 |
| |
VOL. 28, NO. 06, Sept 26 , 2008 (Ashwin 10 2065 B.S.)
|
|
Paraguay, Bhutan and Nepal
– Landlocked but Hydropower Rich –
Cases of the Lamed Duck, Flying Geese and Sitting Duck!
- SB Pun
May, 2008
Foreword:
For the last 50 years, those at the helm of Nepalese affairs, from Panchas, Democrats to Comrades, have all been wailing over our ‘apar khera gai rakheko pani’ (infinite waste of water). In fact, the Nepali Congress by ‘implementing large, medium and small projects including Upper Tamakoshi, West Seti, Arun III, Upper Karnali’ within the coming 10 years plan to increase generation capacity ten fold to 5,000 MW and earn ‘billions of foreign currency’ through power export.. Not to be outdone, the CPN-Maoist similarly declared that ‘through short and long term plans’ 10,000 MW generation capacity (twenty fold) will be added within the next 10 years. Surprisingly, the CPN-UML was not that euphoric and had a far more sobered tone advocating a policy of multiple uses on storage projects, domestic capital for medium projects and ‘local participation for projects under 10 MW’.
Globalization and liberalization brought to the fore the charms and greed of market forces. Our get-rich-quick Nepalese do not want to ‘miss the boat’ and are lobbying hard for Nepal to replicate the Bhutan model of hydropower development. It is in this context that the land-locked and hydropower rich countries, Paraguay and Bhutan, need to be visited so that Nepal may, perhaps, learn a few lessons. By sheer coincidence, these three landlocked countries have all undergone dramatic political changes recently. After an 18-year democratic parliamentary exercise and the 10-year CPN-Maoist insurgency that cost the precious lives of over 13,000 innocent Nepalese, Nepal’s Constituent Assembly is set to re-write another constitution. Bhutan’s ‘gross national happiness’, that was originally the Drukpa monarch’s dispensation, now resides with the democratically elected parliament. In far-away Paraguay, the party led by the left leaning former bishop, Fernando Lugo, finally voted out the 63-year rule of the Colorado party.
Paraguayan Geopolitics:
Paraguay, with a 5.6 million population, is a small landlocked but hydropower rich South American country sandwiched between two large neighbours, the Portuguese-speaking Brazil to the north and east and the Spanish-speaking Argentina to the south. Traditionally, Paraguay was very dependent both economically and politically to its southern neighbour, Argentina. Her only outlet to the sea was along the Parana river via an Argentine port. Historically, there was keen rivalry between Argentina and Brazil to exert their spheres of influence on Paraguay. In 1966 Paraguay signed the Treaty of Iguacu with Brazil to develop the border river, Parana. The treaty basically recognized the border river’s common ownership of water with an equal sharing of hydropower. This was followed in 1973 with the signing of Itaipu treaty for the construction of the world’s then largest 12,600 MW Itaipu hydropower plant on Parana. In order to woo Paraguay, Brazil built a bridge over Parana to provide an alternate route to a sea port in Brazil. Paraguay was thus freed from Argentina’s clutch over access to the sea. Not to be outdone, Argentina, under the personal instruction of its President Peron ‘to sign now and renegotiate later’, signed the same year in 1973 the Yacyreta treaty with Paraguay to develop the 2,700 MW hydropower. Thus, hydropower development for export became Paraguay’s main national agenda, an agenda not dissimilar to that of our main political parties, the CPN-Maoist and Nepali Congress.
Itaipu Dam Controversies:
The 12,600 MW Itaipu dam was embroiled in a host of controversies between the two countries: on the 196 meter height of the dam, on disproportionate extent of flooding between the two countries, on low compensation for land, on 50 cycle frequency for Paraguay’s share of the 6,300 MW generators when 90 per cent of it is for export to Brazil with 60 cycle frequency and even on the structure of the Itaipu Binacional Administration. But the main debate within Paraguay was on what to do with this huge 6,300 MW of its share of power at a time when its own installed capacity was 235 MW, just one-third of the 700 MW single unit to be installed there. Incidentally, Nepal’s much vaunted ‘sun to rise from the west’ Pancheshwar has a similar 6,480 MW capacity with 3,240 MW as Nepal’s share. One school of thought in Paraguay lobbied against export to maximize domestic use through industrialization and installing energy intensive industries within the country. The other school lobbied for export. A situation that is not different from that of Nepal. The export lobby won because Paraguay had poor infrastructure, no domestic raw materials and above all no financial resources which, once the export revenue starts accruing the lobbyists argued, could be ploughed back for industrialization and infrastructure building. The initial project cost estimate of US$ 2 billion in 1973 snowballed to US$18 billion when completed in 1985. Similarly, Yacyreta’s original estimate of US$2.7 billion also soared to US$11.5 billion forcing former Argentine President, Carlos Menem, to term Yacyreta ‘a monument to corruption’.
