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

Cold feet

The government has fallen distinctly short of meeting its targets outlined in the Water Resources Strategy, 2002. For instance, the strategy envisioned generation of 820 MW of electricity through hydropower projects by 2007, but the existing maximum power generation capacity is a paltry 560 MW. Another goal was to increase the share of private investment in hydropower sector to 75%. As things stand, private sector involvement is limited to very small power plants. Other areas where the government made some progress but failed to meet its targets are water supply and sanitation, and irrigation.

The strategy, say its proponents, was not ambitious (one big hydropower project would have been enough to meet the country’s power needs). They are unanimous in their view that even though the decade-long Maoist insurgency erected countless hurdles for effective implementation of their outlined plans, the failure to meet even modest targets can by and large be attributed to the lack of political commitment and incompetent leadership. As usual, Nepali political leaders and top-level bureaucrats have proven themselves ultra-efficient in making big promises but found to be developing cold feet when it came to making a real difference. Building a new Nepal starts with the readiness on the part of those occupying responsible posts in the government to change their outmoded mindset that tends to encourage rewards for producing practically nothing of substance. Old habits die hard. And yet, unless Nepali leaders and bureaucrats are weaned off the culture of exalted sinecures, carving out a new Nepal will be that much more difficult.

Source: The Himalayan Times, August 17, 2007

Colours To Cure?

P. Gopakumar

THE use of colour as a therapy is nothing new to the modern world. However, its application and awareness are limited. The common belief is that it is the psychiatrists who use colours largely for a cure. Let's take a peep into how colours and light offer a cure.

Negative force

Light is the mask of the creator. All life on earth depends on light from the sun, a source of life and energy. Colour is nothing more than the different qualities of light. Light is the masculine or positive force in nature; colour is the feminine of negative force.

When we take away the motion of light or colour, we have no awareness of the appearance of matter. We receive all knowledge of the universe through these electro-magnetic radiations. White light contains the energies of all elements and chemicals found in the sun. The white light of the sun is absorbed from the atmosphere by the physical body and is split into component colour energies, which in turn flow to different parts of the body so that we can see them. Light is a force which stimulates growth. Every living thing depends upon it to build and maintain its form. Light brings about chemical changes in nature. By changing the qualities of light, we can also bring about chemical changes in the body. Therefore, light, whose source is solar energy, is one of nature's healing forces.

In 1665, Sir Isaac Newton focused sunlight through a prism and found the presence of the seven basic colours. The human body is also a prism that reflects this white light. Colour therapy is the science of the use of different colours to change or maintain vibrations of the body to the frequency, which signifies good health and harmony. Healing by means of colours was the first type of therapy used by humans. It is nature's own method of keeping the body in balance with the rhythms of life. Colour expresses the way we think. Our emotions and actions affect the electro-magnetic field, which surrounds us and is reflected in our aura. Colour can help restore health when a blockage or imbalance of this energy has resulted in disease.

The use of colour can help to restore vitality to the etheric body through the projection of specific colour rays, which are then absorbed by the chakra centres. The pituitary gland transforms these colours into revitalising energies to rebuild the centres that are lacking energy. Colour healing shows us how to make light work for us. The use of colour is one of the many natural tools available to help us walk in balance with the universe. Life is colour, and each organ has specific colour. Each colour has intelligence, and works selectively. Colour is vibratory energy that can activate a particular organ, gland and system in the body. The application of the correct frequency on the electro-magnetic force field will change the altered function of the body and help return it to its original patterns. It is this energy which is the result of applying colour that is important in the healing process. This method of healing will create harmony and balance in the mind and in the body. Colour therapy is very effective because it helps to maintain this balance.

Colour healing is not only a physical but also a spiritual force, and, thus, forms a link between our physical bodies and the finer forces, or vibration, of the higher levels of consciousness, or spiritual growth. Colour is the bridge between our inner and outer bodies. The vibrations of colour are energy of the life force itself and are here to aid us in our growth and progress towards the oneness, which is our ultimate purpose. The more intimate our colour experiences become, the more attuned we will become with the universe.We have a quota of ultra-violet light most of us do not fulfil because so many modern products cut out that portion of the spectrum and because we do not spend enough time out of doors. We can increase our exposure to the full spectrum of light by simply being out in the sun more. Light automatically replaces darkness.

