REGIONAL ENERGY SECTOR

Future For Growth

With the demands of electricity in India continuing to grow, particularly, in northern states including the capital New Delhi, there is a possibility to turn Nepal's hydropower as a white gold in future. As India's high economic growth demands more energy to sustain it, Nepal's hydro electricity, too, is now seen in the economic sense of cost and benefit rather than just on narrow political interest. When economy starts to influence political and bureaucratic decision-making process, then the real bilateral and regional energy cooperation can be realized in South Asia. At a time when there requires more interactions between experts, private sector enterprises, government agencies and media to understand the regional energy scenario and its potential, United States Agency for International Development through South Asia Energy Initiative for Energy (SARI/E) has been making efforts to bring them together. This helps to understand each other’s difficulties and positions

By KESHAB POUDEL in New Delhi

 

Guragaon : Booming town

In a city after city, India is booming. Whether capital New Delhi or nearby Gurgaun or Noida of Utter Pradesh, they are full of shining new office towers, shopping malls, fly-over and industries. In the second quarter of 2005, India's GDP grew by 8.3 percent compared with the same period last year. After annual growth of around 7 percent in 2003 and 2004, India is on the course of booming.

One can see the visible implications of high economic growth in Indian capital New Delhi and its surrounding areas as Indian consumers are in the buying spree. Although India is economically shining, their quest for uninterrupted power supply remains a distant dream. Thanks to the deficit of power, all these cities have, one or other way, faced the interruption of electricity supply causing heavy economic losses. Despite improvement in the supplies, most of the northern India including capital New Delhi faced 7 to 8 hours of load shedding.

India is the third largest power industry in Asia whose current power production stands at about 115,000 MW and still faces a deficit of about 75,000. As a close neighbor of India, Nepal has high potential of generating commercially feasible 43,000 MW of energy but less than one percent of its vast resources have been tapped so far. Nepal's geographical proximity with India is another advantage for Nepal.

To sustain its GDP growth rate, India requires a huge energy now and its demand will increase in future by many folds. "Nepal's hydro power can fulfill demands of power-hungry northern India as Nepal has long border with northern part of India," said Rajiv Bhardwaj, senior manager of the Power Trading Corporation of India, addressing a meeting of South Asian Media representative in Gurgaon, India.

Funded by the U.S. Agency for International Development, South Asia Regional Initiative for Energy (SARI/E) and conducted by United States Energy Association, the South Asia Forum for Energy Journalist Executive Exchange for South Asian Media brought together the media persons of South Asian countries and experts and helped them understand the state of energy situation in the region.

Since India is Nepal's close southern neighbor with geographically easy access, economic boom and high GDP growth rate there will inevitably bring trickle down effects in Nepal also. Since Hydropower is a main resource of Nepal, the high demands of electricity will open the trade of this power.

"Nepal's immediate neighbor India can be a potential export destination for hydropower generation. The Indian northern region comprises of northern states including Uttaranchal and Utter Pradesh - which adjoin Nepal's western and southern borders. By year 2011-12, peak power demand and energy requirement of the northern region will be 60,077 MW and 350185 GWh respectively," writes Upendra Gautam and Ajoy Karki, in their book Hydropower Pricing in Nepal, Developing: A Perspective.

Following privatization of distribution system, there has been reduction in the energy losses and load shedding hours declined. But, the capital of Indian city and its surrounding areas are still power starved. If common people of India know that Nepal's hydropower can change their situation, they would have definitely put pressure on their government. Unfortunately, only a few people know this reality and importance of Nepal's hydropower to India.

"South Asian countries require regional approach to solve the problems of deficits of energy supply. Despite the potential resources all countries of the region are facing power deficit," said John Hammond, program manager of U.S. Energy Association. Moderated by Sarah Blanford from USEA, the three days interactions also showed the power supply situation of eight South Asian countries.

SARIE meeting : Regional talk

Organized by United States Energy Association under the funding of United States Agency for International Development South Asia Regional Initiative for Energy, the three days meting of South Asian Media highlighted the need to have strong regional cooperation to meet these shortcomings.

