Village Development through Hydropower: By the People, of the people, for the people!
Despite being rich in water
resources and having
immense hydropower
potential, Nepal with an annual 224 billion cubic meter of surface water run-off, is engulfed in darkness.
The power cut has been severely impacting industries, businesses and daily lives, debilitating the nation’s productivity and choking rural economy. The loss in productivity due to load-shedding is over 70 billion rupees with industries being hit the hardest.
At a time when the country is suffering from acute power cuts and concomitant economic downturn, rural districts of Nepal can be empowered to chart their development ways by exploiting the hydro resources at their respective locations and communities. Local communities have always depended on the central government to provide resources for their development. This dependency has retarded their growth and the ability to take responsibility for their development activities. It is no surprise that development packages and priorities change with changes in the government. To reduce such dependency, each district should develop a small hydropower plant on its own so that the plant generates some resources that can be utilised by the community to plan and implement local development activities according to their own priorities.
Development Aspirations of the Local People
People in all communities seek roads, electricity, communication, health centres, employment, education and market facilities. All these aspects of development are possible through the implementation of a hydropower plant in a community. A hydropower plant requires infrastructure, labour, service and the project itself. Hydropower is the best means to seed development activities that local people in their respective community aspire for.
Technical Capability
Developing a hydropower plant requires financial, technical and managerial capability. However, a small hydropower plant can be built with a simple technology. As there are already over a dozen projects of this scale developed or being developed in Nepal, we have sufficient experience to build more such projects. There exists local capability in the private as well as public sector to design, build and operate power plants of smaller scale.
Ownership Model
The objective is to grant ownership of local hydro resources to local institutions and to empower them to chart their own development path. Therefore, the ownership model must be such that the local DDCs and VDCs have a significant stake and authority over these resources. There may be districts that do not have the natural resource to develop small hydropower projects within their own territory, but they can team up with neighbouring districts and share investment and resources. If a district does not have financial resources to develop and operate hydropower projects, it can invite other partners to fill the financial gap. These could be public partners like the Nepal Electricity Authority or groups like local chapters of the FNCCI or any other Nepali private sector investor. Provisions should also be made to involve local individuals and other communities in the district. This will not only help to collect scattered resources but will also make development projects inclusive. Technical support can be rend ered by IPPAN, FNCCI and other similar organisations.
Enabling Districts to Invest
Some districts may not have the necessary resources to invest in such projects but they must be enabled to make financial investment to increase their stake in these projects. This can be done in a number of ways:
- Government grants to the DDCs can be increased so that the increased grant is invested in hydropower development.
- The government can invest in creation of infrastructure such as roads and transmission line required for the project
- The government can subsidize interests on loans taken by the DDCs to finance the projects.
- The government can seek international funding through INGOs or bilateral /multilateral donors.
Any or all of these combined could be beneficial for the local communities to own a larger stake in hydropower projects.
Financing Scheme
Here is a financing scheme proposed as an example for these projects. Other schemes can also be discussed in due time.
Assumptions
Project size: 5 MW
Construction period: 3 years
Project cost (@Rs. 150,000,000 per MW): Rs. 750 million
Equity required (@ 25 % of total cost): Rs. 1875 million
DDC (local) ownership: 30 percent
DDC/local funds required: Rs 56.25 million
Sources of funds (to be raised over 3 years):
DDC source: 12 million (from DDCs own resources)
Govt. grant: Rs 12 million
Donor matching funds: Rs 20 million
Local shares and labour contribution: Rs 6 million
VDCs and local groups: Rs 6.25 million
Entrepreneurs: 70% of the total equity
Returns on investment
Normally, a small hydropower project would yield a return on investment (RoI) of 16% to 20%. After a few years of loan repayment, the cash at hand earned from the project would increase substantially. The annual revenue generation from a 5 MW power plant would be about Rs. 120 million and most of this would be used to service loans in the first few years. Once the loans are fully repaid, the DDC would be able to retain its portion of the investment which will be about Rs 15-20 million per year. This is a significant amount of money for the DDC to plan and implement its development and social programs, remaining independent of grants from the central government. Part of this amount could be reinvested in similar projects to earn more development funds in the future. There could also be a mechanism to buy out the entrepreneurs’ shares by the DDCs and locals in due time.
Available Projects
The Department of Electricity Development (DoED) under the Ministry of Water Resources has been carrying out studies on numerous projects which it intends to award to developers through competitive bidding. Some of these projects could also be awarded to the districts concerned. Districts in the Terai that do not have appropriate hydro sites could partner with neighbouring districts that already have such sites and build projects on common investment.
Conclusion
Investment in hydropower at district levels has multiple secondary impacts. This model of development can foster the growth of hydropower projects in Nepal. Its contribution to the energy sector would be about 300-350 MW. Although this is a small part of the country’s energy needs, this is about half of what we have right now. But there are other benefits of this scheme as well.
1. Mobilization of local resources
2. Empowerment of DDCs and VDCs
3. Development of technical manpower to design, build and operate power plants
4. Development of infrastructure in remote areas
5. People can claim ownership on local resources
6. Districts can have their own plan of local electrification from the energy generated
7. Industrialization of remote areas that are electrified
8. Reduced burden on central government for providing resources to each district on an annual basis
9. An opportunity to test and prove PPP model for national development.
(Pradhan is a hydropower entrepreneur)