Lamed Duck:
Because of the Paraguayan parliament’s demand, early on, for a fair share of the project’s contracts, officially 50 per cent of all major contracts were earmarked for Paraguay. In practice, Paraguay’s small industrial sector was no match for Brazil’s technologically advanced and capital-wise strong industries. Over 75 per cent of the total contracts with key inputs like steel, cement, machineries etc. were all supplied by Brazil. Even minor items like housing materials for Paraguayan workers came from Brazil.
But Paraguay failed dismally on the price of electricity negotiated with Brazil. As the monopoly buyer, Brazil gave Paraguay an extremely paltry price of US$300 per million units i.e US Cents 0.03 per unit. This scenario was inevitable as Paraguay did not have the capacity to bear her portion of the project cost and Paraguay had to approach Brazil for the loan. Despite many revisions and heavy tariff increases, the price, after all 18 units were commissioned in 1992, still became only US$4,200 US$ per million units i.e a mere 0.42 US Cents per unit! The following table indicates Itaipu’s actual generation:
Year No. of 700 Mw Million Units Year No. of 700 Mw Million Units
installed units installed units
1992 18 52,268 1993 18 59,997
1994 18 69,394 1995 18 77,212
1996 18 81,654 1997 18 89,237
1998 18 87,845 1999 18 90,001
2000 18 93,428 2001 18 79,307
2002 18 82,914 2003 18 89,151
2004 18 89,911 2005 18 87,971
2006 19 92,690 2007 20 90,620
Source: http://en.wikipedia.org/wiki/Itaipu
From the above table Itaipu’s average annual generation over the 16 years from 1992 to 2007 is 82,038 million units of which Paraguay’s half entitlement is 41,019 million units. Incidentally, the average annual generation from Nepal’s planned three largest multipurpose projects (10,800 MW Karnali Chiasapani - 20,842 MUs, 6,480 MW Pancheshwar – 6,166 MUs, half of 12,333 MUs and 3,000 MW Saptakoshi – 17,607 MUs) totals to 44,615 million units, just about Paraguay’s share at Itaipu. At US Cents 0.42 per unit Paraguay’s export to Brazil brought her a paltry US$ 172 million annually. That is why Paraguay, despite over two decades power export from Itaipu, is still the second poorest country, after Bolivia, in South America. That is why Paraguay’s new left-leaning President, Fernando Lugo, is rattling his saber to end the contractual obligations with Brazil of selling power below the commercial market price. Paraguay, despite its earlier self-thought clever political maneuvering, now feels that it has been cheated and got a raw deal from Brazil. The simple lesson for us, Nepalese, is that megawatt and millions of units for export do not necessarily translate into ‘arabs’ of hard Indian currency. For the ‘sun to rise from the west’ Nepal must have in place sound in-house institutions that can negotiate the intricacies of ‘cost of project in proportion to the benefits accrued, power benefit, inter alia, saving in costs as compared with relevant alternatives etc.’ The tiny 5.6 million Paraguayans have a per capita income of only US$ 1,100 whereas the huge 176.6 million Brazilians have a per capita income of 2,710 US$. Paraguay is thus a classic case of the lamed duck!