Warm colours increase activity and circulation and stimulate function. Red, orange and yellow are warm colours. A cool colour decreases activity and circulation. It will retard the function. A toning colour helps to promote the function. Blue, indigo and violet are the cool colours. Green colour is the toning colour, which has a self-regulating feature. Blue, indigo and violet are acid rays. Red, orange and yellow are alkaline rays. Green is in the category of a neutral ray.

Balancing actions

Colour represents chemical potencies in higher octaves of vibration. There is a particular colour that will stimulate each of the organ systems in the body. By knowing the action of the different colours upon the different organ systems, the application of the correct colour will help to balance the actions of any system that has gone out of balance in its function or condition.

Source: The Rising Nepal, July 9, 2007

Tapping Nepal’s hydropower potential

Rajendra Bhandari

The parliamentary Natural Resources and Means Committee has been meeting to decide on what could be the turning point in terms of Nepal’s development. In this regard, the country’s huge hydropower potential has emerged as the strongest contender, as far as economic emancipation is concerned. Nepal, despite being a country rich in hydropower resources, has unfortunately been unable to utilise this asset to its advantage. It is estimated that less than 2% of its hydropotential is being tapped.However, realising this enormous possibility, positive steps are now being taken in the right direction. The government, after gaining and learning from past experiences, set up a bidding committee for hydropower projects with a comprehensive evaluation process to identify and select the most capable and feasible party. Some of these include 402 MW Arun 3, 300 MW Upper Karnali, and others totalling an approximate 2000 MW projects being processed by the government and private sectors collectively.

The Parliamentary Committee is now assessing the bidding process. Embroiled in a dynamic political environment, the process seems to be taking too long. The coalition has priorities changing from day to day. Meanwhile, the world is looking up to those in power to quickly take measures that will inculcate confidence in the investing community — be it national or international.This is what puts the Committee as well as the government in a position that will help them define the future of the economic progress of Nepal. An expeditious decision on the power projects will help send a signal to the world about the government’s seriousness of purpose in inviting investment that is important for Nepal’s development. But unending deliberations and a prolonged process may take Nepal right back to where it began.Nepal may even consider taking a leaf out of its neighbour’s book. Bhutan’s achievement in terms of hydropower development has helped establish it as the nation with the highest per capita income among SAARC countries. A remarkable feat considering that there is a two-fold increase in its GDP.

Nepal too can mobilise its huge water resources. Bearing in mind the similarities between the two countries in terms of geographical size, terrain and population, adopting a parallel strategy that can leverage hydropower resources to enhance national economy could well be Nepal’s ticket to prosperity, especially with the Indian economy promising to be a big market.The government has already got overwhelming response from the international community. The approach, process and criteria of selection looked much more apprehensive and credible. No wonder many good international parties have submitted their proposals this time. The selection committee must take a holistic approach towards the entire process and get out of small issues. Now, it is up to the government and the Parliamentary Committee to settle the bidding process and take a quick step towards economic independence.

Source: The Himalayan Times, June 28, 2007

Adjust fuel prices

The interim government is shamelessly watching the country being hit by the petroleum shortage. It is aware of the constant loss being incurred by the Nepal Oil Corporation. But it has neither found any solution to the crisis nor has it attempted to adjust the petroleum prices so that the country's economy would have breathed a sigh of relief. Perhaps, the government intends to trigger a crisis of petroleum products, especially petrol so that consumers will realize and demand for the hike of petroleum prices. That the government has heavily subsidized the petroleum products needs no explanation for the consumers. However, the fear is that any hike in petroleum prices will trigger a chain reaction. Then again, how long will the government afford such "irregular" supply of petroleum products that is causing adverse effect on the country's economy? Has it given any thought to the country's economy?

A couple of years ago, the government had hiked the petroleum prices to adjust with the prices of crude oil being sold in the international market. The Maoists and others made hue and cry forcing the government to roll back the prices instantly. Ultimately, the country's economy had to pay the price for the roll back. Any decision on the hiking of petroleum prices again would have earned public wrath. Last month, the prime minister met Indian ambassador to Nepal to express his inability to clear the dues owed to Indian Oil Company. He literally begged to ensure uninterrupted supply of petroleum products citing that the country is undergoing a conflict transformation. NOC has to pay 4.5 billion rupees to IOC as the latter has stopped issuing fuel on credit. On the flipside, NOC has constantly run into loss of over 230 million rupees every month.

