ADB_book_18 April.qxp - Himalayan Document Centre - icimod

private companies. Now some 21% of the installedcapacity comes from the private sector. TheGovernment’s emphasis on large, export-orientedprojects is another reason for the slow developmentof hydropower. In the past, the Government gavepriority to mega-power projects such as the Karnali,Arun, and Pancheswor, with the aim of exportingpower to India rather than meeting Nepal’s ownneeds. However, development of these projects hasbeen hampered because there was no ensuredexport market in the absence of a power purchaseagreement with India. There appears to be a “buyersmonopoly”, as India is the only potential market andIndia has been unwilling to pay commercial rates forenergy or to put an economic value to the otherbenefits, such as flood control, that India can derivefrom developing hydropower projects in Nepal.Problems with DamsAlthough much of the hydropower potential in thecountry can be exploited through run-of-the-riverprojects, a portion requires construction of dams.Development of dams is seen as a means to providewater for consumption, clean energy, and floodcontrol. However, experience in the construction,operation, and maintenance of dams is in its infancy.Development of large hydro dams is complex in thisgeologically unstable area, and in light of the poorinfrastructure in many mountain areas. Concerns areoften voiced about the impact on local populationsand the environment (see Energy and Environmentsection below). Small- and medium-scale damprojects of up to 100 MW are sometimes suggestedas a more environmentally friendly alternative tolarge hydro projects (Gubhaju 1994; WCD 2001). Thisdebate, and the complex construction requirements,have also slowed hydropower development in thecountry.Inadequacy in Linking HydropowerDevelopment with National DevelopmentHydropower is termed “white gold”, and itsdevelopment can play a vital role in the developmentof Nepal. Although hydropower’s importance innational development is acknowledged by all, effortsto develop it appear to lack a long-term vision, plans,and strategy that clearly identify linkages withnational development goals. As an example,hydropower development could be linked withindustrial and electric transport development anddevelopment of rural areas. Much of the debatehowever, concentrates on issues of export versusdomestic consumption, small versus big projects,and reservoir versus run-of-river projects rather thanon how Nepal could best benefit from hydropowerdevelopment. Project identification and developmentoften take place in isolation, not as anintegrated, coordinated plan to stimulate the nationaleconomy and social development. It is assumed thateach individual project will automatically bringsocioeconomic development, which is hardly thecase.Financial ConstraintsNEA’s hydropower production cost in Nepal isaround $3,000 to $4,000 per kW constructed—two tofour times more than the cost in the neighboringPeople’s Republic of China, India, and Bhutan. Butthe private sector projects cost between $1,500 and$2,500 per kW constructed. Hydropowerdevelopment requires high capital investment.Donor assistance and government funds have beenthe major source of finance for hydropower projects.In the past, as much as 80% of all investmentrequirements came from multilateral and bilateraldonor assistance (USAID-SARI 2002). Private-sectorinvestment in hydropower has gradually increasedsince 1992. This needs to be further promoted as theavailability of donor funding is declining, and publicfunds are more needed by the social sector. Thedomestic and international private sector could be agreater source of investment if an appropriate andfavorable environment for competition and costreduction were created.Building National CapacityNepal’s hydropower development has relied largelyon imported technology and expertise. This situationis obviously undesirable in the long run. Capability isneeded in all fronts of hydropower development,including planning and design, construction andmanagement, and manufacturing hydropowerrelatedplants and accessories. Although nationalcapability has been developing and smaller projectsare now being constructed with experts andChilime Hydroelectric Plant HeadworksChilime Hydropower Company LtdChapter 6: Energy Resources69