“Multiple power companies are necessary to minimise the risks to the power sector posed by the failure of one entity”

  21 min 39 sec to read
“Multiple power companies are necessary to minimise the risks to the power sector posed by the failure of one entity”

The Nepal Electricity Authority (NEA), the country’s sole power off-taker, has seen a sea change in many aspects of its works after the appointment of Kulman Ghising as the Managing Director in 2016. Ghising who has over two decades of experience in the energy sector including distribution, transmission and project development has become synonymous to the Nepali power sector reform. Under his leadership, NEA has successfully ended the power cut (commonly known as ‘loadshedding’) which has paralysed the entire nation for many years. Before taking charge as the head of NEA, Ghising was working as the project chief of Rahughat Hydroelectric Project. He had also worked as the managing director of Chilime Hydropower Company Limited.  In an interview with Sanjeev Sharma and Durga Lamichhane of New Business Age, Ghising talked about issues in power sector reform, NEA restructuring, among other topics. Excerpts:

Recently, you’ve floated the concept of power banking with India and battery banking of generated electricity. Can you elaborate on these proposals? Where have the process reached?
We have proposed the energy banking at the meeting of the Nepal-India Power Exchange Committee (PEC) held at New Delhi last year. It is one of the agenda for PEC discussions. We have talked to the power utilities of Bihar and Uttar Pradesh and they are positive in this regard. We have seen a good prospect of energy banking with the neighbouring Indian states as they observe a sharp increase of electricity demand in a time of year (from April to September) when our electricity generation and supply rises. We can supply electricity to the states during the wet season and import the power when our demand is high but generation steeply declines in the winter months. The energy demand in India also decreases during the winter season. The energy banking is not carried out on the basis of price of electricity. Actually, it is the netting of electricity based on the power exchange between the two countries on the basis of yearly balance. There are several modalities of energy banking such as exchanging added power as premium between the engaged parties or net to net exchange. The proposal of energy banking will also be discussed in the secretary-level Joint Steering Committee (JEC) which will be held after a few weeks.   

Energy banking is not only carried out as bilateral trading between two countries, but also between the provinces of a same nation. The concept of energy banking is prevalent in India. There are many entities in intra-state power trading such as PTC India and NTPC Vidyut Vyapar Nigam (NVVN), Tata Power Trading Company and JSW Power Trading Company. What we need now is the G2G policy between Nepal and India to start power banking. 

We also need to adopt battery storage of energy. It can provide us with viable power backup solution to meet the internal demand. It is feasible as the price of battery is in declining trend worldwide. We can charge the batteries during the spill hours. There is a possibility of energy spill after the major projects like Upper Tamakoshi start commercial generation. There is power spill sometimes at night even at present in the wet season. Similarly, there is difficulty in meeting the peak demand of power in morning and evening as we do not have pumped-storage projects. Such projects can be very helpful to meet such peak demand of electricity as they pump water in the nighttime to supply power in the daytime. Pumped-storage projects are being extensively used in India, China and many European countries for backup purposes. 

We are also talking about replacement of cooking gas for some time now. We need storage-type and pump-storage hydel projects for this. For now, we have come up with battery storage solution which will be started as a pilot project. Many countries in the world have been using this type of power backup solution to meet their energy demands. Australia, for instance, has already installed 100MW battery storage.  Due to the technological advancements, the storage capacity of batteries can be extended to many megawatts. Such backups can supply power in the peaking time. Another benefit from this is that it can well regulate voltage and frequency of electricity, thus ensuring quality of the supplied power. Currently, many of our important government centres like the Singhadurbar and public facilities such as hospitals do not have reliable supply system. The battery storage can be a reliable source of backup in this regard. Similarly, we can store and double the electricity from many smaller hydropower projects in batteries in remote areas across the country. 

We have also been studying the feasibility of pumped-storage projects for the long term power backup solution. NEA has already received the survey license from the government for the 150MW Begnas-Rupa Pumped Storage Project and is working in this regard. The idea is to pump water from Begnas Lake (which has a lower elevation of the reservoir) to Rupa Lake during off-peak times when the demand for electricity is less. 

In the late 90s, Power Trading Corporation (PTC) India introduced a modality in power trading to supply electricity from surplus areas to deficient areas which has become very successful. Have you thought of introducing such power transmission modality during your tenure? 
At present, both NEA and the private sector are working within the centralised generation system. But the state governments here are likely to gear up their efforts to generate their own electricity after a few years. And, NEA and private power producers have projects in different provinces that are undergoing construction or are generating electricity. NEA alone has established 15 companies to look after different large hydropower projects. 

