Impact Of Load Shedding

Impact Of Load Shedding
Gorkhapatra, 6-Feb-08
Shanker Man Singh

Nepal in 2011 will be marking the centenary of hydropower generation. Nepal's history of producing electricity began with the Pharping hydro power plant, dating back to about a hundred years, when even China was not producing energy from water resources. In recent years, however, Nepal has become a country that is most prone to load shedding, high electricity tariffs and heavy leakages.

Dry season
The hydropower system in Nepal is dominated by run-of-the-river projects. There is only one seasonal storage project in the system. There is a shortage of power during winter and a spill during the wet season. The load factor is quite low as much of the consumption is dominated by household use. The imbalance has clearly shown the need for storage projects, and, hence, co-operation between Nepal and India is essential for the best use of the hydro resources for mutual benefit.

System loss is also one of the major issues that needs to be addressed to improve the power system, which is said to account for 25 per cent, that includes technical and non-technical losses like pilferage.

For an economy to be competitive, a product should be produced in an environment where there is uninterrupted and regular supply of electricity at low cost. Recent figures show that the Nepali private sector generates about 154 MW of energy, and the Nepal Electricity Authority (NEA) 400 MW, a total of about 554 MW. About 80 MW is in the process of being added.

Likewise, the West Seti (720 MW), Upper Karnali (300 MW), Arun III (400 MW), Tamakoshi (309 MW), Budhi Gandaki (660 MW), Likhu (125 MW) and Super Marsyangdi (275 MW) hydro projects are either awaiting approval or commissioning. All these projects in aggregate require huge investments.

During the winter season, the peak load demand for Nepal is estimated at about 720 MW whereas the production is only half the total demand. The Nepal Electricity Authority has announced further and more crippling hours of load shedding across the country. Citing a severe shortage of power as the water level in the Kulekhani reservoir is dipping dangerously and most of the other hydro power projects are operating under capacity due to the rivers drying up, the NEA has announced upto 11 hours of load shedding every day.

In recent times, the NEA, as such, has not entered into any power purchase agreement with any government or company and has instead resorted to load shedding. Project developers who had acquired licences years back have not even started building the projects.

For the development of power projects, the government and the private sector should go hand in hand. The recent initiative by the Employment Provident Fund to invest Rs. 12 billion in the Upper Tamakoshi is a welcome start. The recent revision in the Nepal Rastra Bank directives regarding the single obligator borrower limit will also be instrumental for consortium lending to hydropower generation in the days to come.

In order to finance power projects, power bonds could be a good possibility. The authorities concerned with the EIA, IEE and the banking institutions could be trained in hydropower development and be able to calculate the loss in per capita kW due to the load shedding. For this, private sector institutions like the Nepal Chamber of Commerce can take the lead, which is reflected in the recently released study formed by the Hydropower Core Group.

If we want to attract foreign direct investment in Nepal, the pricing of electricity should be done compulsorily on an annual basis. Some multilateral agencies view that the NEA and the Government of Nepal should incorporate regular tariff reviews to prepare corporate development plans. This would allow for timely signalling to the consumers about short-term increases in electricity supply costs, resulting from the impacts of long dry periods that require heavy load shedding or thermal generation that use expensive oil to meet the demand. The lack of tariff adjustment to compensate for unexpected short-term increases in electricity supply costs would also worsen the NEA's financial performance.

Energy is a much-needed central component of socio-economic development. What makes the future scenario gloomy is the current policy strategy framework. The prolonged load shedding is already taking its toll on students preparing for the annual School Leaving Certificate (SLC) and the business community. The social evils of load shedding are insurmountable.

Nepalese enterprises, businesses, communications, water-supply related services sector have also been pushed to a state of frustration due to the 48 hours of load shedding. Frequent load shedding has caused lots of problems with respect to production and increasing the productivity. This will also have a negative impact on the overall economy and the employment of the country's rural and urban youths.

Available figures by the NEA for 2005 states that there were 6,000 business customers and 22,500 industrial customers, a total of 28,500 enterprises consuming 873 GWH of energy, which is about 47 per cent of the total hydro power energy consumption in Nepal. This sector alone paid electricity bills totalling about Rs. 5.870 billion.

It is obvious that the industrial sector was using the power during the evenings and at night, contributing to the national development of the country when the demand of the general consumer is at its low and energy could not be conserved. In 2006/2007, this sector paid revenue amounting to Rs. 65 billion. Given the long hours of load shedding every day, it will have a negative impact as there will be a low supply of raw materials, which will have resultant effects on the customs, excise duty, VAT and income tax. There will be a sharp decline in the government's revenue collection from this sector.

The recent load shedding is not a new and recent phenomenon. The possible occurrence of the load shedding was known and forecast a few years back, but the government either did not care or did not have the vision to mitigate this problem. Electricity is the backbone of industrial development, and the government cannot escape from its responsibilities by giving lame excuses about the weather.

Due to the load shedding, the Birgunj-Hetauda, Morang-Sunsari industrial corridors will be particularly affected. The industries outside this sector will also be affected, causing a loss of billions of rupees to the nation in the form of non-revenue collection, unemployment and social unrest. On the one hand, the industrial sector is facing problems due to the industrial disputes, bandhs, strikes and a series of incidents in the Terai. The problem of load shedding in these areas has only aggravated the problem.

Export-oriented industries
The industries that will suffer most from load shedding and irregular supply of electricity are the export-oriented ones. Likewise, the hotel industry, information technology and communication, or ICT-based industries and services, iron and rolling mills, chemicals, plastic, jute, galvanised sheets, garments and spinning mills shall be greatly affected. It will have a long-term impact on the economic structure of these industries. Similarly, the importing country's buyers may also shift to other countries.
(to be continued)