Bhutanese Geopolitics:
In 1949, Bhutan signed a treaty with India wherein Bhutan’s external relations were ‘to be guided by the advice of the Government of India’ and import of ‘arms, ammunition, machines, warlike materials or stores’ could only be done with India’s ‘assistance and approval’. The Sino-Indian border clash of 1962 taught India to build for its own security a series of road networks along the Sino-Indian border in Ladakh, NEFA and even Bhutan. These roads provided accessibility to the difficult interior terrains of Bhutan not only for her socio-economic activities but also for better hydropower sites. The 1975 annexation of the Sikkim kingdom by India, on the premise of bowing to the wishes of the majority, was undoubtedly a wake-up call for both the kingdoms of Bhutan and Nepal. While Bhutan immediately got down to invoke new citizenship laws, Nepal’s ‘permit system’, recommended by Dr. Harka Gurung, was termed anti-national. Bhutan enacted the 1985 citizenship act and based on the 1988 census claimed her population to be only 600,000. Bhutan then aggressively launched her Bhutanization drive of one language, one religion and one social customs. This resulted in the cleansing of ‘Lhotsampas’, the southerners of Nepalese origin, who flocked into Nepal over Indian territories. The 7 refugee camps in Nepal’s Jhapa and Morang districts house over 106,000 Bhutanese, languishing for the last 18 years. Without the tacit nod from India plus Nepal’s dismal diplomacy, Bhutan could not have remained stubborn over such lengthy periods on such a sensitive humanitarian issue.
Flying Geese:
Bhutan has about 30,000 MW hydropower potential of which 16,000 MW is estimated to be economically exploitable. With 60% grant and 40% loan at 5% interest rate from India, the 336 MW Chukha hydropower project was commissioned in 1988. Similarly, the IRs.4,124 crore 1,020 MW 4,865 million units Tala hydropower project had the same grant and loan ratio with interest rate hiked up to 9 per cent. Commercial operation of Tala started from July 1, 2006 and the first payment of loan, repayable in 12 equal installments, started from July 31, 2006. This is the Bhutan model of hydropower development with the consultants, contractors, electro-mechanical equipments, steel, cement etc. all coming from the loan provider. Over 95% of the cheap power so generated is fed back to Indian grids to drive Indian industries so that the goods and services India produces would be far more competitive both regionally and globally.
With Tala’s commissioning, Bhutan’s power export is expected to generate about US$ 1 million a day. The GDP growth, 10% in 2006, is forecasted to rise to 12% in 2007. Similarly the revenue from hydropower to the national budget is expected to rise from the current 45% to 60%. The current account deficit should then move to surplus in 2007. With the India-financed 45 MW Kurichu and the Austria-financed 60 MW Basochu, Bhutan in 2008 has a total installed capacity of about 1,465 MW. The 2003 per capita income of US$ 660 is predicted to double from Tala’s revenues. Many predict that Bhutan is, thus, well on the way to become the flying geese of South Asia. But some analysts question whether India will remain a silent spectator when Bhutan becomes an island of prosperity in a region that is increasingly facing the brunt of demographic pressure.
Nepalese Geopolitics:
The 1950 Indo-Nepal Treaty of Peace and Friendship, 1952 Indian Military Liaison Group to train Nepal Army, 17 India-manned wireless check-posts on Sino-Nepal border, Tribhuvan Rajpath linking Kathmandu to the plains, 1954 Kosi and 1959 Gandak agreements all came in quick successions during that critical decade. The furor over these agreements in Nepal and subsequent 1964 Gandak Amendment and 1966 Kosi Revision were possible only after the short but embarrassing 1962 Sino-Indian border clash. Our two big neighbours then vied for their spheres of influence in our infrastructure construction: 21 MW Trishuli and 1 MW Phewa versus the 10 MW Sunkoshi and 1.5 MW Seti; Tribhuwan rajpath replied by Arniko rajmarga, Siddhartha rajmarga into Pokhara replied by Prithwi rajmarga from Kathmandu. Stung by its infrastructure lapses in the Ladakh and NEFA regions, India went on to build the major portion of Nepal’s east-west Mahendra rajmarga to cater to its own security concerns. This concern was, in an undiplomatic manner, manifested when Nepal was forced to retract its global tender award of the Asian Development Bank financed Kohalpur-Banbasa road to a Chinese contractor due to vehement objections from India. The ambitious Dhankuta-Kathmandu-Pokhara-Surkhet hill road that India had agreed to in principle remained, unfortunately, on the drawing board only. This road would have contributed greatly both for the social-economic up-liftment of rural Nepal as well as opening up access to better hydropower sites.
