April 8, 2011
For the last few years, we are facing energy crisis that is deepening day by day with no sign of a silver lining. We are living through 14 hours of power cuts a day, this dry season. According to Nepal Electricity Authority (NEA), the power cuts may increase to 18 hours a day in the next dry season. Furthermore, NEA is claiming that it is losing Rs 5 billion a year. In the same way, Nepal Oil Corporation (NOC) informed that it is going to lose around Rs 18 billion this year if petroleum prices are not adjusted in line with the price in the international markets. We can expect the serpentine queues near the fuel stations in Kathmandu Valley and outside it very soon.
What went wrong? NEA has its corporate plan which projects the power requirements till 2028, if we go by its published data. Some of the political leaders are of the view that once the political situation stabilizes all these woes of the country –whether economic, energy or social–will go away. But wil it not be too late if we wait for the political scenario to stabilize? The political leaders have to come together without delay in prioritizing energy sector and take some concrete steps for the sustainable energy development in the country.
The scenario seems grim if we analyze the energy sector and notice the current trend. For instance, we have currently installed the power of around 700 MW only. We have huge hydropower resource of 43,000 MW but have been successful in harnessing only 1.5 percent of its potential. Besides, we do not have any known resources of petroleum products, but the consumption of these products has been increasing at a tremendous rate. In 2010, total petroleum products sales (1.2 million) increased by 27 percent but some of the products increased at a much higher rate such as petrol by 31 percent, diesel by 37 percent and LPG by 22 percent respectively. The consumption of the petroleum products is much higher in comparison with the GDP growth rate of around 3.5 percent . As per the Economic Survey of the country, import of petroleum products was just 27 percent of the commodity exports in 2001.
Now in 2011, it may surpass 110 percent (around Rs 70 billion) of the commodity exports (Rs 64 billion approximately). Because of the power cuts and other reasons such as strikes and labor problems, our industrial outputs are getting less competitive and hence, exports are stagnating at the range of around Rs 60 billion.
The opportunity cost of power cuts in the industrial sector alone in 2010 numbers approximately to Rs 47 billion. It may be little less in domestic and commercial sectors. As per the International Energy Agency, the oil prices in the international markets can be expected to be getting much firmer from present $ 120 a barrel. A UN report in 2007 showed Nepal as one of the most vulnerable countries in the Asian and the Pacific region if oil prices keep rising in the international markets. As per NOC, 40 percent of the diesel sales in 2010, pertain to captive power Gensets in the country. Based on the NOC data, under-recovery (loss) in selling 1 liter of diesel comes to be more than Rs 20 now. It means that the country or the NOC is bearing Rs 4 billion for the production of electricity by rich household, industrial and commercial sectors. It is evident that the surge in the diesel sales is in a way due to the non-availability of electricity. This contributes to the vulnerability of Nepal from oil price shocks in the international markets.
Let us see the situation in the household sector as it consumes around 90 percent of the total primary energy consumption in Nepal. Around 57 percent of the total primary energy consumption goes in cooking alone. Out of it, only 51 percent of energy supply is supplemented from fuel-wood. LPG comes at 1.5 percent and animal dung at 4 percent. But kerosene use is 0.5 percent. Use of electricity is insignificant for cooking in the country. In 1997, for an average family of 5 persons in the country, monthly household expense for cooking was Rs 180 for kerosene, Rs 465 for LPG, and Rs 605 for electricity respectively. But in 2011, the scenario has completely changed; now Rs 1,150 is spent on kerosene, Rs 930 on LPG, and Rs 790 on electricity (at the current market prices of the fuels). Electricity has been the cheapest form of energy for cooking for the last couple of years. It is no wonder that the sales of kerosene have drastically plummeted. The sales of LPG is rapidly growing by more than 20 percent a year, for many years because cooking on LPG has definitely become cheaper than on kerosene.
