Private Sector Participation in Hydropower Sector

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Private Sector Participation in Hydropower Sector

BY Kamal Raj Dhungel

Hydropower projects should be developed by utilising internal resources rather than handing over the projects to other countries. However, it is easier said than done because the reality on the ground presents several obstacles to realising this vision. Nepal's economy is relatively small, and the country lacks both capital and skilled human resources to undertake large-scale hydropower projects. Financial constraints and a shortage of experts further complicate the situation.

The role of the private sector is crucial and critical for the development of the economy in Nepal. The private sector holds a significant share of the country's productive resources, while the public sector serves as the tax collector and assumes roles as a legislator, regulator, and facilitator. The role of the public sector has been far from effective in the Nepali context. Reforms are essential to ensure that administrative procedures are transparent, efficient, and equitable.

The domestic private sector has demonstrated its capability in handling small hydropower projects, typically up to 25 MW, and venturing into projects of up to 100 MW is feasible. Since 1990, many small-sized hydropower projects have been successfully initiated and completed by the private sector. The sluggish progress in this sector can be attributed to various factors, some of which are outlined below:

1. Lack of vision:

A strong governmental willpower is a must for achieving meaningful progress. Unfortunately, the leaders of political parties are often plagued by corruption and a lack of vision. The visions, plans, and actions within and across political parties vary significantly. There is a lack of consensus, particularly regarding the role of the private sector, especially in the case of foreign investment for hydropower development. Some advocate for prioritising exports, while others emphasise domestic consumption. Both of these viewpoints are extreme because surplus energy must be exported. Diverse opinions among stakeholders render acts, policies, regulations, and priorities for the sector ineffective. This working style cannot yield desired results in both the short and long run. The solution lies in forming a national consensus with a firm commitment to programs, policies, acts, regulations, and priorities. This approach helps to keep policies and programs consistent creating a conducive environment for both domestic and foreign private sector investments.

2. Lack of good governance:

Good governance is a fundamental necessity for businesses to flourish. This, however, has been lacking in Neal. Rampant corruption and weak regulatory frameworks have plagued the country. Political instability has been a major concern over the past four decades. These factors have caused a decline in private sector participation. It is, therefore, necessary to prioritise and implement good governance practices to increase private sector involvement in the development of hydropower.

3. Policy inconsistency:

Policy consistency can make a difference in the hydropower sector. It is an essential element, as frequent changes in policies can deter investors from committing capital. If policies are not consistent, the private sector, both domestic and foreign, may be hesitant to invest. Therefore, maintaining policy consistency is crucial to attract private sector power producers and realise the full potential of Nepal's hydropower capacity.

4. Lack of capital:

Nepal faces a shortage of capital required for significant investments in the hydropower sector. The country is unable to provide the substantial capital necessary for the construction of large dams, which often involves investments in the millions of dollars. As a result, Nepal finds itself reliant on external resources to tap into its hydropower potential.

5. Lack of expertise:

Lack of Expertise: Expertise is a fundamental aspect of hydropower development. Feasibility study, cost benefit analysis, topographical structure and water availability needs to be evaluated. Nepal has a scarcity of experts proficient in evaluating such attributes. Therefore, there is a pressing need to produce a substantial number of professionals dedicated to hydropower development.

6. Licensing culpability: 

All rivers and rivulets are subject to licensing for hydropower development. But many licence holders lack the necessary investment, knowledge, and expertise for successful project development, and many are cadres of political parties. This raises concerns about the overall progress of hydropower initiatives. The government should issue licences only to genuine developers and revoke licence from those who lack the essential prerequisites. Small-scale hydropower projects, ranging from a few megawatts to 100 MW, can be developed with domestic expertise and capital. However, leaders from various parties, from central to grassroots levels, work actively to bag the licence. As these political leaders lack the technical know-how and necessary funds for investment in the construction and electricity generation process, this is impeding the development of the hydropower sector. The consequence is that politicians have obtained stakes in existing and under-construction hydropower projects in Nepal. A capable power producer with the requisite capital and expertise are often compelled to acquire licences through unofficial channels given that a considerable number of licences are held by political leaders.

7. Provision of access road:

Many potential sites for hydropower projects are situated in remote locations, lacking proper road access. An access road is the initial requirement for project implementation. The government should take the lead in constructing access roads to these potential project sites, as it can be a key factor in attracting both foreign and domestic investors. 

8. Provision of transmission line: It is the duty of the government to construct transmission lines for evacuating power from the project site to the national grid for distribution in the market. This commitment and subsequent implementation would foster private sector investment. 

(Dhungel is an Economist)

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