(From Archive.)
Article on the failure of Arun-III.
I suggested (in this article )considering Energy as a "commodity" if Energy is intended for export. It was not only termed as a commodity but made it an item of profit by the cunning policy makers of Nepal allowing privatization of Hydro-power.
Published in THE RISING NEPAL
(August 22, 1995)
"Water Resource: A Boon or Curse"
________________________________
(यो भन्दा पहिले jan 7th, 1995.मा प्रकाशित
मेरो लेख " जलश्रोत र राष्ट्रिय जनशक्ति परिचालन " पढ्नु भए राम्रो हुने थियो - लेखक ।)
(Gajaraj Suwal)
On the Fourth of August 1995, the World Bank expressed its inability to extend financial assistance for Arun - III Hydroelectric Project. After 10 years of hectic preparation, all the efforts seemed to have gone in vain. Is the government to be blamed for the poor project development strategy? Or, should the World Bank be held responsible for dragging for ten long years and then discarding it like a deadwood? Or should the co-financers be blamed for not being in a position to commit the necessary funds for the next 12 to 18 months?
White Paper On Power(RN)
------------------------------------
"Whatsoever, failure of Arun-III had shown a strong need for Adoption of an appropriate Water-resource development strategy and side-by-side, the formulation of a Firm Water Policy which must not be affected by the changes in Government.
Of course, emphasis should be given to improving the Planning process.The Planning process includes:
The Definition of Development-objectives;
The composition of alternative plan;
Detailed studies of these plans;
Carrying out of socio-economic analysis;
The selection of most desirable plan and preparation of feasibility report.
After the preparation of the feasibility report, it is submitted for Appraisal in which the donor agency checks the project findings to justify the investment before funding the project. After the project has been approved a detailed design follows and the construction of the engineering works begin.
As the water resource development projects are capital intensive, the Engineers and Economists who evaluate development projects are not the ones to decide whether or not the project should be implemented.Their services are invaluable in the decision-making process, and they are invited to make a recommendation, but the ultimate decision rest with society. A careful study of the project should be done with a view to making a contribution to the well-being of society. Hence, social science experts should be called in to make their recommendations for most Profound and lasting Benefits of the project.
Some studies should be made in the evaluation of the alternative development of projects so that a selection of the most desirable plan can be made. The consideration may be made from an engineering point of view, project economics, national economy and social aspects.
Engineering designs formulate the functioning of the project. They also determine the project cost.
Project economics determines the economic Viability of the project, carries out financial analysis and projects the cash flow patterns.
The effects of the water resources development project, on the overall national economy, has to be studied by concentrating on its effects on general employment, taxes, national income, international trade etc.
The study of social aspects involve the different ways of life that people would lead with or without the project.
It is obvious that Arun-III has been dropped on an appraisal stage. The World Bank president James D Wolfensohn clearly stated that "Large complex project requires institute like World Bank to weigh the benefit against the risk and decide on their feasibility". Should it be assumed from above statement that Arun-III has been considered feasible without Benefit-Cost analysis? Looking back to the past trends especially of Kulekhani-I and Marsyangdi, it can be surmised that Socio-economic analysis had been given least importance.
It should be noted that the switching-in Kulekhani-I alone has brought a hefty hike in the energy cost(Rs 0.25 to Rs 2.00). At present, energy costs Rs 4.00 per unit up to 250 units and Rs 6.00 above 250 units of energy consumption. The unit cost would have to be raised to Rs 11.00 by 2002 AD if Arun-III was commissioned. The trend of an uncontrolled price hike in energy cost shows that the concerned authorities have given least importance to the socio-economic consideration. It should be noted that the raise in unit cost does not necessarily bring a rise in revenue. The effect Maybe catastrophic as it could increase leakage and revenue collection may be less than envisaged or targeted.Hence, before fixing the energy cost, due consideration should be made on Payback capacity of general consumers.
So, it would be wise to re-analyse the project findings to ascertain the feasibility of Arun-III rather than blaming each other for failure. Let us not forget that Arun-III analysis has been carried out by Nepal Electricity Authority(NEA). Actually, NEA was taking very big responsibility(beyond its capacity). It is better if NEA shares these analyzing responsibilities with Nepal Industrial Development Corporation(NIDC), Centre for Economic Development and Administration (CEDA) and National Planning Commission(NPC).
*Let the engineering analysis be done by NEA and Water Resource Development Board;
*the project economics be analyzed by NIDC ;
*the effect on National Economy be studied by CEDA.
