“Hydropower sector has the capability to make us one of the highest GDP growth rate economy, the only irony is rather than facilitating we have regulating policies. It’s time we learn from the success stories of Ethiopia”, Gyanendra Lal Pradhan, Hydropower specialist

Wed, May 9, 2018 11:58 AM on Experts Speak, Interview,
“Hydropowe...

Prelude:

Part 1:Debunking the myths in Hydropower Sector of Nepal with Gyanendra Lal Pradhan, Hydropower especialist and entrepreneur

Part 2: "The reason we haven't been able to revolutionize the Hydropower sector yet is because we’re looking at it from the wrong angle”; Interview with Gyanendra Lal Pradhan, Hydropower specialist and entrepreneur

Is there enough subsidies and motivation from government? Since you’re the hydropower veteran, what do you expect from government?

Facilitating policies should replace regulating policies

Hydropower is the only sector which has the capability to bring notable change in the country’s GDP even through one project. Yet in some way, a lot of focus is given to regulation rather than facilitation. Back in 2000, Hydropower was my number one business, but along the way now it has gone to number 4. I’m not saying the sector is lucrative enough, it’s just that a lot of regulation and bureaucratic hurdles has made it unattractive.

Similarly, as you can see in our country Alcohol and Tobacco companies can include the VAT incurred during the construction of their building in their bill but Hydropower can’t. If the expenses go over 1.25 crore/MW, we are levied VAT and that we can’t include in bill. Does this at all seem like we’re being encouraged?

So if this sector were to flourish, we need to bring more facilitating policies. The aspiring investors looking to invest in the sector must be given enough incentive to make it worth the risk and long payback period. We must bring in Fast Track Policies. We need considerate and fair Power Purchase Rate.

Learn from success stories and implement FAST TRACK Policy

Learning from success stories gives us two benefits, one it keeps us motivated and two, we can avoid the mistakes they made. This given us an added advantage or even a head-start. So if they reached this far, we can go further. Particularly in case of hydropower, we need to learn from country like Ethiopia. In Ethiopia if I have all my plans and documents in hand, they’ll give me the license within 3 days of application, but here in 3 days I don’t even get to meet the deputy chief.

Similarly, they also guarantee returns to encourage the sector, but here the policy is such that if I earn more than 17% they’ll take it away. And if in case it goes down, they don’t give us either. So there are a lot of hiccups.

Fair and equitable PPA (Power Purchase Agreement)

Acquiring a PPA from Nepal Electricity Authority (NEA) is another biggest hurdle in this field. The policies we have is such that the Foreign Direct Investment (FDI) will never find our market attractive enough. There are only a handful that have come to our country like the Trishuli. However, for that project the PPA signing only took 1 or 2 years, which in fact is a 7 days’ job. In Ethiopia a PPA is signed in 45 days. In Sri-Lanka it’s even faster.

Currently the electricity we are buying from India costs over Rs 10.5 per unit, which for sure will increase in the days to come. But our PPA stands at Rs 5.40 units for coming 30 years. Is this reasonable and encouraging? Similarly, the PPA of Chilime is Rs 8.20 and any other government sponsored project has higher PPA than ours. So this doesn’t at all seem an encouraging or facilitating policy to me.

Similarly we also have Tanahun HDP, which is being constructed with the help of Japanese government. The project is being constructed with very cheap loan with only 0.18% interest charged and payback period of 40 years. And even so they have the PPA of Rs 12.4 and Rs. 7.1, which relatively is very generous.

Effective segregation of Investment sectors

I don’t know if it’s sad or funny, but it is really weird how the investment sectors in our country is compared. If you see now, Hydropower and ginger production are given similar priority. Are these in anyway same, based on the returns to be generated, based on the level of production, based on the level of investment that is required, based on anything? They’re not and that’s why they should be treated differently.

I’m not saying one is superior than the other, what I’m saying is that each sector is peculiar and has its own set of characteristics; because of which the same set of policies won’t work for both. Can you imagine ginger production contributing Rs 2 arba to GDP? So we need to segregate our sectors based on the return potential. So in my personal opinion, no other sector has the potential equivalent to Hydro power for such huge impact.

For real-time examples, see the gulf countries. Tourism is a prime sector for them with millions of foreigners flying in everyday, but if you see their GDP the amount contributed from Tourism is very minuscule compared to their oil extraction industries. Thus, we need to identify and segregate our investment potentials accordingly.

Establishing trade link with other countries

In this age of information and technology being linked to the rest of the world is very important. So we’ve recently connected ourselves with India via Power Trade Agreement (PTA) and soon we’ll also connect with Bangladesh and China.

The reason for this is because Hydropower power will never meet the market demand. The market demand is influenced by certain factors, whereas the hydropower’s capacity is determined by the availability or the supply of water. So in order to match these independent demand and supply, we need to have power agreements with other countries with whom we can buy in case of excess demand and sell in case of excess supply.

Policies to replace other energy sources by Hydro electricity

If we are to move towards sustainable energy forms, then electricity is our strongest bet. So rather than waiting for other energy sources to burn out, government can start encouraging the sustainable alternatives like induction cookers, heaters, electric vehicles, trolley bus, railways etc..

My suggestion to government

If you look at our current stategovernment revenue section Rs 15 billion is coming from tax, so if the government wants to increase this revenue further then the only way is via tax. But construction of these projects can fulfil that gap and generate huge revenue for the country.

This is the same suggestion that I personally passed on to the six Chief Ministers of 6 provinces. Each Province expect province number 2 should have a 500/600 MW hydropower project in each state. Then within 5 to 6 years, each state can be financially independent and can earn up to 20 billion a year after the payment of interest and loan, then they can have a lot of fund for all sorts of development.

So I would like to personally request the 6 CMs to implement this and that too with fast track policy. Give the approval within 6 months and start construction within a year like Ethiopia did. If you don’t know how please visit Ethiopia once and find out how they did it. Then within 6th year the returns will start to come.

If one hydropower project contributes to 1% growth in national GDP, 6 provinces’ Hydropower projects will bring 6% rise making us one of the highest GDP growth rate economy.

What are your expectations on NEPSE especially on Hydropower stock price?

To be honest I don’t see a very bright future for Hydropower scrips in NEPSE. For any scrip to perform well, its fundamental should also be strong and that guides the market demand for that scrip. But based on the situation most people have lost faith in hydropower sector. Low PPA, high interest rate and too much interference has made hydropower sector has become a playing ground for thugs.

Back then when we took Butwal Power Company (BPCL) public, people weren’t even willing to buy its shares at Rs 151 per unit. We had to practically beg them. But then after some time, the market price of the same reached Rs 1900. Then recently it issued FPO at Rs 501 which fell into huge controversy and was largely unsubscribed. Now the market price stands somewhere around Rs. 450. The investors are practically in loss right now. Similarly the scrips of Chilime had reached Rs 2800 at one time. What is its price now?

Not really a good picture, right?

If we take into account the growing companies like Microsoft, Alibaba, Reliance etc. there are fluctuations but they are always inclined upward at 45 degrees. So bearish market is one of the reason, but the prime reason is decreasing trust of the investors. And the reason investors are losing trust is because of the regulating policies and below par performance of the projects.

Most projects are taking more than estimated time and cost, which has decreased the confidence of the investors in other projects too. Similarly the unfair and very cheap PPA has also played a significant role in this. So unless there are improvements in both these fronts, the price of the hydropower scrips can be expected to keep falling.

The final part of this interview will be published tomorrow. Please remain updated with our website to know more about hydropower sector.