-Madhab Raj Ghimire
In 1992, Government of Nepal (GoN) promulgated certain legislation aimed at enhancing the hydropower development and foreign directed investment. Those efforts were a milestone for implementing effective water policy to meet demands of energy in Nepal. However, those energy policies contained no elements of unbundling or competition. The reason for this initiative was the fact that even in twenty century more than 2/3 of Nepal’s population were deprived of electricity. Recently, GoN has initiated a new proposal to introduce a 25-year National Energy Strategy to attract more investment to energy sector, including hydroelectricity, solar energy, bio-gas and petroleum products. Apart from hydropower, there is a little hope to get high investment from private sector to generate the energy in Nepal.
Hydropower Development Policy (HDP), 1992
The Nepal government introduced Hydropower Development Policy in 1992. It was welcomed by entrepreneurs and foreign companies. The policy was considered as progressive as it contained a provision for generation licence for 50 years, income tax holidays for 15 years, 25 percent return on invested share capital and exemption on import license and sales tax. All these exemptions and immunities for the sectors of hydropower generation, transmission and supply were incentives for investors to build new infrastructure of power generation. Attracting private sector investment to the hydroelectric power generation was a major component of HDP. These entire objectives aimed at making the investment environment for power producers as attractive as possible. The proposal also intended to introduce cross border trade in the field of electricity transmission with neighbouring countries.
HDP did not create competitive market but it helped to establish competent structures for production and supply in the energy sector. The object was to ensure an adequate investment for short and long term projects. On the other hand, shortage of Nepal’s energy production capacities results in high rates of black-outs and electricity leakage. Nepalese electricity is an expensive product that contradicts with weak buying capacity of the consumers. This is why in 1990s voices were raised to privatise the NEA. It was believed that privatisation would result economic efficiency, better quality of service and lower price.
However, the privatisation of Himal Power Limited represented a small portion of the electricity industry. On distribution level, NEA retained monopoly except couple of districts. The competition in the distribution sector can be successful only upon the condition that there is enough energy produced for consumption purposes. Therefore, prime emphasis of GoN should be directed towards investments on the electricity generation level. The efforts of GoN to promote generation rather than transmission and distribution are essential. An experience of developed countries shows that competitive market structures, including unbundled and effective transmission and distribution networks, can be established after adequate generation capacities exist.
The Hydropower Development Policy (THDP) 2001
The new policy abolished all the incentives provided by previous policy. The emerging new concept of internal impacts, technological developments and possibility of exporting the hydropower energy to neighbouring markets were features of this policy. Supplying energy to rural, urban and industrial areas were given high priority in THDP. Furthermore, the policy contained important provisions such as creating fair, transparent, non discriminatory, internal and external market.
THDP contains some initial assessment on how to reduce potential risk in public-private efforts of producing energy. The concept of BOOT - build, operate, own and transfer - has been introduced by THDP. The concept has proved to be a global success with regard for developing new infrastructure projects. Another feature of the THDP is building multi-purpose infrastructure, for example, combining irrigation and drinking water supply in a cost efficient way. The policy allows investors into distribution infrastructure, even though this requires resolving various uncertainties; such as ownership of the infrastructure, etc.
THDP has encouraged foreign investors to keep their costs effective in case of decreased costs to domestic materials and consultants. Unfortunately, in practice many cases are showing reverse picture after completion of projects.
Another important goal of the THDP is ensuring complete independence to production, transmission and distribution sectors in projects not exceeding one MW. If small energy producer has to bear transmission cost that would not be economically viable. These incentives could boost a small number of investments to the local market. In the case of export oriented trade, GoN could use or purchase 10 percent of produced electricity. This condition again aims for reassuring those investors who are willing to trade energy into neighbouring countries.
Despite various positive effects, THDP contains various controversial aspects with comparison of HDP. Lack of incentives may obstruct achievements of THDP goals. THDP has reduced number of licences, incremental royalty payment, abolished income tax holidays and put hydropower projects subject to the general corporate tax rate. In the same manner, in 2006, GoN introduced a new ordinance subjecting hydropower projects above 3 MW to make VAT payment. It is resulted 13% escalation in investment level. It is assumed that GoN shall be regulatory consistent, so that investors or newcomers could feel secured and assured. From a long term perspective, the steps taken by the GoN are not good sign to the country and new investment while investors are still considering that lapse of security is major concern. Thus, to endorse investment and develop the market, all the incentive measures shall be re-introduced into the regulatory framework.
New 25-year National Energy Strategy (NNES)
The energy policy strategy of GoN for the next 25 years is de-facto proposal for Nepal to develop hydropower sector. By making sustainable energy generation as priority for the future, it could assure investment from the private sector. The main goal of NNES is to attract foreign and domestic investors into hydropower generation to large scale projects for longer time. The Water and Energy Commission Secretariat (WECS) which is responsible for formulating policy objectives regarding water resources and hydropower has announced its long term plan to provide stability on hydropower generation level.
The objectives of NNES are using renewable energy to cooperate with other energy sources. At the same time, integration of economic policies and promotion of energy environment for sustainable development are other factor of NNES. This type of long term strategy can ensure effective mobilisation of investment which can be used as poverty reduction tool through small and large scale infrastructure development projects. In addition, three important factors of electricity value chain; generation, transmission and distribution will be promoted through NNES so that entire sector will have efficient competition in regulated market.
Despite all these efforts, there shall be also incentives from the regulatory side in order to achieve the goal of WECS. By lacking effective regulatory provisions, this strategy may fail to achieve its goal. Experience of other countries; such as Russia and Ukraine in establishing a long term electricity strategy can serve as example for Nepal’s policy makers for positive developments in the future.
No comments:
Post a Comment