“NHPC will complete the audit and hold its AGM soon”
ShareSansar, March 29:
National Hydropower Company Limited (NHPC) had the undivided attention of the investors for a couple of years after it was set up. But the interest in the company fizzled out gradually as it was hit by one crisis after another.
Of late, however, there have been some noticeable developments and market movements that could prove both ominous as well as promising for the future of NHPC.
While fluctuating share price, usually close to the par value, and recent bank notice to auction the shares of Sunkoshi Hydro Power Project must be deepening shareholders’ worries, the notification to investors about significant progress being made in the ongoing investigation and preparation of audit report, submission of which would open the door for long awaited AGM, should come as a relief for the investors.
In a bare-it-all interview with ShareSansar.com, Mr Kumar Pandey, chairman of the NHPC, shared how the company has been working to free itself from the dark shadows of the past, revive investors’ faith in the company and how the new management is striving to bring a turnaround that investors have long been waiting to see.
Tell us about your background and how you became involved in NHPC?
I completed Electrical Engineering (Robotics) in 1991 from Brown University in the United States, after which I came back to Nepal and worked at Butwal Power Company’s (BPC) Jhimruk Hydropower Plant in Pyuthan district and Andhi Khola Project in Syangja district. I also worked at the Khimti project, after which I switched employer and moved on into the field of hydropower management in 1998.
I spent several year managing and developing hydropower projects for a community owned company called Lamjung Electricity Development Company (LEDCO), in Lamjung District. Following this assignment, in 2003, I went to work for BPC as a contractor, rehabilitating the Jhimruk power plant which had been destroyed during the insurgency.
I went back to the States as a graduate student in Business Administration under the Fulbright Scholarship Program in 2004. I got my MBA in 2006 and worked in the Sates for a year as a COO of a software company. After I came to Nepal in 2007, I along with others, started Hydro Solutions, a company to provide service to all aspect of hydropower development.
I joined NHPC at the request of some shareholders of the company. Since I didn’t hold any promoter shares of NHPC, I bought some shares later to make me eligible to run for elections. The company required someone with a vision and experience to salvage it. As I had some experience, my shareholders friends requested me to step into my present role of Chairman.
My educational background, having both an engineering degree and an MBA, has helped me reorganize the company.
Why has not the country able to produce enough hydroelectricity for its own consumption?
If you don’t want load shedding now, you ought to have done something about it decades earlier. So this question must be answered by people who were working in this field 10-15 years ago. Why didn’t they take right steps back then to avoid this situation today? But, ironically, today we are being asked why nothing is being done to end load shedding. This problem can't be solved overnight. Building a hydropower project is a slow and gradual process and takes many years. It can easily take 10 years from planning a project to bringing a sizeable project into operation. Just as today's load shedding problem traces its roots to the problems of 10-15 years ago, the delays in building hydropower projects today will create problems 10 to 15 years down the line. If no one is doing anything about it, load shedding will be there forever.
Seven years ago competitive bidding were opened for three projects--Kabeli, Upper Karnali and Arun Three--yet, today there are no signs that these projects will start implementation any time soon. So we are seeing the same old problems of governmental inefficiency.
At present, we have a few alternatives before us to end load shedding. Immediate solution is purchasing electricity from India. We just need a few hundred Mega Watts in the peak time to end load shedding. India, which has been providing 500 MW electricity to Bangladesh, can easily supply the electricity we need.
But in order to do that, we need transmission lines for interconnectivity with the Indian system, which can be built in a little more than a year. In India, at present there is a government that is favorable to Nepal. If we work at it sincerely, we should be able to eliminate load shedding in another two years with India supplied electricity.
But relying on power supplied by others means handing over our energy security to others, which we don't want to do. We want to be energy secure, and for that we need to build hydropower projects in Nepal. If we don't build hydropower projects, our future generations will continue to suffer.
From the point of view of energy consumption, our economy has already become unsustainable. Today 150% of all our export is spent to import only petroleum products such as LPG, Kerosene, Jet fuel, diesel, petrol. It is a very embarrassing situation. So people who call trading with India for electricity an act of anti-nationalism must look into and understand these dynamics.
From the point of view of energy security and economic growth, the third thing we must give a serious thought is to exporting electricity. It will help us earn foreign currency, and balance our trade with India.
If we work on these three things, we can make best use of our resource, take care of our basic needs, and our economy will get better.
What are the hurdles that existing hydropower companies are facing?
Hydropower is a very complicated industry, and I am not saying just technically. It is so socially, from the point of view of licensing and marketing, and everything related to it is complicated. A lot of things have to fall in place for it to work.
As for the main hurdles, there are several factors that can be pinpointed.
First is the government. If the government is committed to develop hydropower sector, it should be willing to offer all sorts of facilities to the builders, and be willing to free them of troubles as and when they arise. The government needs to send a clear message that hydropower is our nation’s priority and nothing against it will be tolerated. It must back up this notice with action.
Second factor is the transmission line. Who will build the transmission line? For example, even the projects that are built aren't able to evacuate the power they can generate. NEA was responsible for evacuating the power, but it did not do it. What is the point of building projects if the energy cannot be supplied to the consumers?
Third issue is the market. As we are a hydro dominated electricity system, our supply depends on the flows available in the rivers, which in Nepal is very seasonal. In Shrawan, when there is excess production, we won't have the market for the consumption of the electricity that can be generated and in Chait, when the production declines, we are forced to look for alternative sources of electricity. So we need to have access to a market that can buy when we have too much and sell back when we are in short supply.
