Comments on Nepal Energy Investors Forum-2011

-Madhab Raj Ghimire

Last year Government of Nepal and the Asian Development Bank organized by the Government of Nepal and the Asian Development Bank had wide discussion on Nepal’s hydropower sector, new developments, investment opportunities and challenges to create unified voice to attract investors’ from inside and outside of the country.

In Nepal there are only 40 percent of people do have electricity access.   Bearing in this mind, Investment Board Act 2011 is proposing maximum incentives to mega project of energy generation to meet the demand of electricity. Government is imitating example of India, where mega projects are getting incentives on the generation level.  However, in Nepal around 500 licenses to produce 35,000 MW has not been significantly improving situation to minimize load-shedding.

  

Nepal is considered as attractive hydro-investment market for domestic and export oriented bilateral and regional market. In domestic market current situation in peak season demand of 950 MW against 704 MW is available, while 10% growth rate of electricity/pa needs to two billion dollars of investment. In other hand, in future prospects export oriented product of electricity to south Asian region especially in India, Nepal can explore the opportunity to sell the energy to these market. However, Nepal has technical potential to generate hydropower which about 43,000 MW economically viable. Despite this fact, electrification rate and per capita electricity consumption are the lowest in South Asia. Power shortage now plays a key infrastructure constraint in Nepal and a critical limiting factor to economic growth and poverty reduction. Shortfall in Nepal’s electricity supply continues even though there is an enormous opportunity to export to its energy hungry neighbors, particularly India. Such an opportunity has not yet been harnessed through generation and cross border power transmission projects. Therefore, Nepal needs to substantially increase both public and private sector investment in the power sector. This was the prime goals of NEIF.

Recognizing the acute power shortage and its implications, the Government declared a period of ‘Energy Emergency’ for a period of 4.5 years in March 2011. The Government has committed to mitigate the power crisis through various short and long-term measures, including enactment of special arrangements to remove bottlenecks and facilitate expeditious development and implementation of hydropower projects. The key thrust for the development of hydropower is to boost both public and private investments for hydropower development and to expedite implementation of such projects through a fast-track approach. The Government in recent time has already increased the posted power purchase rate for grid-connected small hydropower projects of size up to 25 MW installed capacity by 20 percent to attract private sector investments in the sector. The Government has established a hydropower development financing company to mobilize the much needed resources for hydropower projects and with an issued capital of NRs 10 billion. Greater investment by private sector into hydropower generation would help to enhance generation capacity in Nepal while stimulating greater regional power trade and investment linkages to help address Nepal’s crippling power deficit, create jobs, and greater economic growth.

Considering all these factors; the Government of Nepal and Asian Development Bank are jointly organized a high-level energy forum in Kathmandu. This will be a multi-stakeholder forum on facilitating private sector investment in sustainable hydropower in Nepal. The forum will be attended by representatives from government agencies and other public institutions connected with the energy sector in Nepal, relevant development partners, private sector developers, foreign investors, power traders, technical experts and civil society organizations.

The key objectives of the Forum were; to facilitate a better dialogue between investors and developers and the Government in terms of promoting increased private sector investment into the hydropower sector, and provide a platform for government and industry officials to meet with local, regional and international developers and investors; highlight the recent incentives introduced by the Government to attract private investment in the energy sector; deliberate on how to increase momentum and rationalize the investment framework to fast track the development and financing of hydropower projects in Nepal.

Participants and representatives from the following government, private sector, development partners and civil society organizations are being invited to participate in the Forum Government agencies including the Ministry of Finance, Ministry of Energy, Ministry of Industry, National Planning Commission, Water and Energy Commission, etc.;  Nepal Electricity Authority; Development partners; Private Sector Developers; Overseas Investors; Power Traders; Financial Institutions and Banks; Technical Experts; Civil Society Organizations.

Despite having different participants and representatives the forum could not able to achieve full fledge of commitment from government agencies. Legal and regulatory ambiguity, delaying of to form Nepal Electricity Regulatory Commission and controversial political commitments ‘as and when in power’ or not in power has not been assured by either sides.

