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Electricity and Development
When I was in Nepal for one week in January this year, the lack of
electricity was among the most prominent
issues that I observed. Many road
intersections have no stoplights, all
hotels have generator sets, many streets are dark at night, and so on.
The business potentials of Nepal are
huge, with its unique geography and mountains tourism, and its young and big
population. The need for more stable supply of electricity is evident.
Economies that use more machines and
automation that run on extensive electricity have higher labor productivity and
are generally richer.
Table
1. Electric power consumption, kWh per
capita
Source: ADB, Key Indicators for Asia and
the Pacific 2014.
See the big jump in power use in just 21
years by Vietnam (10.9x increase), China (6.4x), Bangladesh (5.4x), Maldives
(4.6x), Indonesia (4.1x) and Thailand (3.3x). The other countries have a simple
doubling of use, or even flat lined, like the case of Mongolia.
In a paper produced by Samriddhi, The
Prosperity Foundation in July 2014, they noted that huge power deficit of
around 900 MW on average will persist in the short-term. There are transmission
and distribution problems but the main explanation for such huge power deficit
resulting in up to 18 hours a day of brownouts during winter, is the low
capacity of power plants, only about one third (1/3) of their installed
capacity.
Table
2. Nepal Electricity Supply-Demand Outlook, in MW
Source: Samriddhi, 2014. Policy
Options for Improved Electricity Transmission System in Nepal
Where there is lack of power and
electricity, there is also low growth potential. There is definitely a direct
causality between electricity use and economic growth. The countries and economies
that have high per capita electricity consumption (table 1 above) also have
high per capita GDP at Purchasing Power Parity (PPP) valuation.
Table
3. GDP Per Capita at PPP, in current international dollars
Source: ADB, Key Indicators for Asia and
the Pacific 2014
In previous papers of this column over
the past two years, the need to liberalize and even privatize the power
generation, transmission and distribution system was articulated. In
particular:
First, liberalize further the power
generation sector, encourage more hydro power, big and small, to be installed and built.
Second, facilitate more power imports
from India especially those from coal power plants. Coal is generally cheap and supply from abroad is
stable. This means the construction of more transmission lines and facilities from
India to Nepal.
Third, deregulate power rates. Let those
who can afford to pay higher electricity rates in exchange for more stable
supply do so, whether imported from India or locally produced. This has been
happening actually for many years now as the richer residential areas and big
commercial centers have their own generator sets. Their willingness to pay
higher rates in exchange for stable electricity supply is already there. Power
rate deregulation will encourage faster construction of more power generation
plants and transmission lines.
Fourth, privatize some power plants that
produce more losses than revenues for the government, sell to private power
companies in a competitive bidding. Privatization of course should be coupled with industry
deregulation, to encourage competition among more players.
Fifth, reduce the number of permits, bureaucracies,
taxes and fees for companies putting up new power generation plants and
transmission lines. Call in more power generation
companies, large engines and turbine suppliers from many countries to enter
Nepal.
Nepal’s big tourism and other business
potentials will be unchained drastically once the power bottlenecks are
addressed and solved.
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See also:
Business 360 19: Investments and Inequality in Asia, October 15, 2015
Business 366 20: Trade and Development in Asia, December 25, 2015
Business 360 21: Cheap Oil and Nepal, February 20, 2015
Two Years Writing for Business 360, January 05, 2015
Business 360 22: Nepal's Tourism Potential, February 23, 2015
Energy 32: Is the PH Power Supply Ready for the AEC?, January 17, 2015
Energy 33: Renewables Cronyism, Germany and UK Cases, January 26, 2015
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