Power to India

Power to India
NepaliTimes, Issue #517 (27-Aug-10 to 02-Sep-10)
RATNA SANSAR SHRESTHA

It's folly to think Nepal can replicate Bhutan's model of hydropower development

People in Bhutan must have felt magnanimous after reading the Times of India (ToI) article on June 20, 2009 that read: 'Bhutan PM pledges power aid for India'. For a tiny country like Bhutan to be able to 'aid' its giant neighbour India must be a thrill. Advocates of the Bhutan model in Nepal are also salivating at the possibility of wielding immense power (not electricity!) over India by exporting hydropower, in the hope that control will be in Nepali hands.

Of course, they will have forgotten that India will circumvent the possibility of Nepal controlling the flow of power by demanding that they get to ensure the 'security' of such projects, with Indian security personnel. The Karnali Chisapani project, meant to generate 10,800MW, was shelved in the mid-70s by the then Nepali government for this very reason.

These people have their collective heads in the sand for a couple of other reasons. Bhutan's example illustrates a few ground realities. Kuensel online, Bhutan's national English-language news portal, reported that "contrary to existing notions, a new study says it is economically more beneficial for Bhutan to supply power to its industries than export to India." The report details findings from the Bhutani Ministry of Economic Affairs and the royal audit authority, which note that the government makes a profit of Nu 64 million if it exports electricity to India, compared to a profit of Nu 152.8 million from tax receipts if it supplies 15 major national industries. Economic Affairs Minister Lyonpo Khandu Wangchuk was reported to have said, "Electricity is the only plentiful raw material that can be used by our industries to compete with external competitors by value adding on reasonably priced power." Ministry Secretary Dasho Sonam Tshering reportedly alluded to Norway, which "also used its hydropower to initially bankroll its industrial development through power intensive metallurgy and fertilizers".

The export-oriented model of hydropower development in Bhutan has threatened its own industrial development. As early as 2008, Zeenews.com reported that "a severe power shortage may hit Bhutan in view of new industries readying up to kick start operations even as India is banking on borrowing electricity from the Himalayan country by 2020." Bhutan Power Corporation Limited is reported to have confirmed this. Kuensel online echoed this anxiety in February 2010, suggesting setting up captive thermal power plants and in May 2010, even calling for the import of electricity from India.

Due to the unique geopolitical relationship between India and Bhutan, the three hydropower projects built so far, with a total capacity of 1,416MW, are owned by Bhutan but funded by India as a 60 per cent grant and a 40 per cent soft loan. But this 'inter-government model' has been found wanting by the Indian Government of late. The ToI last year noted that "The power ministry is getting the jitters over venture models for setting up hydel projects committed to Bhutan, with a view emerging that the amount of investments India will have to make at one go till 2020 under the present inter-government arrangement may adversely affect our budgetary provisions."

According to records of a recent meeting called by Indian power sector officials, India is committed to projects in Bhutan of 10,000MW by 2020. This will require fast-track investment of Rs 500 billion at
Rs 45 billion per year till 2020. The Indian Government, therefore, is endeavouring to drastically reconfigure the model so future projects are built with 70 per cent loan and 30 per cent grant. According to Kuensel online, the Bhutanese government has not yet agreed to this.

Under the current model, Bhutan seems to be profiting even by exporting power at a dirt cheap rate. But once the financing modality is turned on its head, the benefits to the Bhutanese economy will shrink by a magnitude. By exporting power, furthermore, it is condemned to remain underdeveloped.

For Nepal, with a population of 28 million, to reach the same level of 'gross national happiness' achieved under the current India-Bhutan inter-government model would require India to finance 52,864MW of electricity. Unfortunately, India is already experiencing financing fatigue after its relatively small investments in Bhutan. It's time for the hydrocracy in Nepal – the politicians, policymakers, planners, bureaucrats, and intelligentsia who deal in hydropower – to acknowledge the ground realities and grow out of their short-sighted, juvenile vision for Nepal's hydropower future.