Based on import parity, NOC has been importing petroleum products from India on Refinery Transfer Prices (RTP) paying them in Indian currency since 2002. Import parity prices of petroleum products in India contain customs duty components as well and the refineries can sell these products to the oil marketing companies based on these import parity prices. It is evident that Indian refineries are in a way being provided with protective incentives by the Indian government. But it is likely that the costs of import for NOC have been higher due to this reason for several years. Nepal government has not been able to pay attention to this matter though, previous committee reports had clearly pointed out the need for more than six years ago. The avoidable costs are in billions of Nepali rupees which may come almost near to the cumulative losses NOC is claiming about.
The pattern of usage of energy forms in the country is totally unsustainable which will make the energy crisis much more severe in the coming years, if the country does not take urgent measures. Furthermore, the energy security is at jeopardy. We are becoming so dependent on imported petroleum products that we do not have a single drop of our own so far. For the sustainable energy development in the country, the political parties, which are at the loggerheads now, need to realize that they have to come together and formulate some concrete strategies in the energy sector. Otherwise, if they wait till the political stabilization, it will be too late and no party will be able to govern the country no matter what their governing models.
In the short term, structural changes in the state-owned energy enterprises are needed without delay. The current organizational structure will not allow the development needed in the energy sector. NEA should also be allowed to adjust the electricity tariff on the basis of its efficiency improvement. The process of reform at the NEA and the NOC should start immediately. NEA should be reformed. Petroleum marketing should be deregulated since the government cannot bear the burden of facing the contingency of oil markets due to political reasons.
In the medium and the long terms, the development of hydropower plants for domestic consumption should be preferred to imports. A study shows that Nepal needs 1,500 MW in 2015 and 9,000 MW by 2030 for domestic consumptions. The current household fuel economics shows that electricity has become cheaper for cooking than LPG and kerosene. So, if we take into this demand as well Nepal needs to develop 500 MW extra by 2015 and 2,500 MW by 2030 respectively. BY 2015, if we manage to have 500 MW, Nepal can replace the import of kerosene and LPG, and thus, save Rs 20 billion. For this, the investment required is around Rs 80 billion. Besides, the usage of the captive Gensets will decrease with the reliable supply of power in the country. In the transport sector, hybrid and electric vehicles should be given incentive for imports. Besides, public transport should be prioritized. Bio-fuels such as ethanol and bio-diesel need to be promoted.
Any policy implementation depends on how the government sets up legal bases with all necessary laws and regulations. Institutional reforms are to be in place and strong commitment from all the political parties is needed for the development of the indigenous energy resources. It must be noted that nothing will come about with mere plans and strategies. In absence of proper execution, they gather dusts. The political parties must be serious and need to take concrete steps to solve the problems of energy sector.
Writer is Professor & Coordinator at the Center for Energy Studies, Institute Of Engineering (IOE)/TU
December 28, 2010
The best leaders love to learn. And the greatest organizations are learning enterprises – places where ideas are the currency of success. Yet, so many amongst us resist learning and embracing the new ideas that change brings with it. The deeper question is why?
What I’ve realized, as I travel across the world helping people Lead Without a Title, is that the very act of learning something new means you must also disrupt your thinking of yesterday. To accept or even just to entertain a new idea means you must leave the safety of your former way of perceiving the world and open up to something foreign. And that means you’d have to leave the protection of your comfort zone/Safe Harbor of The Known and sail out into the unknown – even for just a moment.
The unknown is a pretty scary place for most people. Ordinary people get threatened there. Victims get frightened there. And so the average person in business (and within life) avoids learning and exposing themselves to any idea or influence that might cause them to have to rethink the way they think and re-behave the way they have always behaved. But the fascinating paradox is that trying to avoid new ideas to stay safe is actually enormously dangerous – and infused with risk.
On the other hand, those who make the choice to Lead Without a Title have a lust to learn. They remain blindingly curious. They read books daily. They drink coffee with brilliant people. They have long conversations with role models whose ideas provoke/challenge/irritate them. Real leaders truly get that learning and ideation is the fuel of life. And that all it takes is a single idea to change the game at work (and rescript the story that is your life). Sure they too feel uncomfortable or even scared when faced with an idea that confronts their most closely cherished beliefs. But they understand that to resist the idea is to resist growth. As well as their next level of Mastery+Progress+Leadership. And so they move forward. Into an uncertain yet gorgeously exciting future.