"This region needs to come together to fulfill their future energy demands. From hydro to coal and natural gas, different countries of the region have their own resources. Bangladesh' natural gas and Nepal and Bhutan's hydropower can contribute to sustain the economic growth of the region," said Ms. Robyn McGuckin, regional coordinator and program manager, SARI/Energy of U.S. Agency for International Development. "There is realization in the South Asian countries about their own resources." South Asian countries have significant energy sources but they are yet to tap properly.

Energy Security

Energy security is key issues of all the south Asian countries. From big India to tiny Nepal and Bhutan, all of them are concerned about their own long-term interest. Bangladesh does not want to sell its natural gas to India in a throwaway prices and Nepal has a strong lobby which wants to see Nepal's interest protected in the long term. Similarly, Indians, too, have their own interest as they want to see the regional energy in terms of monopolistic points of view.

The difficulties and complexities of the regional energy trade will be resolved once the private sectors are allowed to play key role in the trade and business of energy. Market forces should be allowed to decide the pricing rather than imposed by the government.

There is a need to be diversification of energy supply but reliability is key to the energy security.  The energy security issue is narrowly interpreted in the region and every country tries to sensitize the matter of energy supply on its own. This is not going to help the long-term economic perspective of the region.

"Of course, there is political sensitivity on the issues of energy security but the issues of energy must be seen in the economic perspective of costs and benefits," said J.P. Chalasani, director- Business Development, Reliance Group of Industry, which is currently undertaking the distribution of electricity in New Delhi. "Annually, there is a huge shortfall of electricity in northern grid, we need to harness the hydropower potentials of Nepal and Bhutan. Market forces should be allowed to decide the cost and benefits of
the power."

As the society is getting more affluent in India, their consumption pattern has also drastically changed with more households now using luxurious item - which consume more electricity, thereby, increasing demands of electricity in urban areas. In New Delhi, the level of electricity consumption increased by many folds in recent years. The prosperity of urban life cannot be imagined without uninterrupted power supply and the pressure is growing in New Delhi for uninterrupted power supply like in other developing countries.

"We receive hundreds of call in case of load shedding. No consumers are in a position to see power fluctuation," said Pankaj Arora, manager of Reliance BSES Customer Care Center in India. "After taking the control on the distribution of power, one of the major complaints of customers is the interruption of power supply that is beyond our capacity."

According to a study conducted by BSES Yamane and Adjani Power Limited, a joint venture of Reliance Energy Limited with the government of NCT, Delhi, a middle class family in New Delhi, who uses Refrigerator (165 Later), Window Air Conditioner (1.5 ton (Cooler (Medium Size), Table fan, lamp, tube light, washing machine and pump meter consumes 598 units a month of electricity totaling about IC Rest. 2, 350. If a person uses three refrigerators, the cost will be around IC Rest. 5, 250.

India is looking for more power and cost effectiveness but this is not happening quickly. The desire for high economic growth requires the uninterrupted power supply and to achieve high economic growth results in high demand for energy. The growing involvement of private sector is an example. "Private sectors are willing to take rest of the electricity sector from government entities," said an Indian expert. "For this Government commitment is essential. If the government wants energy security, it must prepare to allow private players.”

A country will feel energy secure when it has reliable and dependable energy supply. For energy supply, there is a need to construct viable projects. There is a need to see the energy on the basis of trade and investment and cost and benefits.

India is looking for more power and cost effectiveness. As private sector is willing to take financial matter of the project, a new era has begun. The interest of private sector to build West-Seta in Nepal and Tate’s agreement with Bangladesh natural gas plants are good examples how private sector are coming in the scene.

Trade and investment in hydropower sector is a long term issue as it involves a high risk as the cooperation in energy sector just begins, it requires some more years to implement them. This is not happening in short period as it is a tedious process.

"Private sector wants to invest in the energy with the good intention of sharing cost and benefits but the decision making process at the government level is too slow. If we miss the opportunity, our efforts to achieve high economic growth rate is impossible said," J.P. Chalasani, director business development, Reliance Energy.  Private sector argues that privatization helps the government to cut a heavy subsidy in the energy sector, but it is
yet to improve conducive environment for private sector in power generation and distribution.