The hurdles of hydropower generation in Nepal;[i]

NEA has not done PPA tariff upgrade on consumer level since last 11 years. In the same time, PDA agreement since 18 months has not been reviewing. Basin study –formal challenge to dealt with- although Koshi, Karnali basin study has been already done in the past. Therefore, there should not slow paced basin based study in term of shortage of time to address scarcity of electricity in Nepal. GoN policy to ad-hocism of licensing process needs to scarp out. Stable and uniform government policies can only work to assure the investors and share of equity to Chilime/Upper Tamakoshi demand of equity by local people satisfactory. GoN has terminated 184 licenses has been due to ‘no depositing for the project. Therefore, there are a lot of potentialities of improving into hydropower to obtain generation license to local and international investors. Community involvement, support; this time highly highlighted to hydro project building new infrastructure of hydropowers. It is suggested to give close eye on learn the fact and similarities of Laos can be very close example to develop Nepalese hydro power projects.

This forum tried to identified who could be the regulated partnership in hydropower development such as government regulators,  government planners, developers, financiers; public and private, NGOs; local and international, general public, consumers, media, affected co munities, local authorities, contractors and suppliers, purchaser; export and domestic. At least four of these partners need to consider including within partnership.

The  role of commitment  to build the hydropower are; promote economic growth and development, ensure energy security, promote equality and sustainability, observe international commitments and respond political influence and public opinion.

What investors look in Nepal?  The question is as easier as well as tougher too. Investors in Nepal looking for secure investment climate considering the instable political environment of Nepal. At the same time return of the investment and minimize transaction cost are other priorities. Similarly, whether it is reputed or just struggling investor would like to maintain good reputation in the project or new investment segment.

What investor can do for local economy?

Adequate high Investment definitely can improve better living conditions to local people in which local people will have opportunity of sustainable livelihoods. Therefore, this is a crucial tool for reduce poverty. It can boost local economy through such as access to services-water, education, health, electricity, better communications, roads-respect for culture and human rights. These all can be obtained through local investment for the potential hydropower project in Nepal. In the same time, the expectation of local public of meaningful participation to the project development and operation effectively deliver commitments to the investors and affected and beneficiary society.

What Nepalese government needs to ensure and focus on?

Two phase of licensing regime needs to be very clearer survey and construction or operation license to generation, transmission or distribution sector. However, generation licensing is much clear from the MOE rather to compare with other two phases. Generation license can be acquired within 120 days. The period of generation license up to 50 years at maximum, which has compliance with 35 years for domestic and 30 years for export. For the generators, an investors one year for financial closer to their operation stage. Before generating license public hearing considered part of compulsory mandate to obtain affirmation of public community. In the same time, PPA needs to do before generation license.

Mr. Bird has cautioned GoN especially licensing for generation, transmission and for supply needs to be awarded developer through open and transparent process. In the mean time, he has pointed out of key reasons of project failures; ineffective partnership; project cancellation or suspension; delayed delivery of electricity-load-shedding; cost overruns, penalties; reputational risk; lost livelihoods and culture, broken families; higher tariff; loss of eco-system services and bio-diversity; protest and unrest and loss of investor confidence. Again, Mr. Bird has pointed the challenge of hydropower projects ---7C’s principle; cooperation; certainty; capacity; compliance; continuity; corruption and climate changes.

Conclusion

The Forum has been able to deliver the message to the investors that potentiality of hydropower investment in Nepal mainly by energy demand. Hydropower generation does have complexity in the same time it has long time effects of market driven elements which are always positive based on increasing energy demand.  

mrghimire@hotmail.com

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[i] Most of the citations have been taken from the presentation slides of Nepal Energy Investors  Forum, October 13-14 Kathmandu, Nepal   by Jeremy Douglas Bird (LLM-Water Law and Policy, UK) International Hydropower Expert.

Water Legislations in Nepal; Simplified Laws and Regulations

-Madhab Raj Ghimire

WATER TAX ACT, 1963

Water Tax Act 1963 is one of the laws promulgated in Nepal as a sector specific law for the water utilities and uses of water resources for focusing on Tax collection and recoveries through water utilities. The Act did have remarks on supply water naming ‘tap water’ tax collection.[i]  The Act did have significant characters of price regulation of water utilities.

Prevailing law occupy some in-efficiencies of collection taxes such as from government offices and buildings.[ii] However, other exemptions such as junction, paati (resting place) and hospitals can be justified and ensured the service of general economic interest (SGEI). The law protected the rights and access of drinking water supply without discriminating among the users.