With the arrival of the powerful multilateral and bilateral institutions into Nepal from the 1970s, the rivalry between our two big neighbours diminished. In fact, India, while keeping the bilateral dialogues intact on Karnali Chisapani and Pancheshwar, retracted to its own territory by constructing unilaterally a host of such large structures like the Girijapur barrage on Karnali, the Tanakpur barrage on Mahakali and the Laxmapur barrage on the Rapti. Much in the fashion of the 1950 treaty when Nepal’s chips were down, India in 1990 proposed a draft Agreement on Mutual Cooperation to the tottering Panchyat regime. In essence, besides not entering into ‘any military alliance with any other State’ and ‘consult and enter into suitable protocols with the Government of India concerning the acquisition by Nepal of arms, ammunition and other materials’, India on natural resources development continued on with the ‘shall give first preference to the Government or the nationals of India’. The new singularly important element of the Draft on ‘the commonly shared rivers’ was the clause ‘plan new uses or projects subject to the protection of existing uses on the rivers’. Unlike Mohan Shumshere, King Birendra refused to sign this draft Agreement with India and opted rather to become a constitutional monarch in a democratic parliamentary system.
Sitting Duck:
Nepal’s four large (Kosi, Gandak, Karnali and Mahakali) and five medium (Kankai, Kamala, Bagmati, West Rapti and Babai) rivers contribute an overwhelming 75% of the lean season flow of the Ganges at Farakka. The Ganges basin in 2003 supported a population of nearly 513 million (Nepal’s 25 million, 42% of India’s 1,064 million: 447 million and 30% of Bangaldesh’s 138 million: 41 million). At 1,061 persons per square kilometer, Bangladesh has the unique distinction of having the highest population density in the world. West Bengal at 904 persons and Bihar at 880 persons per square kilometer are not far behind. Nepal’s 172 persons per square kilometer is quite deceptive as the terai districts of Dhanusa, Mahottari, Sarlahi, Rautahat and Bara already have population densities of around 500 persons.
Such population densities put heavy stress on natural resources particularly water. That is why India has embarked on her ambitious IRs.5,600 billion River Linking Project to transfer water from the wet water-surplus region of the east to her dry water-deficit region of the west. Of the 17 Himalayan river links, Nepal figures in 5 important links: Kosi-Mechi, Kosi-Karnali, Gandak-Ganga, Karnali-Yamuna and Mahakali-Yamuna where huge storages like Saptakoshi at Barahchhetra, Karnali at Chisapani and Mahakali at Pancheshwar would be vital elements of the River Linking Project. These three projects are expected to uproot over 150,000 Nepalese for the benefits mainly to the people across the border. Bangladesh has already protested strongly and Nepal appears to be satisfied with India’s official stand ‘We will consult Nepal when this becomes necessary’. With the Mahakali treaty/Pancheshwar inked, the DPR study of Saptakoshi in the final stage and the agreement to ‘re-activate’ Karnali Chisapani, Nepal has placed herself in that unenviable position of the sitting duck.
Final Word:
Recent constituent assembly election manifestoes claiming to generate 5 to 10,000 MW within ten years reveal that New Nepal’s main political parties continue to be charmed with power export to India. If India is to maintain her 9 per cent GDP growth rate then she will by 2026/’027 require an estimated 785,000 MW which is about six times the present capacity. Though India has massive coal reserves and over 148,000 MW of hydro potential, she is desperately looking around for other energy sources: newer technologies from the Indo-US nuclear deal, gas from unstable Central Asia or ‘the axis of evil’ Iran or even the military junta of Myanmar. While energy has options like coal, gas, hydro, nuclear, wind etc., water has none. The dwindling Ganges badly needs augmentation and in the name of hydropower development in Nepal, India aims to get her freshwater by default. The 750 Mw West Seti and the 600 MW Budhi Gandaki, both storages, will provide the badly needed augmented water, however little that may be.
As the Mahakali treaty stipulates that the cost of project will be ‘in proportion to the benefits accrued’, the Pancheshwar project is bogged down since 1996 with the acrimony over the accrued benefits. To overcome that acrimony India astutely proposed that the costs be in proportion to the usage from the storage created. Nepal retorted that the treaty had no such provision. Pashupati SJB Rana, Nepal’s then Water Resources Minister, claimed that Nepal was able to convince India to accept the ‘principle of displaced cost of alternatives in the evaluation of electricity benefits’. India countered that the ‘relevant alternatives available’ could well mean other hydropower, nuclear, gas etc. and not necessarily coal fired thermal plants that our Minister had in mind. So intricate and complex have the Indo-Nepal negotiations on water resources development become that there were times when Nepal mistook the forest for the trees, like the 1991 MOU on Tanakpur. In our hurried quest to be the South Asian flying geese, Nepal could well land up like the lamed duck, Paraguay!