Reliance Energy is now building 700 MW hydropower project in Arunachal Pradesh in northeast India and 271 MW run-off-the river project in Uttaranchal. As there are high demands of electricity, there is more pressure on the grid ending it in more load shedding. "We also want to enter into Nepal to build some run of the river projects," said Chalasani. "You have to understand that it is not an overnight process."

All other South Asian countries need to import one or other kinds of energy from outside or extra regional sources. Since energy is a politically sensitive subject, decision makers ignore the economic rationale and benefit. Whether it is gas pipeline or regional electrical grid or construction of power project, there involves a lot of political influences.

"Nepali mindset about the proper utilization of Nepal's water resources sector should be changed if she wishes to benefit from her untapped resources," said Prabhakar SJB Rana, former chairman of Independent Power Producer of Nepal in a recent interaction program in the capital Kathmandu.

In the scenario of power shortage in India, Nepal's hydropower cannot remain untapped for long period of time as market in India is growing very fast. This is where Nepal's hydropower, although some Nepalese experts do not agree with its economic potential, will have big opportunities to maximize.

Construction of hydropower in Nepal will guarantee the uninterrupted power supply in India and the sell of hydroelectricity will automatically support Nepal. There is a win-win-situation to Nepal and India.

"If Nepal wanted to reap economic benefits from exporting energy to India, she needs to reduce electricity cost to attract private sector to hydroelectricity," said Rajiv Bhardwaj, senior manager of Power Trading Corporation of India.

Although Nepal and India began the power exchange programs more than four decades ago, Nepal's hydropower sector is yet to tap the benefits from the power-starved Indians and to uplift the life of Nepalese people. Currently, only 40 to 50 MW of electricity is exchanged between them. There is no existence of high power grid to share the electricity.

For the past four decades, political consideration always prevailed over the economic issues. From political level to media, no one tried to disseminate the importance of bilateral or regional power sharing issues but now slowly and gradually the realization is growing.

Although there involved many complications, 750 MW West-Seti hydro electricity project is in the process of coming into operation. With the initial finalization of power purchase agreement and new Chinese financier, West-Seti Project is the test case for future hydropower cooperation between Nepal and India. After the signing of Power Purchase Agreement with India, promoters of West-Seti have moved one step. If they receive bank guarantee from India, Chinese company has already expressed its commitment to start the construction.

"We have already told the company that we will give bank guarantee from India," said Bhardwaj. “West-Seti is most attractive projects of Nepal which will supply uninterrupted peak energy of more than 700 MW for 6 to 8 hours."

Senior officials in Power Trading Company of India argues that energy is one of the most critical components required for development and progress of communities, enterprises and individuals. It thus acts as an enabler to various forms of commercial and individual activity. However, in a developing nation such as India there still are certain regions - which have yet to receive their first rays of reliable and consistent electric supply. Though considerable capacity additions have been made to India's power generation facilities, yet the demand levels continue to outpace the supply options.

Nepal hydropower will be white gold to India and Nepal. Despite the increase of consumption of energy by 58 percent between 1991 to 2000, South Asia's per capita energy consumption is still the lowest in the world.

Coal is the biggest source of energy in South Asia followed by petroleum products. The consumption of hydro-electricity is lower than 8 percent. There is a need to increase the supply to keep up with the rapidly rising energy demand and to promote cost effective cross-border energy trade in cleaner fuels and energy sources.

Lack of political will to undertake this venture and lack of will power at the bureaucratic levels and finally the lack of trust must be overcome to expand regional energy trade and investment. There is also lack of infrastructures like power transmission interconnections.

One of the barriers is general lack of public awareness of regional energy deficiencies and related environmental problems. India needs clean source of energy- that can be supplied by Nepal, Bangladesh and Bhutan.

At a time when the general public does not know power related issues and where it is available, the program organized by USEA targeting media will greatly benefit the consumers and policy makers of different countries of the region to know about the resources and market available in their vicinity.

As the government and public sector enterprises are not in a position to finance the projects, the rising influence of private sector in the energy will help to reduce the political influence paving the way for equal cost and benefit sharing of energy sector. India's high growth rate and growing demands of emerging middle class will definitely benefit Nepal's long-term economic growth. This is not an overnight process, though. There is also requirement for more interactions among media, experts and private sectors as is conducted under the SARI/E to make the regional cooperation meaningful.