"Power Policies should not Change for 20 Years"
Andre Boulanger, President of Hydro-Quebec Distribution, one of the major hydropower companies in Canada, was in Nepal recently on, what he called, a holiday trip. During his stay, he inaugurated Hydro Solutions, a Nepali consulting company to be specialised in hydropower sector. Excerpts from an interview:
How was your stay in Nepal ?
Though the first purpose of my visit here with my wifeis vacation, the second purpose is to explore possibilities about business. We came here last March to attend the inauguration of the Khudi hydro power project. This time too we went to Khudi project as we traveled around Nepal and we also went to a couple of other potential sites. But we didn’t visit other projects. We talked about the potentials and also about the possibilities as to what could be the next projects that could go for construction in the next one or two years from now.
What should Nepal learn from Canada ’s experience in hydro power sector?
There is a huge potential of power development in Nepal . There is a huge Indian market available to Nepal . India ’s economy is growing rapidly and there is a huge demand of power. If you look at Canada ’s experience, similar situation existed when we started big investment in hydropower sector about fifty years back. In the United States , a big market with demand for power at premium price was there. And we had huge amount of water available for building large hydro electric projects. So, I think Nepal could learn from how our organisation has been structured and the way the government decided to operate in terms of electricity generation, production and distribution. Nepal can also learn how we have been able to produce more energy to generate more revenue for the benefit of people living in the project areas. However, what is important is to develop your own expertise. When you develop your first project, you probably need expertise that comes from outside to complement what you do not have here internally. But after certain period of time, your people will learn from those people coming from outside and then you will be able to build your own expertise. Then, may be, you will also be able to export that expertise elsewhere. We have been able to do that in Quebec too.
Would you please tell us about your organisation?
Hydro-Quebec is a large company with annual revenue of 12 billion Canadian dollars and 22 thousand employees. We have an asset of about 60 billion Canadian dollars and we reinvest each year more or less 4-5 billion Canadian dollars. The production capacity of the company is close to 40,000 megawatt of power, which is mainly from hydro - close to 97 percent. And the energy production is close to two hundred terawatts (10 12 watts) per year which is really huge when compared with the population of Quebec which stands at only seven million. Therefore, we are exporting power to the United States and we are making good money by doing that.
Could you also highlight on your company’s power supply arrangement and also the power market in Canada ?
Electricity production in Quebec is highly regulated business in the case of distribution and transmission. In the case of production, all the projects greater than 50 mw are government projects. The private sector is able to do all those projects that are below 50 mw. And the price is fixed by an energy board that we have in the province. So, every year we have to go in front of the board to explain as to what should be the rate structure of the power in the new context. As far as export of the energy to another country is concerned, you have to show reciprocity. When you want to export power, you have to be able to demonstrate that the other party can do the same within your own market which means that in the case of electricity, you have to be able to show that your transportation system is open to the other party in other country. And 10 years ago we split our company in three large companies. They looked after transportation, production and distribution. The rates fixed by the transportation company are the same for also others who want to carry energy within our boundary. That’s an open access, so you can sell your product the way you want. All along North America , we have an open market. You can sell anywhere in the United States or any provinces of Canada . We see similar possibilities for Nepal because like Quebec , Nepal is surrounded by big markets for energy and it has a lot of hydro power potential. What is important when you are an investor is that you need to know the rules. Are the rules going to be stable or are they going to change? Because when you invest, you put a lot of money for different works of the project and you need stability in the rules under which you are going to operate the whole project. When you are doing business with markets outside your region, you want similar kind of reassurance. And the same thing applies to other parties who want to do business with you. You have to show reciprocity and ensure open access. When we go down to the United States to export our power there, we know precisely what we are going to do and what we should do when there is something wrong. We can go to the court where the rules are going to apply equally to both the parties.
Here in Nepal, the investors in hydropower are also demanding a fixed interest rate on bank loans for the entire project period. How is the practice in Canada ?
In Canada we have fixed interest rate for 20 years on bank loans. Over here you have floating rates. So what will happen in the future if you have more inflation? The investors also need to know as to what happens if they invest in dollars or rupees. They want to know about the future of the currency. These are challenging things and that is why you have to work with good partners. The best thing here is that the labour cost is much lower than in Canada .
How competitive is the Canadian power market? Who fixes the price? The company or the government?
Electricity distribution and transport rates are determined by the energy board. Production is open. That means you buy production at market price. So, there is cut throat competition. And when you export, you do your business in an open market. In the United States the power is produced also from coal and nuclear plants. So, you have to compete also with the other sources of production.
Is there any possibility of Hydro-Quebec investing in Nepali projects?
We no longer are involved in projects that are outside the Quebec province because we have a lot of projects we need to build within our own province. We decided to sell all our investment in other projects outside of the province.
Do you see any need of correction in hydro power policies of Nepal ?
What I see is that hydro power does not need a lot of policies. When you develop a project you have to have a good idea of the projected price of that project. It’s not a big thing from an investor’s point of view. The policies should be designed in such way that guarantees stability. An investor in hydropower hopes that the policies do not change at least for 20 years. And when investing, they also want to have access to the best possible market.