The import-sale disparity has caused a great stress on the country's economy. The country can no longer afford such irregular supply of oil. NOC imports 1200 kiloliters of fuel per day. And the country needs at least 2000 kiloliters of fuel to meet its daily demand. The problem will not be solved unless the government hikes the petroleum prices bringing them at par with the import prices. But it must deduct some tax imposed on the import of petroleum products to boost the economic activity and prevent untoward reaction. And dues totaling 4.5 billion rupees to be paid to IOC should be cleared to bring in the required quantity of fuel. Any reluctance on the part of the government to adjust prices and ensure "uninterrupted" supply of fuel will cost country's economy dear.

Source: The Kathmandu Post, June 28, 2007

Unfair deal

The promise of 10 percent free energy to Nepal from the 750-megawatt West Seti hydroelectric project, awarded to Australia's Snowy Mountain Engineering Corp (SMEC) a decade ago, has turned out to be a hoax. Clauses in the agreement between the government and SMEC, which was kept a secret from the public, deprive the country of any free energy, and even give rise to a distinct possibility of no benefit to Nepal at all. The government put West Seti project on fast track stating the project would provide 75 megawatts of free energy to Nepal. That was the original arrangement with SMEC, and that was what the government as well as the project's developer had been saying in public. However, a renegotiated deal does not require SMEC to give Nepal any free power. Instead, SMEC is required to pay the country in cash, that too only in the event it has money after paying back its debt participants, and bearing its operational cost. This is sheer treason.

SMEC took a decade to bring the storage-type project to the construction stage since signing a project agreement in 1997 to develop and operate the project for thirty years. In other words, SMEC got hold of the project without having the ability to fund it. A decade down the line, SMEC has convinced four countries and two international banks in areas of investment, construction, insurance, and transmission. It has also made an arrangement to sell all power generated from the project to India through PTC India Ltd. If Nepal is getting no free energy, and if the cash benefit is also uncertain, why is the government hell-bent on re-awarding the project to SMEC, despite the length of time it has spent without laying even the foundation stone for the project. Signing an agreement that will put at risk any benefit Nepal might get from a project is totally unacceptable. Therefore, the agreement the government has with SMEC is totally unfair.

The government, therefore, should initiate an impartial investigation to figure out officials involved in signing and renewing such suicidal agreement with SMEC. When it comes to deals on big infrastructure projects, Nepali officials have always failed in the negotiating table. This has to be ended once and for all. The least that the country demands is that our negotiators uphold national interest. A mistake that will leave Nepal regretting for thirty years is the last thing we need now. There is no question of re-awarding the project to the developer if Nepal's rightful benefit from the project is not ensured. The best way to ensure that benefit is through an arrangement for free power, and not through the tricky course of cash benefit.

Source: The Kathmandu Post, June 5, 2007

Water supply: Case for public-private partnership

Chiranjibi Nepal

I n the early 1990s, with increasing awareness of environmental degradation and widespread stress on water-related issues, the UN and the international community started to take freshwater issues seriously. In accordance with the “Dublin Principles” that emerged from the International Conference on Water and Environment in Dublin, water was recognised as an economic good (a commodity to be priced at cost of provision and value to society). Private sector participation in water services increased worldwide. But still, it only serves about five per cent of world population. At the end of the 1990s, multinationals started to revoke contracts and concessions in developing countries and are now reducing their involvement in projects that are unprofitable or risky.

Two popular models exist in the water sector: the English model of full privatisation, where ownership and management are private, and the French model (PPP model) of delegated management (lease and concession contracts), where the ownership is in public hands and the management is handled by a mix of public and private bodies. The English model is adopted mainly by England and Wales, whereas the French model has been the norm in most developed and developing countries.

Partnership between public and private sectors is a means of collaboration to coordinate and pool organisational, technical and financial resources to achieve compatible objectives. Dwindling public resources and increasing need of the citizens with regard to service delivery are the reasons for emergence of this concept. Public-private partnerships (PPPs) enable public sector to generate private funds while maintaining ownership of assets and services.Private sector’s involvement can significantly improve effectiveness and efficiency of service delivery. This came with the realisation that the government alone could not provide everything to everyone. This led it to promote private sector in areas where it is willing to cooperate for service delivery or infrastructure building. PPPs for service delivery are applicable to the most of public services such as drinking water supply, garbage collection and disposal, waste water treatment, operation of transport services, real estate development and management, education and public health.

