Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010monopsony power. Several potential hydropower projects in Nepal could also have significant impact onriver flows in India. This impact could indeed be positive, e.g. for flood control or to improve irrigation, but itcertainly adds significant complexity to any such projects. India is proposing a ‘cost plus’ approach for possibleprojects in Nepal, which would give little welfare gains to Nepal. 146 India’s policy towards Bhutan has beenremarkably different. Several large hydropower projects in Bhutan have been financed through Indian grantsand loans, but are fully operated and owned by Bhutan. India pays around US$4 ct/kWh for electricity fromBhutan 147 , which, together with the grant element, provides for significant net revenue for Bhutan.Despite these barriers, several large hydropower projects have been proposed in Nepal. The West SetiHydroelectric Project, a 750 MW project with US$1.6 billion investment in western Nepal, is the one that is themost advanced. However, most recent reports from early 2010 suggest that the future of the project is unsureas the licence has not been renewed and the company has apparently stopped operating. It is supposed tobe constructed under a BooT scheme with private investment mainly from China and Australia and possiblyalso from the ADB. Most of the power will be exported to India and sold to Power Grid Ltd, an Indian stateownedcompany, which is the major grid owner in the country. Nepal will receive revenue through a 10 percent share in sales value and royalties based on capacity. With a proposed price of US$0.05/kWh and annualgeneration of 3.6 TWh, the annual gross revenue would be US$182 million 148 , of which around US$33 millionper year would go to the government (around US$0.01/kWh) over the 30-year licence period, after which theGoN would take ownership and receive the full revenue.Box 2.4 Hydropower in Bhutan and SwitzerlandBhutan could serve as an example for Nepal as regards export of hydropower. Since the completion of the Tala project in 2008 (1,000 MW),generation capacity is now at 1,500 MW, most of which is exported to India. Gross revenue from electricity exports reached US$255 million in2008 (Source: TradeMap), which is very signifi cant compared to the GDP of US$1.4 billion. There are plans to upgrade the capacity to 10,000MW by 2020. So far, such projects have been funded through grants and loans by the government of India.Switzerland is another example of a country that benefi ts substantially from hydropower and hydro storage capacities. It has an installedhydropower capacity of 13,400 MW and imports cheap electricity from neighbouring countries when prices are low and then exports whenprices are high. Although the import and export volumes are similar, the generated annual revenue due to price differences has been US$1-2billion in recent years. Average prices for imports in 2008 were US$6 ct/kWh, but export prices were US$10 ct/kWh. In comparison, electricityfrom West Seti” despite mainly supplied as peak load, is expected to be priced at a fl at rate of US$5 ct/kWh.Socio-economic ImpactIt is not possible to come to a general conclusion of the socioeconomic or ecological impact of hydropower inNepal. The overall impact has to be evaluated on a case-by-case basis. The maintenance and in particular theconstruction of hydro dams and transmission lines could create a significant number of jobs and could alsoprovide ample opportunities for domestic skilled workers such as engineers. However, there are obviouslypotential negative effects, such as relocation of villages. For example, West Seti, when completed, wouldrequire resettlement of 13,000 people (ADB, 2007). There are effects on river flows which could negativelyaffect agricultural activity, although a dam could also help to reduce the risk of flooding in the monsoonseason and allow for increased irrigation in the dry season.There can be significant effects on river flows in India, which need to be taken into consideration. In particular,if there are positive side effects on flood control and/or improved irrigation in India but without a relatedcontribution by India to the cost of the hydropower project, then projects may not be realized even if therewere net welfare gains from doing so.146See http://www.cea.nic.in/hydro/nepal.pdf for details on some of the proposed projects (not including West Seti).147The actual price differs for each project. See http://www.cea.nic.in/hydro/bhutan.pdf148Own calculations based on ADB (2007).NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT121