use fire safety equipment is crucial.

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