In this context, there will be electricity generation in the country from various agencies in the future. At present, NEA is the only institution in the country which has full authority from power generation to transmission and distribution.  We purchase all power from the private producers for distribution through our network. The provinces not only can generate but also can operate their own distribution system. So in the near future, the structure of NEA is likely to transform according to the country’s federal setup. We are gradually working to this end. We have already established seven regional offices of NEA at seven provinces of the country. Our efforts are in establishing seven power distribution centres at seven provinces. The centres will be operated as independent entities. We are trying to establish them as companies with 100 percent stake of NEA. The entities can be under the provincial governments. It will take a considerable time for the companies to come under state-level arrangements as many things like valuation of capital assets, among others. 

We have already established the Power Trading Company which will not only work in bilateral power trading with India but will also engages in state-wise energy trading in the country. The mechanism for domestic power trading will be formulated. Similarly, there will be a separate power transmission entity under the NEA. It will levy certain wheeling charge to the transmission companies under the state governments to transmit their power through the central transmission highway. 

All power companies, be it central or provincial, need to keep the factor of profitability in their mind for the long run. It is also important to keep such institutions free from political interventions to make their works efficient and result-oriented. 

Independent power producers (IPPs) say that they also can construct transmission line projects in the BT (built and transfer) model. What is the possibility to award the contracts according to their demand?
IPPs can be awarded contracts to build transmission lines in BT model. Such projects are basically Engineering Procurement Construction and Financing (EPCF) contractual arrangements. The developers do not hold ownership of such projects. BT project developers get returns of their invested money at once after certain time period unlike the power purchase agreement (PPA) in which developers get returns on annualized basis for 30 years. Meanwhile, we recover our investment in such projects by levying wheeling charges. For instance, if a power distributor in Biratnagar wants to purchase power generated by a project in the Karnali region, the purchaser needs to pay the wheeling charge for the transmission of the electricity. Profitability is the most important factor for all engaged parties in power transmission. Profit and loss are the most important factors to achieve efficiency in any area of work.   

The Ministry of Energy, Water Resources and Irrigation is yet to formulate work procedures for transmission projects under the BT modality. The developers need to undergo bidding process to get the contracts. There have to be a competitive bidding or the government needs to set certain ceiling for per kilometer construction of transmission line.    

How is NEA moving ahead after the establishment of Vidhyut Utpadan Company Limited (VUCL) and Rastriya Prasaran Grid Company Limited (RPGCL) and Power Trading Company (PTC) have been established as part of its restructuring?  
It is not that the entities have been established to restructure the NEA. The initiation in fact is expansion of NEA for proper development of the Nepali power sector. We need more such entities to create a competitive environment for the overall development of the sector. Multiple power companies are necessary to minimise the risks to the power sector posed by the failure of one entity. The energy crisis which Nepalis faced for many years was primarily due to the fact that NEA has remained as the sole institution to handle everything from power generation to distribution which is in fact very difficult for a single organisation to take care of. 

On top of that, the frequent political intervention in NEA added to the woes in managerial inefficiency ultimately resulting in the underdevelopment of the hydropower sector and deep energy crisis in the country for many years. Had there been 10 or 12 entities like the NEA, the situation today could have been better. 

Today the situation is improving. Private power producers have geared up their sincere efforts in the hydropower development. At present, 170 private producers are engaged in electricity generation and the number is increasing which until 25-30 years ago was zero. PPAs of 400 projects having total installed capacity of 4,000MW have already been finalised. Now we have reached to a position where 200-250 MW electricity can be produced easily on a yearly basis. There is nothing to stop us to move ahead. Earlier, it used to take us about a decade to develop major hydropower projects. For instance, the construction of the Middle-Marshyangdi Hydropower Project was completed six years after the Kaligandaki ‘A’ started commercial production and it took 10 years to build the Chameliya HEP.  Now we cannot afford such delays. The problems in planning and institutional management caused the acute power shortage in the past. We have been working with all our efforts to ensure that this crisis won’t repeat. 

I never use words like ‘unbundling’ of NEA. This is a hue and cry when we talk about forming separate entities under the NEA. This is a part of our institutional reform which has been going on for the last few years. The formation of VUCL, RPGCL and PTC should be viewed as further strengthening of NEA and not as ‘unbundling’. Similarly, we also have many hydropower companies that have been operating different hydel projects. In the future, NEA can be a parent corporate institution with a number of subsidiaries under its umbrella. This organizational modality in the power sector has been considered as highly successful internationally. In China, for instance, the Power China is such corporate entity which has many subsidiaries. 