In the context of the kind of urban services in Nepal, there is limited scope for the multinational companies (except in Water Supply Management). However, there is a high potential for local and national companies. But comprehensive national policy on public private partnership is still underdeveloped. PPP should be based on mutual prosperity and fairness and PPP policy should follow national policy for timely and cost effective development by allocating risks to the party best able to manage them and benefit from private sector’s efficiency, expertise, flexibility and innovation.But PPPs will only help if there is a good regulatory authority that can enforce policies and regulations. The issue of public-private partnership is complex, even more so in the case of municipal water supply. Hence, every law and institution that can affect PPP must be carefully examined. These include labour law, industrial enterprise act, company act, company taxation rules, environmental standards and regulatory tools, power and capacity of regulatory agencies, division of responsibilities between municipality, VDCs and Nepal government, among other related acts and policies.

The private sector seeks commitment of the political parties to PPP approach, clear definitions of scope of work, transparent tendering process, security of water supply, clear definition of responsibilities of municipalities and VDCs, an autonomous body for drinking water management and a company act for drinking water.New and effective financing mechanisms are essential for the development of water sector. New funding mechanisms should be sought that include bond financing, expanded role for urban banks in water sector, independent intermediary private sector funding through increased participation in water services with appropriate sharing of risks between contracting parties - with the banks providing guarantees for some risks as well as issue of treasury bills.

Private sector participation would be enhanced by arrangements with international agencies to protect against political risks. Availability of guarantee would be contingent upon having appropriate contractual structures for private sector participation. Private companies need to be assured return on investment, as investment in the water sector is high and irreversible. Further, there is no ‘one size fits all’ approach and the choice of a particular partnership depends on local context and feasibility. It is indispensable for governments as regulators to understand the motive of private sector for entering PPPs and have skills to manage unknown circumstances over the life of the partnership.Dr Nepal teaches Economics at TU

Source: The Himalayan Times, May 30, 2007

Hydropower: An Overview

Uttam Maharjan

Energy is one of the basic components of development. Without energy, no economic sector can develop. An instance of energy is fossil fuels. Fossil fuels are extensively used around the world. The far-reaching use of such fuels has contributed to destabilising the environment, causing, for instance, global warming. With fast-paced depletion of fossil fuels and the resultant effects on the environment, hydropower is being explored as a renewable source of energy. In the present scenario dominated by the deleterious effects on the environment of greenhouse and other noxious gases, moving towards the use of hydropower as a carbon-free energy source has been deemed viable and eco-friendly.

Renewable energy

Hydropower has been recognised as a renewable source of energy. The Johannesburg World Summit on Sustainable Development and the Third Water Forum (Kyoto) have both recognized hydropower as such. Other sources of renewable energy are solar energy, wind energy, geothermal energy, oceanic energy, cogeneration (use of a heat engine or a power station to generate both electricity and useful heat at the same time) and biomass.

At the end of the Third Water Forum held in March 2003, a new report was released on how developed countries should fund water projects. At the beginning of the 21st century, 33 per cent of the people were found suffering from water hardships as per the 54-page report of the Forum. In Africa, households spend 26 per cent of their time fetching water. As per the study by the Water Supply and Sanitation Collaboration Council, an independent body that endeavours to secure safe drinking water for the teeming poor in the world, Asian and African women have to walk around 6 kilometres a day to fetch water. Consumption of water per person per day in developing countries is estimated at 10 litres vis-୶is 135 litres in the developed countries.

About 1.1 billion people around the world are deprived of safe drinking water, whereas about 2.4 billion people are balked of good sanitation. One of the millennium development goals is to halve the problem relating to safe drinking water by 2015.Nepal is very rich in water resources. Despite this huge potential of water resources, the hydropower picture in the country is bleak. There is no denying that hydropower has multi-dimensional use, through which sustainable development can be notched up. Sustainable development in the economic sector would certainly transform the socio-economic status of the people, a daunting challenge for the poor countries.With the restoration of multi-party democracy in the 1990s, the hydropower sector in the country, like other economic sectors, has somewhat metamorphosed. The Water Resources Act 2049 and Hydroelectricity Act 2049 were promulgated, enabling the private sector to step in for investment in water resources. Foreign companies are interested in hydropower projects, but they prefer large-scale hydel projects.