Ratna Sansar Shrestha is a water resource analyst

Ragpickers picking Rs 21,000 a month

Ragpickers picking Rs 21,000 a month
TKP, 3-Jul-10

It sounds unbelievable that the rag pickers, who go around the city scavenging for rags, scrap and plastic wares in piles of waste, earn more than a gazetted first class officer of the country.

Presenting a study report about the scavengers conducted in 20 places of Kathmandu Metropolitan and Lalitpur Sub-Metropolitan City, Centre for Integral Urban Development (CIUD) said the professional pickers make more than Rs. 21,000 per month.

According to the report, one picker collects more than a hundred kg of trash including rags, plastic wares and scrap per day. These items are sold for Rs. 7 per kg in an average, which makes more than seven hundred per day, amounting to Rs. 21,000 monthly.

“Their earning is enough to manage the quality life but they don’t use it for their good and neither have the saving habit,” said Brinda Shrestha, one of the researchers. “They spend most of the income on alcohol and entertainment.”

According to Shrestha, more than 70 percent of the pickers are from indigenous communities out of which Tamang comprises over 20 percent. Around 12 percent pickers are Indian nationals.

The report has stated that 60 percent of the rag pickers are from economically active group—16 to 35 years. Seventy-seven percent of them are fully illiterate and the remaining can write their names.

Global Prospective: Drought in E Europe Sparks Fear of Global Wheat Shortgage

Nepal is a food deficit country so it is vulnerable to fluctuations in global supply-demand of food. The case in point was the sugar shortage last year. This year it my be food grains if the drought in Eastern Europe causes a sharp fall in global supply of wheat.

Weather woes spark fears for wheat
FT, 2-Aug-10
By Javier Blas in London

For veteran wheat traders, the current rally has a strong feeling of déjà vu.

Back in 1972, the then Soviet Union suffered a catastrophic drought that left the country badly short of wheat. Moscow plunged into the world market to cover the shortfall, buying almost all the available surpluses in the US.

The purchases, which later became known as the “Great Grain Robbery” as Washington was unaware for weeks of its Cold War rival’s buying spree, triggered food price hikes worldwide.

In the ensuing four decades the landscape seems all too familiar.

The worst drought since records began more than a century ago is torching the wheat fields of Russia, Ukraine and Kazakhstan, cutting the production outlook for the three countries.

In contrast to the “Great Grain Robbery”, the countries are today large exporters, but the shortfall is hitting global wheat supplies, which is having exactly the same impact as the buying of years ago: pushing up prices.

European wheat prices jumped on Monday to a two-year high above €200 a tonne, after a 50 per cent rally since the end of June, fuelled by the drought. In Paris, Liffe November milling wheat hit an intraday high of €211 a tonne, up 8.0 per cent on the day.

“There are no sellers on the market, everyone is buying today,” says Fabien Fouillard, a derivatives broker at Plantureux in Paris.

European wheat prices have only traded higher during the 2007-08 food crisis, when the benchmark briefly hit an all-time high of €300 a tonne.

In Chicago, CBOT September wheat prices rose to a 22-month high of $7.11 a bushel, up nearly 7.5 per cent on the day. In July, CBOT wheat prices surged by 42 per cent, the biggest monthly increase for the Chicago benchmark since 1959.

Traders, analysts and food industry executives fear prices could rise further as they continue to downgrade the size of Russia’s wheat crop due to persistent bad weather. The latest tentative estimates put the country crop at 45-50m tonnes, the lowest in five years, and potentially below annual consumption of 47m tonnes.

Alexander Bos, agricultural commodities analyst at Macquarie in London, says the market perception of Russia’s grain situation has gone “from bad to worse” over the past few weeks.

“We are losing a significant amount of production in the Black Sea region and there is potential for even higher prices over the next few weeks.”

Russia has been gripped by a heatwave in the past five weeks and the fields have not enjoyed rainfall for even longer. Meteorologists say there is little hope of respite with temperatures forecast to remain abnormally high until the middle of August.

Analysts also expect lower output in Ukraine and Kazakhstan. The former Soviet Union countries last year produced 20.9m and 17m tonnes of wheat, respectively.

In addition, wheat production in Canada, one of the world’s largest exporters, is set to fall sharply because heavy rains during the planting season forced farmers to leave a significant number of acres unplanted.