Where have the processes to establish the smart grid and installation of smart meters reached? What features will the smart systems incorporate?   
Smart grid is a broader concept in power distribution. It is a fully digital system which ensures uninterruptible supply of power and prevents system outage under any circumstance. It is necessary that all aspects of the distribution system, ranging from supply to end-user consumption of power, should be smart for a grid to become smart.  Smart grid is all about robustness and reliability of the supply system. 

To have a smart supply system, reserve margin of power in necessary. We have been operating the system with 700MW of electricity where 1,500MW is required. In European countries, for example, there is a reserve margin of 20-30 percent of electricity to comfortably operate the distribution system. In this context, we need at least 1,800MW in our system.   

Meanwhile, there will be full automation also in the consumer-end which includes smart meter and digital payment of electricity bills. At present, such advanced distribution system have been developed which allows officials at load dispatch centres to cut-off electricity supplied to an air-conditioner or other appliances remotely in case of inadequacy of electricity load.  It will take many years for us to adopt such supply system. What we are trying to do at present is making our metering system smart in the first hand. We are looking to make our billing system like Nepal Telecom. We want to have such a system in place which enables us to cut-off the electricity lines remotely in case customers don’t pay their bills accordingly. For this, we not only have to replace all our 3.5 million meters but also set up a two-way communication with the meters which is indeed a huge task for us to complete. We will start smart metering in Kathmandu as the pilot project in the first phase. The tender for the bidding process of smart meter installation has already been announced. After that we will be taking this to other cities and gradually to all over the country. We are also thinking of prepaid billing system which will be very useful for the customers of remote areas.  It will take us certain time to finalise the bidding process due to the lengthy procurement processes. But we are hopeful that out initiation in smart gird and metering will be successful. 

What are behind the success of NEA in terms of peak load management of power?  
The current peak demand is 1,800 MW. What we have been doing over the last one and half year is to raise the level of confidence that NEA is able to manage the power supply efficiently and there won’t be power cut due to the electricity shortage. We have been urging all citizens to help us in our efforts in electricity distribution. It has created a very big psychological impact among the people which has been a major supporting factor for us to move ahead. Past experiences have shown that the load management can be a herculean task and things will go haywire if we lose such confidence. If the consumers aren’t convinced that we can supply adequate power, the electricity demand will surge and the load will be unmanageable particularly during the peak hours in evening and morning. 

With the increase in power supply, this year’s energy demand grew by 27 percent which was earlier estimated at 10 percent.  Nevertheless, we have managed to keep the peak demand constant at 1,300MW which used to be 1,800MW. The people too have become much aware in terms of utilising energy efficiently during the peak hours of the day.  The electricity load management is all about strategic thinking, knowing consumer behaviour and work accordingly. 

Technically, we have managed the peaking power plants in a very different way than in past. The plants of NEA generate 400-500MW during the peak hours on a daily basis at present. IPPs, in the meantime, can only produce 152MW and they do not have peaking power plants.  So to manage the power demand of 1,300MW we have prepared the detailed daily operation schedules for individual plants. This includes management of various technical issues including storing water in the hydroelectric dams to when and how to run the power plants in more efficient ways. This has helped us to meet the peak generation. Earlier, there was no such management of power plants and they used to be operated in a very haphazard manner. Likewise, we also started importing electricity from India during the peak hours. Meanwhile, we urged all industries not to operate their plants in the evening. The efforts have resulted in meeting the peak demand of 1,300MW.  The efficiency of all sub-stations was also enhanced by replacing the transformers. Our efforts are also directed in controlling the theft of electricity. We have taken tough actions against those involved in such illegal activities with the support from the authorities. The power leakage which was 26 percent in FY2072/73 has now declined to 20 percent. In financial terms, we have saved Rs 4 billion. All these combined efforts have not only ended the power cut, but also NEA became profitable in FY2016/17 registering a profit of Rs 1.51 billion after 16 years of continuous losses. 

Be it the recently completed Chameliya, the under construction Kulekhani III or the Dhalkebar Sub-station, significant delays in completion of construction have become a ritual for most NEA projects. What causes the delays?    
There are a number of reasons behind it. The sluggish activities of contractors and consultants play a major role in this regard. Most of our projects have international contractors from India and China and they take six years for a work that they finish in six months back home. If you look at development practices in China, the contractors are bound to finish work in time. Be it Sinohydro or China Gezhouba, they are state-owned hydropower engineering and construction companies. Being state-owned companies, profit or loss doesn’t matter much for them. The government constantly pushes the contractors to finish the assigned task in time. But their work style is not satisfactory in Nepal. Firstly, they delay the projects on purpose. Secondly, when the project is about to conclude, they start seeking compensations showing financial variations. Whether in Dhalkebar or Chamelia, we have experienced such behaviors from contractors which are completely unacceptable and can be termed as equivalent to blackmailing. I terminated three such contracts including the Dhalkebar. Things get worse when there is a nexus between contractor and consultant. 