Foreign aid for the development of water resources projects also comes but with harsh terms. Such projects are marred by lack of transparency, accountability, monitoring and financial discipline and by economic anarchy and malgovernance. The cost of such projects would also soar due to delay in completion, exchange rate devaluation and additional cost. It is essential to set up an Electricity Development Board and encourage small- and medium-scale hydel projects. For water resources to develop in a true sense, three things need to be in place: management of electric development and promotion, market management of electricity, and operation and maintenance of projects in a timely fashion. In developing countries like Nepal, large-scale hydel projects are a difficult proposition due to the high cost and sophisticated technical know-how required. Hence, small-scale hydel projects such as micro- and pico-hydel projects need to be encouraged and stimulated in addition to large-scale hydel projects. Micro-hydels produce upto 100 KW of power. Such hydels are often used in areas where there is plenty of water. They supply power to small communities. Micro-hydels can complement photovoltaic solar energy systems.

On the other hand, pico-hydels generate power below 5 KW. Such hydels are used for far-lying communities requiring very low power. Pico-hydropower does not pollute the air, so it is more eco-friendly than fossil fuels. Hydropower projects have elimination of the cost of fuel as their major advantage. As no import of fuel is required, hydel plants are free from price hikes normally associated with fossil fuels like oil, natural gas, coal and POL products. Besides, the operating labour cost of hydel plants is lower as plants are automated, requiring very few people on site during normal operation. Reservoirs built for the purpose of hydel operation may provide water sports facilities. Such areas may be used for wooing tourists, thus, developing the areas into tourist spots. In a similar vein, a hydel plant may be constructed at a lower cost around multi-purpose dams for irrigation, flood control or recreation, which may recoup the cost of the construction of the dam. Hydropower projects do not come with advantages only; they may pose a threat to aquatic ecosystems. Damming often poses an obstacle to the migration of fish, thus preventing them from reaching their spawning grounds upstream. Similarly, damming and redirecting the waters of a river may endanger native and migratory birds. Large-scale hydel projects may give rise to environmental snags both upstream and downstream. The reservoirs of hydel plants in tropical regions may generate a lot of noxious gases such as methane and carbon dioxide.

Disadvantages

Construction of hydel dams makes it necessary to relocate the people who are living where the reservoirs are planned to be built. In such a case, the question of compensation often crops up, leading to spats with the local people and causing a delay in completing the hydel projects. Besides, historically and culturally strategic places may be affected, sometimes leading to their complete loss, which is a great blow to heritage preservation. Construction of a dam in a geologically unsuitable area may give rise to disasters. One such example is the Vajont Dam in Italy, which killed 2,000 people in 1963. Failure of dams can be very serious. The failure of the Banqiao in China killed 171,000 people and rendered millions homeless. Even stronger dams built at a great cost are vulnerable to sabotage and terrorism.

Source: The Rising Nepal, May 25, 2007

Oil crisis: Management of financial resources

Raghab D Pant

It is now clear that the occasional shortage of oil and oil products in the market followed by the long queues at the petrol pumps is due to the inability of the government to adjust domestic price to a change in world prices as well as its hesitation to release adequate funds to the concerned institution to maintain such artificial domestic price, fixed by administrative whim, rather than by market supply and demand. As a result, the Nepal Oil Corporation (NOC), a government-owned enterprise with monopoly on oil import, is virtually bankrupt with no resources to import oil except on credit that one creditor, namely the Indian Oil Corporation (IOC), has refused to provide without part payment of past dues — a reasonable, if not very soft, demand.