*And last, but not least, let the social aspects be studied by National Planning Commission so as to weigh the Benefit against Risk and to ascertain the Feasibility of the project before giving a final "Go-ahead" signal.
The NEA undoubtedly has a major responsibility. It should be given more time to concentrate on low-cost Appropriate technologies for development. It should fix the Norms and Standard of work, ascertain a Code of practice and should define electricity rules. Further, attention should be paid whether these norms are being followed or not.
Further, let NEA evaluate the achievement made on Fifth and Six power projects and execute Seventh power project and other projects to come successfully.
With Asian Development Bank seeking to improve the Technical and Institutional viability of Nepal Electricity Authority (page 94, Annual Report 1994, ADB) and the dropping of Arun-III on an appraisal by the World Bank, the NEA surely needs to strengthen its performance. Considering the power needs of the country and the role water resources can play in the speedy development of Nepal, Arun-III generated much zeal and enthusiasm among the people of Nepal. Now, after over a decade of planning and investment, the project has to be dropped. This is indeed a sad story for a poor country like Nepal.
But merely spending money on the installation of Machinery and the operation of Hydropower plants do not constitute a ready yardstick to gauge the development of power in the country. Moreover, the projects should have a positive contribution to the Development Objectives. Everybody is familiar with the hydropower potentiality of Nepal. Out of which, 25,000 MW seems to be Economically feasible for exploitation presently.
India needs to add around 120,000MW by the next 15 years as projected by Central Electricity Authority of India. 25,000 MW is just over 20 percent of India's requirement of 120,000 MW. As such, the possibility of selling Energy in bulk to India should be explored.
Energy as commodity
----------------------------------
If energy is intended to export, then it should be considered as Commodity for Export, where the quality and Cost Factors rules should take into consideration.
Whether we can convert the water resources of the country into BOON or not clearly depends on the ability of the Nepalese people, particularly all concerned authorities and agencies. Herein, worth remembering is that " merely being Endowed with a vast hydropower power potential of 86,000 MW without necessary Initiative to harness it gainfully for the overall development of the country would simply mean N.O.T.H.I.N.G.????
------------------------------------------------------------------
Bibliography:
1.Water Resources Project Economics
Prof. Edward Kuiper
Hydraulic Engineering;
Consultant to:
World Bank; Organisation of American
States; Tames of New York; TORAN of
Madrid; and others...
2.Asian Development Bank(ADB)
Annual report 1994
Published: June 1995.
Page: 94.
"Water Resource: A Boon or Curse"
________________________________
(यो भन्दा पहिले jan 7th, 1995.मा प्रकाशित
मेरो लेख " जलश्रोत र राष्ट्रिय जनशक्ति परिचालन " पढ्नु भए राम्रो हुने थियो - लेखक ।)
(Gajaraj Suwal)
On the Fourth of August 1995, the World Bank expressed its inability to extend financial assistance for Arun - III Hydroelectric Project. After 10 years of hectic preparation, all the efforts seemed to have gone in vain. Is the government to be blamed for the poor project development strategy? Or, should the World Bank be held responsible for dragging for ten long years and then discarding it like a deadwood? Or should the co-financers be blamed for not being in a position to commit the necessary funds for the next 12 to 18 months?
White Paper On Power(RN)
------------------------------------
"Whatsoever, failure of Arun-III had shown a strong need for Adoption of an appropriate Water-resource development strategy and side-by-side, the formulation of a Firm Water Policy which must not be affected by the changes in Government.
Of course, emphasis should be given to improving the Planning process.The Planning process includes:
The Definition of Development-objectives;
The composition of alternative plan;
Detailed studies of these plans;
Carrying out of socio-economic analysis;
The selection of most desirable plan and preparation of feasibility report.
After the preparation of the feasibility report, it is submitted for Appraisal in which the donor agency checks the project findings to justify the investment before funding the project. After the project has been approved a detailed design follows and the construction of the engineering works begin.
As the water resource development projects are capital intensive, the Engineers and Economists who evaluate development projects are not the ones to decide whether or not the project should be implemented.Their services are invaluable in the decision-making process, and they are invited to make a recommendation, but the ultimate decision rest with society. A careful study of the project should be done with a view to making a contribution to the well-being of society. Hence, social science experts should be called in to make their recommendations for most Profound and lasting Benefits of the project.
Some studies should be made in the evaluation of the alternative development of projects so that a selection of the most desirable plan can be made. The consideration may be made from an engineering point of view, project economics, national economy and social aspects.
Engineering designs formulate the functioning of the project. They also determine the project cost.