But among all these issues, governance is the most important factor. The government must commit itself to the task of developing hydropower at all cost.
Water is a natural resource and you can use it for either electricity generation, irrigation, or for drinking purposes. We hear reports that water reserved in large dams for electricity generation at the time of drought hampers irrigation, which leads to rise in the prices of food crops such as wheat. So how do we prioritize water use? Do we have any policy on it?
Water Resource Act 2049 clearly identifies priority for the use of water: Drinking water and domestic users is number one;, irrigation number two; agricultural uses such as animal husbandry and fisheries number three; hydroelectricity generation number four; cottage industry, industrial enterprise use number five, and so on. But we have to look beyond that.
As a country how are we using our resources? Should we generate electricity from all our rivers or should we leave some of them for tourism related activities such as rafting? Which rivers should be dammed and which should flow free? Should we use certain rivers just for irrigation or set up multipurpose project at certain places? These are the related questions that automatically arise. But then I am not the right person to answer these questions. This has to be done by National Planning Commission. We are known as a country that does not work according to a plan. The number of shutters along the road or the number of schools in a locality, or inner city roads constructed privately are all examples of lack of planning. Same applies to the hydropower sector. We don't plan properly. Should we promote adventure tourism in Bhotekoshi or build hydropower project. It is for the state to decide. How to use rivers on the border, it is for the government to work with the Indian government, you and I cannot decide it.
Japanese government had said that they could help build a dam on the Trishuli River and supply water for irrigation for all of Chitwan and Nawal Parasi, create a place for rafting and boating, and also generate some electricity. But our government could not take that offer.
As a country there are certain decisions that a state has to take. Only then investors will have confidence to invest. Once you tell an investor he can build hydropower project he will invest billions of rupees. You can’t tell him later that now you want to use the water to grow fishes.
We are already late in terms of what is to be actually done.
We know that politics affect big projects. But what is the likelihood of large scale hydropower projects affecting politics in the context of federalism?
In hydropower sector there is too much hype and less substance. We have talked about it too much for too long. When we look at the political side of the issue, the whole affair becomes a highly sensitive, especially any agreement with India on hydropower or water. Both countries need hydropower and water for irrigation, food security, energy, flood control, among others. Yet we are not being able to agree and move forward as the issues are just too sensitive.
In our context, I believe, hydropower development should not depend on federalism. We have all agreed that water is the nation’s property. At least big projects must be national assets, and the nation should be able to make decision regarding that. Yet things may not be as simple as that.
For instance,for the Marshyangdhi hydropower in Lamjung, where will the load center be ? How will the electricity be transmitted? Either the power has come to Pokhara, Bharatpur or Kathmandu. Apart from these 3, there are no other load centers. The projects may be licensed by the province where it is built, but who will own the transmission lines? Who will be the off taker? How will trading with India and other countries take place? How are we going to deal with these issues politically, both internally and externally?
We have to come up with a mechanism to deal with this issue if we don’t want to divert investments from the sector.
Investors will research about risks and benefits before investing. Economic principle says that the benefits should match the risks you are taking. One thing that investors don’t like is uncertainty. And here we are not talking about small investments of a few hundred thousand rupees. Investments in hydropower can reach 200 billion, so no one is going to throw away that kind of money without doing proper analysis
If the investment climate in the hydropower sector gets better, does Nepal have enough manpower for big hydropower projects?
There is a crisis of manpower in the hydro sector today. Due to the Maoist insurgency and uncertainty in our country, we have lost most of our technical manpower, especially in the private sector. The major concern is that we don’t have good companies for engineering, contracting, fabricating or even developing hydropower projects. For bigger and better companies, we need large-scale financing. In order to build 3000 MW project, we are compelled to get international financing. International investors will try to find people with experience and expertise matching their standards and expectations. In case of small projects, however, we can develop human resource, but it is true that we have very few qualified manpower in the hydro sector.
India Prime Minister Narendra Modi talked about PTA and PDA in his visit to Nepal. What are your views regarding it?
I am also the Secretary General of the Independent Power Producers’ Association of Nepal (IPPAN), and we are a staunch supporter of this concept. PTA and PDA are essential to relieve hydropower companies of market constraints because our internal market is small compared to India.
Absence of PTA hampers market creation and without PDA there won’t be foreign investments. The developers seek market assurance. PTA now needs to be implemented and the issues of: Who is going to do trade? What are the points of trading? Who gets the control? Who is dispatching? Who is going to set the tarrif? What laws must be amended? needs to be clearly outlined.
The sad part is works gather momentum only when someone like Modi comes to Nepal. After that, we fall back to usual routine. It has been almost a year since the PTA was signed, but things haven’t moved beyond that because of our unpreparedness. This kind of attitude will prove harmful.
Will there ever be a regulatory body in the hydropower sector in Nepal?
We have the Nepal Electricity Regulatory Commission (NERC) Act which stipulates ways to regulate the hydropower sector. The regulations will come into effect after the Act is approved by the parliament. This bill has been in the parliament for over 6 years and now I hear it is being revised. So if this Act comes, then the sector will have a regulator. But we must be mindful that although the regulator is critical for this sector, what we also need are facilitators. It is my hope that the NERC will not only play the role of a stringent regulator but also the role of a guardian for this sector.