This means, in effect, there will be adequate oil in the market if (i) the import trade is only on cash basis; (ii) the import payment is made in accordance with the agreement reached between NOC and IOC; (iii) the domestic price is adjusted regularly to meet import price, and (iv) the government reduces the tax it has imposed on import of oil and oil products by NOC. In the latter two cases, NOC will be able to run its operation with huge profit.Unfortunately, the government has decided not to change the domestic price of oil before the election to the Constituent Assembly or to take any other measures on the domestic front — there have been customary long talks of involving private sector in the import trade of oil — to solve all the current problems once and for all. The government, on the other hand, has unnecessarily provided the issue a “cover of national crisis” and, as expected, the PM called the Indian ambassador for his help “in getting full supply of petroleum products resumed to Nepal,” though the Government of India has nothing to do with the crisis whatsoever except that IOC is also a government enterprise with a written business deal with NOC.

It is now safe to assume that the intensity of the problem may lessen only if the IOC decides to provide oil and oil products on credit to its bankrupt colleague. It will, however, further deepen the financial crisis of NOC as it is obliged to sell the goods at a price which is substantially less than the cost it has to incur. The Government of Nepal will, of course, benefit, firstly, by solving the current problem characterised by the shortage of oil and oil products and its low national reserve and, secondly, by an increase in government revenue from the tax paid by NOC on the import of oil. The only loser will be IOC and if I were its executive director I would definitely not sell goods to another enterprise that has difficulty making a part payment of Rs 240 million on a loan of about Rs 6000 million.

The government has often used the generosity offered by the Indian government for political purposes, in particular, to maintain the distorted domestic price structure that cannot be sustained in the long run or in the absence of assistance from India. The price of oil and oil products is the current example. Similarly, the exchange rate of the Nepali currency vis-à-vis Indian currency has been maintained at an artificial level by the Nepal Rastra Bank (NRB) by selling its US dollar to the Reserve Bank of India for the Indian currency, for which it has no adequate reserve to meet the public demand at the fixed rate of NRs160=IRs100; in the first six months of the current fiscal year, according to press reports, NRB has boughtRs 50 billion worth of Indian currency by paying US dollar. In addition, the import payment of about 91 commodities from India is made in dollar. It appears that such a misuse of the generosity provided by the friendly country has given the false impression to the public with a negative feeling about the concerned country itself.It is difficult to understand the national financial management in a unified method. NOC has difficulty making a part payment on its past dues, as stated earlier. The Government of Nepal, on the other hand, has no shortage of resources — the unused cash reserve of the Government of Nepal at the NRB in mid-April, 2007, totals Rs 18 billion — as its capital expenditure in the first ten months of the current fiscal year totals just Rs 11 billion, or 25 per cent of the allocated budget.

The government’s inability to use available resources for development has been instrumental in creating “stagflation” in the country, an economic situation characterised by stagnant income in real terms and rising price level. In fact, the government, if it so desires, can provide financial resources to NOC to clear the outstanding loan of IOC. There would be no reason to panic if the government managed the available resources with proper coordination within and among the ministries — a rare commodity for Nepal. The whole crisis can be solved with a minimum but intelligent effort.Dr Pant is executive director, Institute for Development Studies

Alternative Energy Promotion Opportunities

THAT 62 political parties have applied for registration with the Election Commission (EC) by the deadline that closed Friday to take part in the constituent assembly election is an indication that the polls are being taken seriously by all. This is also proof that everyone believes that the CA polls will be the gateway to ending the uncertainties that are prevailing at the moment. It is evident that the CA polls will be a milestone in the march forward to creating a new Nepal. This is so because the elected CA will be responsible for framing the constitution of Nepal which will be all-inclusive. This is the hope pinned on not only by the political parties but the people as well. Hereon, it may be worthwhile remembering that the date for the CA election is yet to be announced.

Though the date had been fixed for June 20, due to technical and logistical problems, the EC had some time back said it needed a little over a hundred days to prepare for the polls. This started the ball rolling for a new CA poll date. But this has not happened because the eight political parties are yet to sit down to sort out the issues. As per the recent developments, there is every hope that the said gathering will take place soon to give a passage to the problem. This is necessary so that the uncertainty and confusion in the minds of the people can be removed. The eight political parties who are participants in the government have to act fast to ally the fears that the polls will not be held. The eight political parties, too, have to be earnest and not make remarks which create confusion among the people. The interim government is there to announce the date for the polls, but for this the eight political parties have to arrive at a concrete agreement and end the confusion. The interest of the political parties in the country to get themselves registered is enough evidence that everyone wants the elections to take place as quickly as possible.

Source: The Rising Nepal, April 30, 2007