Project economics determines the economic Viability of the project, carries out financial analysis and projects the cash flow patterns.
The effects of the water resources development project, on the overall national economy, has to be studied by concentrating on its effects on general employment, taxes, national income, international trade etc.
The study of social aspects involve the different ways of life that people would lead with or without the project.
It is obvious that Arun-III has been dropped on an appraisal stage. The World Bank president James D Wolfensohn clearly stated that "Large complex project requires institute like World Bank to weigh the benefit against the risk and decide on their feasibility". Should it be assumed from above statement that Arun-III has been considered feasible without Benefit-Cost analysis? Looking back to the past trends especially of Kulekhani-I and Marsyangdi, it can be surmised that Socio-economic analysis had been given least importance.
It should be noted that the switching-in Kulekhani-I alone has brought a hefty hike in the energy cost(Rs 0.25 to Rs 2.00). At present, energy costs Rs 4.00 per unit up to 250 units and Rs 6.00 above 250 units of energy consumption. The unit cost would have to be raised to Rs 11.00 by 2002 AD if Arun-III was commissioned. The trend of an uncontrolled price hike in energy cost shows that the concerned authorities have given least importance to the socio-economic consideration. It should be noted that the raise in unit cost does not necessarily bring a rise in revenue. The effect Maybe catastrophic as it could increase leakage and revenue collection may be less than envisaged or targeted.Hence, before fixing the energy cost, due consideration should be made on Payback capacity of general consumers.
So, it would be wise to re-analyse the project findings to ascertain the feasibility of Arun-III rather than blaming each other for failure. Let us not forget that Arun-III analysis has been carried out by Nepal Electricity Authority(NEA). Actually, NEA was taking very big responsibility(beyond its capacity). It is better if NEA shares these analyzing responsibilities with Nepal Industrial Development Corporation(NIDC), Centre for Economic Development and Administration (CEDA) and National Planning Commission(NPC).
*Let the engineering analysis be done by NEA and Water Resource Development Board;
*the project economics be analyzed by NIDC ;
*the effect on National Economy be studied by CEDA.
*And last, but not least, let the social aspects be studied by National Planning Commission so as to weigh the Benefit against Risk and to ascertain the Feasibility of the project before giving a final "Go-ahead" signal.
The NEA undoubtedly has a major responsibility. It should be given more time to concentrate on low-cost Appropriate technologies for development. It should fix the Norms and Standard of work, ascertain a Code of practice and should define electricity rules. Further, attention should be paid whether these norms are being followed or not.
Further, let NEA evaluate the achievement made on Fifth and Six power projects and execute Seventh power project and other projects to come successfully.
With Asian Development Bank seeking to improve the Technical and Institutional viability of Nepal Electricity Authority (page 94, Annual Report 1994, ADB) and the dropping of Arun-III on an appraisal by the World Bank, the NEA surely needs to strengthen its performance. Considering the power needs of the country and the role water resources can play in the speedy development of Nepal, Arun-III generated much zeal and enthusiasm among the people of Nepal. Now, after over a decade of planning and investment, the project has to be dropped. This is indeed a sad story for a poor country like Nepal.
But merely spending money on the installation of Machinery and the operation of Hydropower plants do not constitute a ready yardstick to gauge the development of power in the country. Moreover, the projects should have a positive contribution to the Development Objectives. Everybody is familiar with the hydropower potentiality of Nepal. Out of which, 25,000 MW seems to be Economically feasible for exploitation presently.
India needs to add around 120,000MW by the next 15 years as projected by Central Electricity Authority of India. 25,000 MW is just over 20 percent of India's requirement of 120,000 MW. As such, the possibility of selling Energy in bulk to India should be explored.
Energy as commodity
----------------------------------
If energy is intended to export, then it should be considered as Commodity for Export, where the quality and Cost Factors rules should take into consideration.
Whether we can convert the water resources of the country into BOON or not clearly depends on the ability of the Nepalese people, particularly all concerned authorities and agencies. Herein, worth remembering is that " merely being Endowed with a vast hydropower power potential of 86,000 MW without necessary Initiative to harness it gainfully for the overall development of the country would simply mean N.O.T.H.I.N.G.????
------------------------------------------------------------------
Bibliography:
1.Water Resources Project Economics
Prof. Edward Kuiper
Hydraulic Engineering;
Consultant to:
World Bank; Organisation of American
States; Tames of New York; TORAN of
Madrid; and others...
2.Asian Development Bank(ADB)
Annual report 1994
Published: June 1995.
Page: 94.
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