End
Nepali Congress manifesto for Constituent Assembly Election – 2064.
CPN-Maoist manifesto for Constituent Assembly Election – 2064.
CPN-UML manifesto for Constituent Assembly Election – 2064.
China’s Three Gorges Dam on Yangtze will have 18,200 MW (26 nos. of 700 MW units) and as of December 2007 it already surpassed Itaipu’s 14,000 MW capacity. Later Three Gorges will have 6 more underground turbines. http://news.bbc.co.uk/2/ht/asia.pacific
This capacity in 2007 increased to 14,000 MW which means that Paraguay now owns 10 units of generators each rated at 700 MW. So sensitive were the Paraguayans that they insisted on all their Itaipu generators to be of 50 cycles, their standard frequency. This forced Brazil, with 60 cycle frequency, to install frequency converters for all power to be purchased from Paraguay.
Pashupati SJB Rana, Water Resources Minister, exhorting the Joint Session of Parliament to ratify the Mahakali Treaty on September 11, 1996
The last 18 th generator was installed in 1991.
A case not dissimilar to Pancheshwar project: 1995 project cost US$ 2,980 million. There is a major acrimony between Nepal and India over project benefits particularly irrigation and flood control. However, assuming Nepal’s portion to be 50% then US$ 1,490 million @ Rs65 per US$ equates to Rs97 arab. Nepal’s internal revenue resource generation for fiscal year 2007/’08 was projected at Rs104 arab. So do we like Paraguay approach India for the loan?
In 2005, Itaipu contributed 93% of Paraguay’s and 20% of Brazil’s electricity consumption.
Much in the manner that the Nepalese howl over the Kosi, Gandak and Mahakali treaties!
NRs.21 arab annually from export of Nepal’s Pancheshwar power – Pashupati SJB Rana to the Press on Ashwin 7, 2053 after the Mahakali treaty was ratified.
World Bank’s World Development Report 2005.
Articles 2 and 6 of the treaty inked in Darjeeling on August 8, 1949. The two countries in February 2007 ‘contemporized’ the 57-year-old treaty that will ‘largely free Bhutan’s foreign policy and defense purchases from New Delhi’s approval’. – The Telegraph, Calcutta. January 11, 2007. Also of interest to Nepal is the return of ’32 square miles territory in the area of Dewangiri’ to Bhutan by India. – www.nerve.in/news;25350032381
Till 1990 Bhutan maintained that her population was 1.2 million. But in 2004 King Wangchuk in his National Day address revised it to ‘just over 500,000’. – Matthew Joseph C. 1999. Ethnic Conflict in Bhutan. Nirala Publications. New Delhi.
It is indeed heartening to see energetic young Bhutanese couples with their children boarding the aircraft at Tribhuvan international airport for better futures in USA.
www.thehindubusinessline.com/bline/2006/08/17/stories
Chukha export tariff has recently been pegged at IRs.2/- per unit. – www.bhutannewsline.com. This price of energy needs to be equated with the recent US$135 per barrel of oil that was in 1998 only US$12.
www.adb.org/documents/books/ado/2006/bhu.asp
The World Bank. World Development Report 2005.
Nepal’s leaders fail to stress that India, world’s largest democratic country, hastily concluded this Treaty not with a democratically elected Government of Nepal but with the decrepit century old autocratic Rana regime that, in its last dying gasps, was ready to sign on any dotted line. On the import of ‘arms, ammunition or warlike material’ this treaty was akin to that of Bhutan requiring the ‘assistance and agreement of the Government of India’. On the development of natural resources (not limited to Water Resources only) Nepal‘shall give first preference to the Government or the nationals of India…’. Now 58 years later, after having ‘contemporized’ her treaty with Bhutan, India is now ready to review this treaty with Nepal.
Much in the fashion of Paraguay’s neighbours, Brazil and Argentina.
Bhasin, AS. 1994. Nepal’s Relations with India and China. Siba Exim Pvt. Ltd. Delhi.
This clause, however, got embedded into the Mahakali treaty – without prejudice to their respective existing consumptive uses.
With the exception of city-State, Singapore – 6,967 persons. World Development Report 2005.
2001 India Census.
Dikshit, A. Mulyankan. 2062 Chaita/46. Kathmandu.
Shyam Saran, India’s ambassador to Nepal to the media. Spotlight July 16, 2004.
IL&FS Infrastructure Development Corporation, New Delhi.
