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TAMOR RESERVOIR PROJECT : A Lesson in FAILURE

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TAMOR RESERVOIR PROJECT : A Lesson in FAILURE

Unless the government has clarity in the development concept of hydropower projects, it will be impossible to successfully implement big projects like Tamor.

There is no doubt that large reservoir projects are indispensable for the sustainability of Nepal's hydro resource-based electricity system. Similarly, the development of reservoir-based hydropower projects is also important to trade electricity with India as such projects can generate power consistently which is not the case for run-of-river (ROR) type hydel projects. The government has made Nepal Electricity Authority (NEA) to make public power purchase rates of electricity generated from reservoir-based projects so as to encourage the domestic private sector to build such projects. However, no private investor has shown interest in developing reservoir-based projects at the power purchase rate set by the government.

There is no indication that any of the reservoir-based hydropower projects proposed by the government such as Budhi Gandaki (1200 MW), West Seti (750 MW), Nalsingad (410 MW), Tamor (765 MW) will be built in the next 10 years and the power generated from these projects will be integrated into the national grid.

While the necessity of reservoir-based hydropower projects has been agreed in principle by all stakeholders of the energy sector, a look into the Tamor Reservoir Project, which has been proposed for construction in Tehrathum and Panchthar districts of Province 1, can provide some clarity to understanding what factors hinder the development of large reservoir-based projects in Nepal.

As per the technical assessment of the project conducted by NEA, a dam with a height 210 metres on the Tamor River will be constructed to channel about 657 cubic metres of water per second forcing the water to the power house 150 metres below the dam, to generate electricity. The project is estimated to produce 3.35 billion units of electricity annually which will be supplied to the Inarwa Substation in Sunsari, situated at a distance of 75kilometres from the project site, via a 400 KV double circuit transmission line. The total cost of the Tamor Hydropower Project has been estimated at USD1.21 billion.

The project was identified by the Japan International Cooperation Agency (JICA) in 1985. At that time, a preliminary report cited that a 696 MW capacity project could be built in this river section. While NEA has been studying the Tamor Reservoir Project since 2013, the Ministry of Energy, Water Resources and Irrigation did some homework in 2018 to construct the project in collaboration with NEA and a Chinese developer. At that time, NEA held the license to construct the project and its proposed installed capacity was only 200 MW.

NEA, which was willing to develop the project on its own by increasing the installed capacity of the project showed no interest in collaborating with the Chinese company. In 2019, the Investment Board Nepal (IBN) called for a proposal for foreign investment in the project. In response to IBN’s call, Power China Corporation and the Hydropower Investment and Development Company Limited (HIDCL), a company owned by the Nepal government, jointly proposed to develop the project. As no other proposal was received, the project was awarded to the Nepal-China joint venture.

To understand the obstacles in the execution of big projects in Nepal, it is necessary to acknowledge some of the inconsistencies and tendencies within this sector. There should be sufficient homework done to build large projects. In the absence of planned development, construction of large and complex infrastructure is not possible. It is surprising that the liscence to construct the Tamor Reservoir Project at a reduced installed capacity of only 200 MW was given to NEA when 696 MW was already identified in 1985. Similarly, it is also surprising that a new promoter has been permitted to develop the project while the license given to NEA remains in force.

Constructing the Tamor Reservoir Project at the installed capacity of 765 MW will affect the under construction Kabeli 'A' (37.5 MW) and Lower HewaKhola Hydropower Project (21.5 MW) which has been generating electricity since April 2017. There is a possibility that these projects will submerge as having a higher water level in the Tamor river to meet the electricity generation output will increase the flow of water of its tributaries Kabeli and HewaKhola.

Kabeli ‘A’ is being constructed by Kabeli Energy Limited, a subsidiary of Butwal Power Company Limited with financing from The World Bank, International Finance Corporation and the Singaporean investment company Infra-Asia.  

In order to attract foreign investment in a project, affecting two hydropower projects – one which is already operational and another under construction with foreign investment -- can be disastrous in terms of winning the trust of foreign investors. It has not been decided how the two projects will be compensated to develop the Tamor Reservoir Project. Thus, on the one hand, ambiguity exists as to who will build such a large hydel project and how. And on the other, more complexity has been added by allowing other projects to be built in the area where a larger project could be built.

It is an irony that various governments in the course of a few years awarded the same project multiple times to different promoters; first it was licensed to NEA, then the government tried to forge a collaboration between NEA and a Chinese company before settling for a joint venture of two companies owned by the Nepal and Chinese governments. This shows that the government is engaged in the ‘cultivation’ of licenses for infrastructure projects. Even so, it would have been a matter of satisfaction if there were signs that the construction of the project would start. Therefore, if the government keeps on engaging in the licensing business in this way, the cost of projects will increase which will reduce the chances of a project being executed.

The market for electricity generated by Nepal’s large hydropower projects can either be sold within the country or in India. It is obvious for investors to seek market certainty before building such a large project. It is not that electricity generated from the project cannot be consumed within Nepal until its completion. But creating the domestic market needs planning and investment. This requires the participation of all three levels of the government and the private sector. However, the stakeholders have not given their focus in this regard.

India has a policy of trading power with its neighbours. But India's inter-country electricity trade policy has discouraged purchase of power from projects built with Chinese investments. Our inability to create a market in the country, lack of environment for power trade with India and the government's fascination with issuing licenses haphazardly are indications that big projects will not see the light of day in the near future.

The Tamor Reservoir Project is just one example in this respect. Almost all large and strategically important projects in Nepal are facing the same challenge. Unless the government has clarity in the development concept of hydropower projects, it will be impossible to successfully implement big projects like Tamor.

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