NEPAL WATER SUPPLY CORPORATION ACT 1989

Nepal Water Supply Corporation established under the Act which is as autonomous government controlled Corporation responsible for the supply of drinking water.  Before Water Supply Management Board Act, 2006, it has sole responsibility to regulate water supply system including formation the organization, collection of tariff and managing the water supply system infrastructures. It is also prohibits certain acts and provides penalties/punishment for violation. Those areas where Board is not formed, the Corporation Act activates automatically to comply with legislations.

WATER RESOURCES ACT, 1992

Water Resources Act, 1992 tries to focus on sustainability of water resources.[iii]  In the same time, Act has given priority on utilization, conservation, management and development of the water resources such as surface water, underground water or in whatsoever form.[iv] The Act makes timely legal arrangements for determining beneficial uses of water resources, preventing environmental and other hazardous effects thereof and also for keeping water resources free from pollution. The Act does have broad definition of usages of water resources and identified multiple tasks of water related activities.[v]

In the Act, there are exclusively designated of formation of Water Users Association[vi] for giving access to the end user consumers. This may ensure the water access guarantee to local levels. However, other factor such as quality of water and water standardization are out of reach to the Association due to lack of expertise and efficiency. On the other hand, high level of in-doctrination within Association severely hampering the main goals of easy and clean water access to the consumers.

Water uses priority of Act  are in hierarchy;  firstly- drinking water and domestic users,  irrigation; agricultural uses such as animal husbandry and fisheries, hydroelectricity, cottage industry, industrial enterprises and mining uses,  navigation and  recreational uses.[vii] The article, further explains of dispute settlements[viii] in between/among different users and priority of waters uses.

Provisions of water regime on licensing are clear and also sophisticated. However, it’s not able to attract much private sectors investment into water extraction and distribution. Apart from Kathmandu Upatyaka Khanepani Limited, herein after mentioned after KUKL, there are no significant private sector market players in water utilities industries. The Act has further clearance on fixing of quality standard of water resources[ix] and water resources not to be polluted,[x] should be considered as guarantee of clean and drinkable water access to the consumers. On the sustainability side Article 20 strongly advocated and sanctioned of no substantial adverse affects on the water resources.

WATER RESOURCES RULES 1993  

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Rules come immediately under Water Resources Act 1992 promulgated as an umbrella regulation governing water resources management.[xi] The Rules has come in-detail of Formation of Consumers' Association to ensure consumer rights on water access. The Rules further declares that chief district officer[xii] will head the water resources committee with other relevant members associated with water supply system. However, state-of-art   for water resources is not clear on what kind of products and services segment, its need to be focused on. On the other hand, the Rules focused on to obtain License for Utilization of Water Resources[xiii] to sell or provide services on water resources sectors. In further,  Article has given priority of EIA[xiv] recommendations to avoid adverse effects on environmental, social and economical issues needs to be addressed. The Rules it seems more focused on licensing or formation of association rather than quality of water, access of water or possible water accessibility of end users.

The Rules Inquiry relating to the Dispute regarding Water Resources Utilization Inquiry Committee[xv]  has extensive details of consumers’ level to resolve out the issues on the ownership and utilization of water resources.

DRINKING WATER REGULATION 1998

The Regulation came under force formation of Drinking Water User Associations to use of drinking water. It is facilitated formation procedure and registration of users Association.[xvi]  The regulation has clearly assured that Users Association has limited power to use water as per terms and conditions of the law.[xvii]  Similarly, dispute settlement to use or exploit water resources,[xviii] and   deals with licensing of use drinking water.[xix] In further, deals with quality standards for drinking water,[xx]  control environmental degradation[xxi] the control of water pollution[xxii]  following by environmental sustainability.  

WATER SUPPLY MANAGEMENT BOARD ACT, 2006

The Act has given huge relief to formation of water supply management board to bring water supply skill holders to the board. It has also given access to local administration to facilitate the programme as per local basis which is notified by the Government of Nepal’ Gazette. In an other hand, the preamble of the legislation made clear of ‘to establish and operate the Water Supply Management Board for reliable services to the residents of the municipal areas by making water supply and sanitation services regular, managed, qualitative and easily available in these areas’;[xxiii] in an example; the Act has given access to set-up Kathmandu valley Water supply Management Board and later, Kavre Valley Integrated Water Supply System through the Act.  Similarly, the act  can be applied to single municipality or VDC level or part[xxiv] of can be covered through Water Supply Management Board. The Board is designated as autonomous corporate body[xxv] which has Functions, duties and powers of the Board[xxvi] such as prevent of misuse and pollution of water,[xxvii]  carry out, study, research and survey on the source, distribution of potable water, and sanitation,[xxviii] fixing rate of tariff of services, [xxix] make necessary arrangements for the provision of qualitative and effective service,[xxx] give license to the service providers for providing the service, or provide the service by entering into an agreement with the service providers,[xxxi] recover or cause to be recovered, fixed tariff in consideration for the service provided to the users[xxxii]  are featured into the legislation.

