Power Monopoly [EDITORIAL- September 2001]

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Power Monopoly [EDITORIAL- September 2001]

Another round of issuing statemens by various interest groups followed the latest announcement by Nepal Electricity Authority (NEA) for power traffic hike. But the criticism seems to be based more on sentiment than on reason. Instead of demanding withdrawal on hike (which NEA is not able to do), it would be better to demand removal of NEA itself.

NEA says it raised the tariff as it has to raise the resources to expand electricity generation and supply network. Similar argument was put forward also in the previous round of tariff hike, but nothing is informed so far where the additional money so raised has been used. Clearly, it has been used to finance the leakages and the bills receivables from the government offices and municipalities.

No producer raises product price to expand its production capacity and supply network. Rather it issues additional shares or borrows from the market and financial institutions. NEA can do neither of these. Financial institutions do not regard it as viable business entity. Hence, Asian Development Bank's loan condition for maintaining a debt to equity ratio and rate of return.

Therefore, the solution NEA has tried is only a short term one. NEA has proved that it is an irrevocably unhealthy institute deserving an amble dose of euthanasia. Sooner that is administered to NEA the better for the rest of the economy.

Monopolies in public utilities are favoured traditionally for the economies of scale, meaning that with every addition in number of customers they create the result is lower marginal increment in the cost they incur, thus the average cost is pushed down and it becomes possible to reduce the price per unit for the consumer.

In NEA's case, this proved wrong. Perhaps a private monopoly would be better. Private monopolist would, at least, not charge present customers to expand its business to new consumers.

Neither will it send you the bill for what other people consumed. If a nationwide monopoly in private hands is an indigestible proposition there can be separate geographical areas allocated to a number of power companies. An independent regulator as in telecommunications and banking may be better suited to ensure that fair practices are followed by these private monopolies. Such a paradigm shift in the energy sector is also called for now to attract more private sector investment in power generation. Present condition of NEA monopoly (a single buyer market) is surely a hindrance.

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