Growth through Hydropower Development in Nepal

This is what I concluded in a paper titled "Growth through Hydropower Development in Nepal" for an economics class. I would like to spur discussion regarding this issue. Please comment if you have any criticisms or new ideas or maybe anything to say on the topic. I would love to hear!


Conclusion

Though Nepal has a lot of hydroelectric potential, it does not have good enough policies that would be helpful in the establishment of hydroelectric projects to even meet its current demands, let alone the prospects of improving the country’s balance of payments position by being a net electricity exporter.

The country has done a good job by starting with the privatization of the hydroelectricity sector in the generation process. However since the NEA, the government owned public utility company, has the monopoly on the transmission, trade and distribution of hydroelectricity, and given that it has not been efficient as it is overstaffed, corruption-ridden, and does not have the proper incentive structure set in place for either the low-level workers or the higher-level management to work hard on the development of hydroelectric projects, still allowing the NEA a monopoly in the hydroelectricity sector will be detrimental for the development of the sector. The NEA should be unbundled, and the various functions it has now should be made open to private enterprises, so as to disentangle the hydroelectric sector from the influence of politics and to let market forces work more. That will be a good starting point for attracting foreign investments that will also lead to a more efficient production and distribution of the currently available hydroelectricity – since private companies will not be so lax about the enormous amount of theft of electricity that the NEA has not been able to stop.

Furthermore, large-scale hydropower projects require enormous upfront costs. A fragile political environment makes the investments more risky and given that the political regime of Nepal has not been stable and is likely to continue being volatile, the expansion of large-scale hydropower projects seems somewhat unrealistic. In this scenario, the development of micro-hydro projects will be beneficial in helping the electrification of much of the country for domestic consumption – since these projects are relatively much inexpensive, have almost no environmental impacts since they are generated by run of the river[1] process, and are free of the bureaucratic processes of the NEA[2].

The overemphasis on water resources and on hydropower generation should also be made more balanced. The country has severe problems of illiteracy, health, nutrition, and increasing crime rates, amongst others. While designing plans and policies, these areas should also be considered with priority. Furthermore, investments should also be made in the higher education sector. The current system is such that Nepali nationals work mostly in menial tasks in hydroelectric projects, whereas much of the technical and management work is done by foreigners, who even though being very few in number, are paid more in wages than the total wage received by the Nepali workers[3], which has been argued to cause an upward pressure on the electricity tariffs. Making Nepali citizens more capable of working in these projects will also help to significantly lower the costs.

Exporting hydroelectricity is an attractive idea, but Nepal still has a long way to go before it is a reality. Specifically, relations with India should be made more stronger because it is the major market that Nepal can sell to, and even for exporting electricity to Bangladesh – a neighboring country that has shown interest in importing electricity form Nepal - Nepal would need India’s help.