West Seti Must Be For Nepalese Too

Dr. Trilochan Upreti

William Bulti-tude, Managing Director of Australia's Snowy Mountain Engineering Corp (SMEC), has reportedly said that the construction of the 760 megawatt West Seti Hydroelectricity Project will start in November 2007. This means three months earlier than the original plan to initiate the project by January 2008.

Energy vs. revenue

Baltitude has been quoted as saying that SMEC is willing to consider providing free energy to Nepal instead of cash, if the government asks for it. He also said that, legally, SMEC is under no obligation to provide free energy to Nepal because the existing agreement is to provide Nepal 10 per cent of the revenue generated by the project. It is also said that the government has not yet formally requested SMEC to provide 10 per cent of energy instead of cash. However, Baltitude has been misinformed. The government is not in a dilemma because the Natural Resources Committee of the legislature-parliament has instructed the government to get 10 per cent of the energy instead of cash from SMEC.Bultitude had also revealed that it was not economically feasible to provide energy to Nepal from the West Seti Project itself, and, therefore, a different project would have to be identified for that purpose because the West Seti is being built to export power to India. SMEC has already initiated a Power Purchase Agreement with the Power Trading Corporation of India for a period of 25 years at 4.95 US cents per unit.

Pursuant to the policy of involving the private sector in generating energy, and SMEC having showed its interest in the West Seti, a MOU was signed between the two 13 years ago. In the MOU, SMEC had promised to provide Nepal at least 10 per cent of the total hydro-electricity to be produced and exported to India from the project. This provision was changed in 1998, whereby, in lieu of the 10 per cent energy, 10 per cent of the revenue was to be provided to the Nepal government. This provision was again replaced by a provision of providing 10 per cent energy instead of 10 per cent revenue. Thus, the presiding water resources ministers have been inconsistent on the policy of energy versus revenue, whereas the need of the country for energy has not changed at all. Thus the ministers, who agreed to the option of revenue against energy, had not decided the matter considering the better option for Nepal. It is an allegation from the side of the people at this juncture of time.West Seti Hydro Ltd. (WSH) has also conducted a meeting with some 28 parliamentarians representing the far-western region, where the topic of the discussion was about energy versus money. It is also reported by the WSH that in the event the project moves ahead as it is today, Nepal would obtain an estimated financial return of US$ 1.12 billion (Nepalese Rupees 73 billion), inclusive of royalty, tax and bonus from the project over the 30-year period. The total cost of the project is US$ 1.2 billion, and 1,579 families would have to be resettled for the construction of the project. This project, if commenced on time and no out of control situation emerges during the implementation stage, will be completed by 2012, five years from now.

Regarding the investment in the project, the WSH's investment would be 26 per cent, Asian Development 15 per cent, China National Machinery Import and Export Corporation 15 per cent, Government of Nepal 15 per cent, for which it has acquired US$ 2 million from the ADB and Special Purpose Vehicle investment will be 14 per cent. The profit of the company has not been made transparent to the media and public. However, the government would not be prohibited from the huge profit generated by the project. This is the first test case of hydropower development by private investors with the aim of exporting power to India. Those who think that this is the only natural resource bestowed on us by nature and that it should be utilised for the optimum benefit of the country wish for its success so as to open up a flood of private investors for making a prosperous Nepal from the huge royalty and other benefits from large water projects. A recent World Bank study suggests that Nepal could get annually US$ 6-10 billion from its water resources development, if a holistic, integrated and prudent use of Nepalese water resources is carried out.

There are a few issues that have to be resolved. For example, the rehabilitation and resettlement of 1,600 displaced families should be undertaken in accordance with international standards and norms. Water withdrawal rights of the local people in this basin must be protected for the past as well as future use. For it to happen, any such plan should be made with wider consultation and consent of the people likely to be displaced, and the basic tenet of it is that their life and livelihood should be better off than the present level. In terms of employment, housing, property, cultural and religious rights, their mode of life should be strengthened and preserved. Therefore, the social, environmental and resettlement policy must be people-friendly and highly beneficial to the displaced families, which is yet to be finalised and accepted by the local community. The local people and the institutions should also get proper benefit from the project, and water entitlement and right of the upper riparian people should also be well defined and protected so that present and future use for drinking and irrigation facilities of the people is safeguarded. This will prevent potential disputes with local institutions and the federal entity, if it is established after the election of the constituent assembly.

Unless a full guarantee of the local interests is safeguarded and local institutions and people are happy, this project cannot move forward. Therefore, the developer should be prudent and liberal to protect and preserve the interests of the local people, and ensure that no adverse effect on the environment and livelihood of the people of the surrounding districts of the project is caused in any way. The legal, constitutional, socio-economic and technical issues and loopholes should be dealt with in a better way for ensuring the broader benefit of the local people. If SMEC is successful in its objective, then many private investors would queue up to invest billions of dollars in many hydropower projects in Nepal.

Trade balance

Nepal's rapid economic acceleration and development depend upon water resources development. If we are able to develop 4,000 megawatts of hydroelectricity and export them to India, then our Rs. 55 billion trade deficit would be balanced. Bhutan has been exporting around 2000 megawatts at the moment and will export an additional two thousand megawatts in the foreseeable future, giving a big boost to its economy. Once the smooth export of West Seti power is resolved, then the prospects of Nepal's development in the hydropower sector will also be opened.

Source: The Rising Nepal, August 22, 2007