The Act has particularly facilitated power to institutional reform of Kathmandu Valley Water Management Board[xxxiii] under certain circumstances to form the management board for the Melamchi Project[xxxiv] in operation all structures of that Project and equipment installed to such structures and liabilities associated thereto to the Board formed pursuant to this sub-section[xxxv] is highly important project for consumers of Kathamndu valley.  Followed by same Article, Kathmandu Valley Water Management Board has got responsibility to obtain such water from different region, it may provide reasonable amount to the local bodies or uses in that area.[xxxvi] The Board has same rights as corporation[xxxvii] for providing services; uses, operation, repair or maintenance.

WATER TARIFF FIXATION COMISSION ACT, 2006

The commission established to protect the interest of consumers for providing qualities and reliable service to supply water and sanitation with reasonable prices. The Act enacted as sector specific regulation of price regulation. The commission established as   an autonomous body.[xxxviii] The commission has powers and duties[xxxix] of   fix the tariff of services,[xl] maintain quality of services through service provider,[xli] dispute settlement between service providers and users,[xlii] determine criteria of determining the tariff[xliii] are prime task of the commission. Apart from other task, water tax collection    for ‘tap water’[xliv] enforcement law already enacted as separate law as Water Tax Act 1966. Primarily, it is enforcement law for water tax collection in Nepal.

Sector Specific Regulation Consultant/ mrghimire@hotmail.com

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[i] Water Tax Act, 1963, Article 4 (1)

[ii] Ibid, Article 9 (b)

[iii] Water Resources Act, 1992, Preamble

[iv] Ibid

[v] Ibid 4 (2) a, b, c, d, e

[vi] Ibid, Article 5, 6

[vii] Ibid Article 7 (1) a, b, c, d, e, f, g

[viii] Ibid Article 2 (2)

[ix] Ibid Article 18

[x] Ibid Article 19

[xi] Water Laws in Nepal, Water Aid, Feb 2005,  Available on: http://www.wateraid.org/documents/plugin_documents/water_laws_in_nepal_english__february_2005.pdf

[xii] Water Resources Act, 1993, Article 8

[xiii] Ibid, Article 17

[xiv] Ibid, Article 17 (e)

[xv] Ibid, Article 28

[xvi] Drinking Water regulation 1998, Article 3 (1)

[xvii] Ibid, Article 8 (1)

[xviii] Ibid, Article 23 (1)

[xix] Ibid, Article 23 (1)

[xx] Ibid, Article 25

[xxi] Ibid, Article 27

[xxii] Ibid, Article 26

[xxiii] Water Supply Management Board Act, 2006, Preamble

[xxiv] Ibid, Article 3 (2)

[xxv] Ibid, Article 4

[xxvi] Ibid, Article 6

[xxvii] Ibid , Article 6(c)

[xxviii] Ibid, Article 6 (d)

[xxix] Ibid, Article 6 (h)

[xxx] Ibid, Article 6 (i)

[xxxi] Ibid, Article 6 (j)

[xxxii] Ibid, Article 6 (k)

[xxxiii] Ibid, Article 7

[xxxiv] Kathmandu Upatyaka Khanepani Limited (KUKL) has responsibility of infrastructures built by Melamchi Water Supply Project. Currently, KUKL is headed by three international water utilities experts (General Manager, Operational and Technical Manager, and Administration & Financial Manager). Informations obtained from http://kathmanduwater.org/home/index.php

[xxxv] Ibid, Article 7 (5)

[xxxvi] Ibid, Article 7 (8) c

[xxxvii] Ibid, Article 9 (2)

[xxxviii] Water Tariff Fixation Commission 2006, Article

[xxxix] Ibid, Article 6

[xl] Ibid, Article 6 (a)

[xli] Ibid, Article 6 (c)

[xlii] Ibid, Article 6 (d)

[xliii] Ibid, Article 6 (f)

[xliv] Water Tax Act,1966  Article 2 (a)