The Canadian Wheat Board, the marketing agent for Western Canada’s farmers, last week cut its forecast for the 2010-11 crop to 18.5m tonnes, down 36 per cent from last season’s 28.8m tonnes.

Allen Oberg, CWB chairman, says the rains have created a dire situation. “Farmers are resilient, but when you cannot even get seed into the ground, it’s devastating.”

The global shortfall in wheat production is reviving memories of the 2007-08 global food crisis, which saw the price of agricultural commodities from corn to rice surge to record highs and food riots in countries from Haiti to Bangladesh. The crisis also pushed the number of chronically hungry people globally above the 1bn mark for the first time.

There are notable differences with the current situation, however.

On the demand side, consumption growth is weaker due to the general macroeconomic situation, which is damping demand from the animal feeding industry. On the supply side, wheat inventories are much ampler after very good crops over the past two years.

This combination means prices are unlikely to surge to the all-time highs of 2007-08 or trigger the panic of the “Great Grain Robbery” of 1972-73.

Even so, the current rally is more than enough to revive old memories.

News Roundup: Economy Chugs Along Despite Political Stalemate

Roundup of Nepali Economic and Business News for June 13-July 31
By NepaliEconomy.com
News Archive

MK Nepal resigned as the PM of Nepal: On June 30th, MK Nepal resigned as the PM after 13 months in office and as per the Big Three Agreement just prior to the May 28th deadline to finish writing the Constitution. It has been more than a month since but forming a permanent government whether based on consensus or based on majority has been a moving target. This deadlock has forced MKN's caretaker government, as per the Interim Constitution to pass an an interim Rs 110 billion budget. The lack of full-fledged budget is already impacting the economy. At least the Maoists are not suffering, according to a report the government has so far paid Rs. 4.7 billion to Maoist combatants since the CPA in 2006.

The NRB unveils its monetary policy & Shortage of IC continues: On July 28, the NRB unveiled its 2010/11 monetary policy. The bank raised the benchmark rate by 50bp to 10 percent and kept the inflation target at 7 percent - the latest figure for mid-June is 9.6%. It relaxed its policy for real estate investment but tightened licensing policy for new banks. Separately, the NRB said that the liquidity crisis is over now that deposits are soaring at the banks on the back of improving BoP. For whatever reason (possible depreciation?) there is shortage of IC in the country; traders' are venturing as far as Baglung (your truely's home district) in search of IC notes. To alleviate the shortage,the NRB is planning to open accounts in Indian banks in the bordering region, has put limits on the withdrawals of IC from Nepali-bank issued ATMs in India and requested the RBI the permission to use IC 500 and 1,000 notes in Nepal.

The NOC keeps grabbing headlines for the wrong reasons: The state-owned NOC decided to give a huge bonus to its employees claiming Rs 3.31 billion profit during the year but the CIAA and its own Board blocked the bonus. NOC employees are now threatening a strike if not given the bonus. The NOC had earlier raised prices on petrol by Rs. 3/liter and kerosene by Rs. 2.50/liter. And before jacking up the prices, the NOC played a chicken-game with the State by drastically reducing the imports of oil and creating an artificial shortage. All this is happening while the NOC's Amlekhgunj depot is posting a record loss of 0.91%. The NOC is not the only PE suffering; Janakpur Cigarette Factory is on a verge of closure.

Nepal continues to exports labor and import goods: With Birgunj alone losing 20,000 jobs due to deteriorating security situation, the surplus labor of Nepal is going anywhere it can to find a decent job, at the rate of 800/day- Khasa, Singapore/Brunei, Malaysia, Japan, Libya, Poland, Israel and even Iraq. On June 18th, 42,000 Nepalese lined up for 4,000 jobs in Korea under EPS. According to the Foreign Employment Promotion Board, more than 3 million Nepali youths are currently toiling in foreign lands; ironically, this is causing a shortage of skilled labor in Nepal's construction sector. Given the importance of migrant workers, the Nepalese government has yet to establish a comprehensive policy or implement the policies it has effectively. Remittances, 66% of which comes from official channels helped offset a surging trade deficit - in the first 11 months of 2009/10 imports rose 35% but exports declined 9.8% causing a whopping Rs. 287 billion in trade deficit. As a sign of the country's deteriorating competitiveness, Nepalese garment industry received zero orders from the US in June and FDI in the first 8 months of 2009/10 plunged 27% to a mere Rs. 3.45 billion. On the bright side, the NRB is trying to channel remittance to productive sectors by issuing 5-Year Foreign Employment Bond with an interest of 9.5%.

