With the international price of oil fluctuating wildly and its own forest resources under pressure, Nepal desperately needs a new, coherent energy strategy, encompassing imports as well as domestic production
By Prof. David Seddon
Oil imports and the NOC
Firstly, there is a need to re-think and if needs be re-negotiate and reconstruct current arrangements for oil imports and begin to develop a mechanism for purchasing oil at low prices and stockpiling reserves for times when the price rises. This implies a capacity not only to purchase when actual market price is low but also to buy futures at discount rates. It also implies developing storage capacity.
There are many questions surrounding the viability of the Nepal Oil Corporation (NOC), the government agency that currently has a virtual monopoly on the purchase and distribution of petrol, diesel and kerosene. The NOC is said to have been losing around Rs 2 million a day. The NOC has explained the losses in terms of high international oil prices combined with considerable subsidies as regards the domestic market. But this is not the whole story, and in any case the NOC appears not to have been able to take advantage of the collapse in oil prices that brought the cost down to around $40 a barrel towards the end of last year.
The Nepal Petroleum Dealers’ Association (NPDA) argues that, in any case, the subsidised kerosene that the NOC provides does not reach the consumers it is supposed to benefit; rather it is making its way to industries.
Domestic oil and gas production
Nepal also needs, however, to be actively considering and rapidly investing in domestic energy production and developing an appropriate array of energy sources. At present, Nepal relies heavily on petroleum-based products (oil, petrol, kerosene) and fuel-wood. One possibility is domestic oil and gas production.
The government has already established the Petroleum Exploration Promotion Project (PEPP) which will involve undertaking exploratory surveys to discover oil and gas reserves. But the cost of exploration is high. Dr Rajendra Bahadur Shrestha, project chief of the PEPP, has admitted that “Petroleum exploration is high risk and capital intensive. It needs sophisticated technology and the drilling process is much more expensive that Nepal can not afford.”
The Petroleum Act is designed to attract foreign investment in this field, and some foreign companies have shown an interest in the terai. Shell, for example, did some drilling at block 10 in Biratnagar, between 1986 and 1990. But the results were not promising. Now Cairns that has taken blocks 1,2,4,6,7 for exploration and is working on the site. “However, it will take at least eight years for them to get some result,” says Dr. Shrestha.
Wood fuel – a renewable alternative?
As far as domestic use is concerned, fuel wood still accounts for the bulk of energy production in Nepal. In the recent past, there was considerable concern about the progress of deforestation in Nepal and increasing population pressure (including demand for domestic fuel wood) was considered to be largely responsible. The various community forestry development programmes have shown that it is perfectly possible to make use of forest timber resources for domestic use, if managed responsibly.
Given the advantages of the use of local forests for wood fuel (ease of access, relatively cheapness etc.) for probably the majority of rural households, the government (especially those Ministries responsible for Energy and for Forests) need to develop a new strategy for ‘sustainable use of forests for fuel wood and energy production).
Alternative energy sources
Other ‘renewable’ energy sources like solar, hydro- and biogas are the major sources that Nepal can use for its benefit. Of these, hydropower has historically been seen as the priority. It is still considered to have enormous potential, but after more than a century – from 1900 when the Pharping power plant with 500 KW installed capacity was established — development has been extraordinarily slow. At present, hydropower still meets only two per cent of the total energy need, and only some 40 per cent of the total population has access to electricity. It is also the case that such hydropower plants as do exist have mainly catered to the electricity needs of the urban or semi-urban areas, according to Ram Chandra Pandey, director at the Community Rural Electrification Department (CRED) of Nepal Electricity Authority (NEA).
After 1990, the government opened up the sector to local and foreign independent power producers (IPPs), while the NEA also initiated some projects with different financing modes. As a result a 292 MW capacity was developed within 10 years. But current peak-hour demand in the NEA system is over 560 MW and this is likely to increase in an average rate of seven per cent every year, according to NEA.
Larger hydropower projects are of course capital-intensive, and most of the existing hydropower plants, owned and operated by the Nepal Electricity Authority (NEA), have been developed on the basis of bilateral and multi-lateral foreign investment. Their cost-benefit ratio has been questioned in the past by critics; and they have also raised environmental objections.
To enhance hydropower development, the most important elements are promoting cost effective small and medium-sized projects to meet domestic demand at affordable price, encouraging private sector investment in hydropower development and distribution, accelerating rural electrification also by attracting investment from the community and local private entrepreneurs, improving the integration of social and environmental elements into the power development process, and encouraging power-based industries and transportation systems as markets for the energy produced.
In places where hydropower plants are considered expensive, cheap solar energy is becoming popular. Some 500 solar cells have been installed in Humla district. “Below poverty level areas should be encouraged to use solar energy,” adds Bhattarai.
People, who rare cattle, use cow-dung to create fuel in many places. It is widely in practice in the remote areas. “Tukimara could be another option,” energy experts suggest.
There has been pressure on the forests in the rural areas in the absence of alternative sources of energy. It is imperative that we develop alternative sources of energy in the rural areas to check deforestation. So far, hydroelectricity has been the best alternative, which has not only helped protect the forest resources and environment but also saved huge amounts of money from flowing out of the country to import fossil fuels.
Hydropower has a number of benefits. It is a renewable electrical energy source and is non-polluting, like no heat or noxious gases are released. No fuel costs are involved, and given its low operating and maintenance cost, it is essentially inflation-proof.
However, in recent years NEA is going in loss, and people blame rural electrification for the loss. But Pandey, director at the CRED does not agree. He says, “Since most of the town areas are already electrified and most of the electricity demand is from the rural areas. The demand of rural area being very high, it will be potential market for electricity. If there is no demand there is no way generating more power and searching for more power plants.”
“At a national level, where electricity substitutes paraffin or diesel it is possible that there would be significant foreign exchange savings on imported fuels. Government should levy ten or twenty paisa from the millions of dollar that goes outside the country for importing fossil fuels specifically petroleum products for the source of energy and to be deposited on rural electrification fund,” he suggests.
(Prof. David Seddon has worked as a researcher and consultant in over 30 countries in Africa, the Middle East and Asia, and has written numerous books and journal articles. Best known for his research on Nepal with colleagues from the School of Development Studies at the University of East Anglia, UK, he is currently Principal of South London College, London—Ed.)
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