On the other hand, Nepali private contractors don’t have the capacity to undertake large projects. I think we should create state-owned contractors and allow them to build large projects that necessitate heavy equipments that are too costly for the private builders. By this, I am not trying to undermine private sector’s role. But the scenario is that we often plunge into a trap where contractors delay the project and there is nothing we can do. Even if we withdraw, it takes another three years to assign a new contractor. It is why we have created the NEA Engineering Company Ltd which is aggressively providing engineering services to projects totaling to more than 1,800MW. We are directly hiring toppers from engineering colleges and universities and also availing services from international consultants. This way, the engineering company is developing an in-house technical team. I think we should create more of such state-owned construction companies. Chinese construction companies have enhanced their expertise in similar manner over the years. Now they are capable of developing mega projects anywhere across the globe. 

Similarly, our procurement and contractual processes are too lengthy. We have a provision in the Public Procurement Act that stipulates to award the contract to the lowest bidder. Awarding contracts beyond the provision is likely to lead the decision maker to end up in jail. Signing project contracts in the safest manner has become like winning a battle. Even if I am ready to take that risk, my subordinates may not be willing. It is why there is an urgent need to introduce significant revisions in the procurement law to ease the burdensome processes. 

As the head of the NEA, what provisions do you think need to be revised in the Act?
The provision to award contracts to the lowest bidder should be removed. Likewise, we need to create such tender document that allows space only for top or reputed companies that usually propose budgets with some level of financial cushion. Our top priority should be at executing projects at rapid pace. At present, the law allows government companies to undertake projects directly. They should be allowed to take more projects to build their experience. Once that happens, it will create competition for private contractors, whether national or international, to successfully execute the projects.  

On the other hand, NEA should be provided with some leverage to influence speedy execution of projects. For instance, the work of Upper Tamakoshi is ongoing but not at satisfactory pace. There are some variations in the project that the contractor isn’t satisfied with and seeking compensation for the same. We are paying Rs 10 million interest on daily basis to our financiers. A single day delay of the project has been incurring a daily revenue loss of Rs 40 million for us. In such cases, NEA should be provided with discretionary authority to compensate such claims which are negligible compared to the loss we may incur for failing to conclude the project on time. 

The procurement of LED bulb from was mired in controversy and the process has halted. How will it move ahead? 
The case is still pending at the Supreme Court. So, the work hasn’t progressed at all. Our motive to purchase LED bulbs from India has been to promote energy efficiency which could have been first-of-its-kind programme in Nepal. Energy efficiency is the first step towards energy generation. But some critics failed to understand its rationality and labeled our efforts with allegations. Had we been successful with our initiative, it would have resulted in lowering the energy consumption peak substantially by almost 300-400 MW, generation of which requires over Rs 10 billion in investment. Unfortunately, the way I see it, there was a strong lobby against our initiative from interest group that were selling substandard LED bulbs at high prices. 

There is a large number of household and institutional consumers who use CFL bulbs. Replacing them with LED bulb would save energy at a significant level. India did it by massively distributing LED bulbs under the initiative of Prime Minister Narendra Modi who initially had to face strong opposition to start such a campaign. However, he took the programme forward and India now is a leader in promoting energy efficiency. 

Alongside LED bulbs, NEA has sought proposals from vendors for the sale of energy-efficient appliances like ceiling fans, submersible and surface water pumps. 

NEA was set to sign PPA with nine companies for 22 solar energy projects for generation of 61 MW. What is going on with the projects?
A draft PPA was signed with nine companies about one and a half year back at a rate of around Rs nine. With the expiry of the agreement period, their quotation is no more valid and the rate is subject to change now. When the agreement was inked, prices for solar installation were high which has significantly declined in the international market now. In India, it has come below INR 3. It is why Ministry of Energy has recently set the purchase price of solar energy at Rs 7.30 per unit. 

Still, we haven’t scrapped the agreement. The door for negotiation is always open but the developers rather chose to allege us that we are focused in importing electricity from India. Let me make clear that we need to build 1,200MW projects to fulfill the demand of 400MW in dry seasons. India is ready to supply us power at a cost of Rs 5.60 when our own reservoir rate is Rs 12.50 and that too during dry seasons. Can it be anymore cheaper than this? Now how can anyone say that we are focused on importing from India when we have managed such a good deal for our dry season? One should be able to see a larger picture and calculate the overall economic benefits that were availed by our businesses and household consumers once the power supply improves.  

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