So, how much alterative energy sources and equipment Nepal is importing due to load-shedding? According to FNCCI’s estimate it is Rs 35 billion last year and might reach Rs 100 billion this year. Now, it is an entirely wild guess. I will have to check out the figures out when I am free. But, the overall message is true: Load-shedding is increasing demand for diesel generators (which has doubled the demand for diesel, in turn incurring huge losses to NOC thanks to state subsidies), solar panels, batteries, invertors, and the equipment used in them.
Increasing imports of alternative energy sources and equipment means widening trade deficit, which is already at unsustainable level (about 22 percent of GDP). It will further drain forex reserves and increase deficit. First, Nepal will have to cough up more forex reserves to finance imports (which in turn means spending the remittance income). Though reserves are at record level right now, it might surprisingly come down if growth of remittance inflows slowdown and imports rise unabated. It might put the balance of payments in the red again (happened in 2009/10 and 2010/11). Second, the increase in load-shedding hours means high demand for fuel to run generators. Since diesel and LPG are subsidized to such an extent that the NOC, which is helplessly left to shoulder the burden, is incurring loss of over Rs 1 billion each month. NOC officials estimate that at present diesel generated electricity is to the tune of 500 MW. Ultimately, the Ministry of Finance (MoF) will have to take care of the balance sheet mess of NOC. It will get reflected in the country’s expenditure-revenue sheet—meaning pressure to widen fiscal deficit (at 3.8% of GDP now).
Now, why would this trend persist despite such ominous situation? Because, households are barely feeling the pinch as a result of increasing remittance income (at 20% of GDP now—around US$4 billion).
Until I compute the actual figures, let me list the FNCCI’s guess of imports of goods that are imperfect substitutes of hydroelectricity.
- Generator: Rs 5 billion (imported from India, China, Taiwan, Vietnam, among others)
- Solar panel, electricity import from India and coal: Rs 4 billion
- Battery: Rs 5 billion
Solution to multiple macroeconomic problems: generate enough hydroelectricity!