In 2011, Nepal celebrated the centenary of the hydro power generation. The country's history of electricity production started with the generation of the Farping Hydro electricity dating back to about hundred years. Even when the country like China was not producing the hydro power Nepal had produced at that time. In recent years, Nepal has been recorded in the history as the most prone to load shedding country having high tariff rate and heavy leakage country in the hydro power sector.
When Western aid agencies provide loans and grants for energy projects in developing countries, they usually specify that recipient governments should allow pricing policies that ensure the agency’s financial viability by yielding a positive rate of return on assets, and are conducive to economic efficiency.
It is agreed that electricity tariff policy should be consistent with economic principles and are reflected in the Long- Run Marginal Costing (LRMC). LRMC of supply are both the interconnected and isolated systems in the public sector. It should also ensure the financial viability of the Nepal Electricity Authority and take into account Government of Nepal’s social objectives. With NEA in a financial mess, the government has been carrying out homework to increase electricity tariff for quite some time. Currently, NEA is facing a loss of Rs 2.39 on every unit of electricity it sells. The state-owned power utility is incurring a cumulative loss of Rs 28 billion. The NEA had incurred a loss of around Rs. six billion during the recent fiscal year. Government has written off the cumulative loss of 27 billion rupees of cumulative loss. Some multilateral agencies view that NEA and the Government of Nepal should incorporate regular tariff reviews for preparing the corporate development plans. This would also allow for timely signalling to consumers of short term increases in electricity supply costs resulting from the impacts of long dry periods requiring heavy load shedding or thermal generation using expensive oil to meet the demand of fuel price increases. The lack of tariff adjustment to compensate for unexpected short term increases in electricity supply costs should also worsen NEA’s financial performance.
The Tariff Fixation commission was formed in 2011after the previous tariff fixation commission was dissolved when the government declared energy crisis in the country in March, 2011. The authority has been forwarding its recommendations to the government to hike the tariff as it has not been adjusted for the last 10 years.
Independent power producers (IPPs) have been demanding that NEA hike Power Purchase agreement (PPA) rate. While raising the tariff, the NEA also look into allegations that leakages in electricity supply is taking place in a large scale, and it is doing virtually nothing to control and deal with them for which the ordinary consumer is suffering by having to pay more than their share for electricity. Besides dealing with the leakages, it could do something tangible about the perennial protracted periods of power outages.
Electricity Tariff Fixation Commission (ETFC), a government formed independent body comprising of the private sector, which includes: the representatives from NEA Ministry of Water Resources, Nepal Rastra Bank, FNCCI, Consumers Forum and the Expert, to fix the electricity tariff, recommended to the Nepal Electricity Authority (NEA) a hike in electricity tariff of up to 20 per cent saying that the inconsistency in cost price and selling price had incurred a huge loss.
Although NEA had proposed tariff hike few years back, stating that it had not been increased for a decade, the tariff commission had said that NEA needed to set its house in order. Reasoning that issues such as internal financial irregularities, over staffing and political factors needed to be addressed first. There are some weaknesses in NEA but they are not the sole reasons for the present pitiable situation. The price has not been hiked in the last decade. If you compare the electricity price to the price increment of other commodities in the same period, a hike becomes inevitable.
Just to recapitulate, the present electricity tariff was revised in 2001. NEA has been reiterating its stance on revising the electricity price. However, owing to various political and other reasons, the tariff amendment had not succeeded for the last ten years.
The commission has submitted its proposal with new tariff rates for both commercial and domestic usages. According to the report, it has suggested NEA hike tariff showing various reasons such as increase in cost of production, present weak financial status of the NEA, its credit worthiness and actual cost estimation for the new projects. The government is likely to hike electricity tariff by 20 percent from-July, 2012. Electricity Tariff Fixation Committee said the commission has proposed a 20 percent hike on the tariff to the government. Prime Minister has agreed in principle to the increment as per the commission’s recommendations. Prime Minister also urged the commission to curb irregularities at Nepal Electricity Authority and strengthen its management. The new tariff rate, which has hiked, will not be applicable for consumers using less than 20, and 50 units per month. While consumers using 51-150 units per month will be charged Rs 8.60 per units, Rs. 9.50 for 151-250 units per month, those consuming m150-ore than 251 units per month will be charged Rs 11.00 per unit. The government hiked electricity tariff, in a move taken after 11 years following extensive debate over the issue. As per the decision taken by a meeting of the Electricity Tariff Fixation Commission, consumers now will have to pay at least 20 per cent more, depending upon consumption. There was no alternative to increasing electricity tariff, as it had remained same for more than a decade.
The Ministry of Energy and Nepal Electricity Authority had proposed that ETFC hike the tariff, but members of the commission that was dissolved by the Jhala Nath Khanal-led government, were at loggerheads, with some saying NEA needed to fix its financial irregularities instead of burdening the consumers.
NEA to hike electricity tariff
NEA officials claim that the authority is selling electricity at much lower price in domestic market and that the NEA will literally go bankrupt if the tariff is not readjusted. One authority has said that since the electricity tariff hike is along overdue issue, government has no option but to pass on go ahead to the NEA with the proposed tariff hike. He is also of the view that during this period, inflation was to the tune of 24 percent and there was sharp depreciation of the Nepalese currency vis-à-vis the foreign currency. One fundamental difference as compared to the previous hike is that the tariff will be different as per the consumption during peak hours and the lean hours.
In sum, the most likely hike in the energy tariff will hit the Nepalese poor. In pursuance to this, effective and efficient management of electricity supply in the country by cutting down leakages, getting rid of unnecessary manpower, increasing the productivity and efficiency of NEA’s staff, and above all breaking the monopoly of the NEA in the power sector and making it as the national transmission centre would have helped bring down the cost of production. Only 15 percent of the country’s over 22 million population have been supplied with electricity till now.
If all goes well and running projects come up with the energy within time it will be possible to reduce load shedding. By 2014, the 440 KV Muzaffarpur – Dhalkebar transmission line will be completed, which will enable purchase of more energy from India. NEA expects to buy 150 MW from India by 2014. Upper Tamakoshi (456 MW) and Likhu-4 (120 MW) projects will also be completed by 2014. Still, the high demand for energy will force NEA to stick to the four-hour load shedding schedule during dry season, but by 2014, there will be no power outage in the rainy season.
Rays of Hope:
It will be not earlier than 2015 that we will listen that it has ended power cuts in Nepal due to improvement in the flow of water. The power cut will also be stopped as soon as there is marked increase in the flow of snow-fed rivers.
Nepal should learn lesson from the development of Bhutan in respect to hydro power development taking aside the political factors whatsoever it may be. Today Bhutan is recognized as the hydro power country and the electric heaters are frequently used in the remote villages, government does nit impose any duty or tariff on the import of electrical items, electricity is cheap dependable and there is no question of load shedding. In Nepal government focuses on the development of hydro power but levies taxes in the construction materials of the hydro power projects. This is a dilemma Nepal is facing in hydro power development. It is said that Bhutan is learning lesson from Nepal, why we Nepali not to learn from the success stories of other counties.