Nepal continues to dream about Hydropower: A government sponsored task force has produced a report that targets 36,628MW of hydropower within the next 20 years, and 2,057MW over the next 5 years including 170MW for exports. This comes on the heels of another government report that said only 2 hydro projects totaling 2MW were completed in the last fiscal year and that another 21MW will be completed in the next fiscal year. The 456MW, Rs. 35.29 billion Upper Tamakoshi finally got funding to go ahead - it is scheduled to open in 2015, already two years behind schedule. The government is trying to rein in the freewheeling nature of hydropower licensing; it recently issued 3 licenses worth Rs. 130 million. Hydropower development could face some setback given that the PAC has found irregularities in PPA agreements on 36MW Upper Bhotekoshi and 60MW Khimti; according to the PAC, they have caused Rs. 19.8 billion and Rs. 9.5 billion deficit to the NEC in the past decade. There is some good news, load-shedding has come down to 2 hours a day with the onset of the Monsoon.

Banking continues to be a lucrative business in Nepal: Nepal's 27 commercial banks are expected to rake in more than Rs. 15 billion in profits despite so-called liquidity crunch. Part of the reason is that banks are aggressively lending i.e. leveraging their balance sheets. Nepal's banking are apparently not issuing debentures as much as they are making loans. Not surprisingly bank branches are proliferating like rats to harvest deposits. Mega Bank led by Anil Shah became the 28th Commercial Bank on July 23. Amidst the sea of bank profits, Nepal relies on foreign aid to implement financial reforms. In non-banking news, a new derivative broker opened for business but in stock market, the process of selecting 27 new brokers from current 23 continues to be mired in controversy. Amidst these bureaucratic snafu, SEBON lobbies the government to bring in NRN into the stock market. Another interesting tidbit, Nepal pays almost a billion rupees in premium to foreign reinsurers.

On the infrastructure sector, the ADB has raised the cost estimates for 4-lane Kathmandu-Terai Fast Track Road to $1 billion and few global contractors are interested to invest in it under BOOT model. Nepalese investors however lament a lack of PPP guidelines. The government plans to build a second international airport at Nijgadh in Bara district this fiscal year. In another milestone, the construction of 100km Rs. 2.17 billion Darchula-Tinkar road has commenced.

Agriculture sector continues languish although 77% of the paddy fields have been planted thus far owing to a good Monsoon. But Monsoon is not the only factor; the other is fertilizer and Nepal is experiencing fertilizer shortage cause by government mismanagement. The NPC says, even with a normal harvest, Nepal will be a food deficit country over the next 3-5 years. Food deficit in Nepal has increased to 316K tons in 2009/10 from 133K in 2008/09, and 24,000 people in 14 VDCs in remote Mugu may go hungry. In the midst of this situation, production of cash crop is up 13% during the year.

Tourism sector is improving and the government is implementing policies to meet the NTY 2011 target. Tourist arrivals jumped 16.3% in June. Now tourists can now stay with Nepali families in rural areas as per new home stay policy. More than 80,000 trekkers trekked through the Annapurna Conservation Area in 2009/10. Hotel sectors' revenue rose 15% last year; Soaltee posted Rs. 108 million in profit. Not surprisingly, 2 new 3-star and 64 non-star hotels were started last year. In order to promote domestic tourism, the government wants to give allowances to bureaucrats to be domestic tourist, uh!

Telecom is probably the most developed sector in the country. NT has reached all 3,915 VDCs and wants to add 5 million new subscribers in the coming 3 years to make the total 13 million.

In an interesting piece of news, apparently, the city scavengers are not the pitiful bunch after all - according to a non-profit, they earn a whopping Rs. 21,000 a month, go figure!