Monday, September 29, 2008

The role of institutions and hydro power development in Nepal

In Nepal, everyone is talking about hydropower development to the tune of 10,000 MW in the next 10 years. This was in fact rightly prioritized in recent budget speech by the finance minister. However, is it so easy to generate electricity from hydro power at this scale (it is estimated investment amounting to US $ 2.75 billion is needed)? Here is my take on the budget speech.

The chairman of Power Trading Corporation of India (PTC), T.N. Thakur, rightly stresses on the need for right institutions to attract shortfall in investment to generate hydro electricity of this scale. Whatever the politicians and ministers say, ultimately the quality of institutions rule! Also, the private sector will not jump into this industry on its own because of huge overhead costs, uncertainty, and risks. The government has to lead the way, give enough confidence to the private sector by sharing risks and costs, build right social and political institutions, and finally let the private sector unleash its magic!!

Q: Does Nepal have the right institutions to create the right kind of environment for the development of hydropower?

Thakur: You have to build some institutions. Today, I am very happy with the government and the politicians I have met, including the prime minister of Nepal. They have at least realized the need for developing hydropower. Prime Minister Pushpa Kamal Dahal is very forthright and businesslike. He has really given a lot of confidence to the people in India, saying that this is the right time to invest in Nepal. I met the Minister for Water Resources Bishnu Poudel and his secretary; I feel that they are eager to meet the target set by the government. I have also called on Deputy Prime Minister Bamdev Gautam and Finance Minister Dr. Baburam Bhattarai. Today, I see tremendous political will to go ahead with the plan to generate 10,000 MW.

Q: Obviously you have met many Nepali officials. What is your assessment?

Thakur: You should have the right kind of institutions here to further your hydropower projects. You have to make a number of institutional reforms and create the right kind of policies. Actually, 15 years ago we were in a similar situation. We invited investment, but private investors were unwilling to put money in India. So the government decided to develop a power market and set up the PTC at the national level. As a result, the PTC buys and supplies energy to power-deficit states as per their demand.

So, the whole thing is that people should feel confident and secure that if you invest in Nepal, the project will go ahead without any hassles and that investors will get their due return. If that sort of confidence is generated, investors will come forward. Otherwise, why would investors come to Nepal and invest when you do not have the right kind of environment and policies. Let us be frank, no investor will come here for charity. They will come here to earn money.