Nepal started generating hydroelectricity 103 years ago. But owing to the lack of proper planning and investment, it merely succeeded in producing around 750 MW electricity in the next 100 years. Things may be finally turning a corner.

The year 2071 BS turned out to be one of the best years for Nepal’s energy sector. Not only did Nepal sign the much awaited Power Trade Agreement (PTA) with India in October, which opened the doors for the development of hydropower projects in the country, but it also saw the successful conclusion of the Project Development Agreement (PDA) for the construction of the 900 MW Upper Karnali Hydropower Project in September and the other 900 MW Project, Arun III, in November.

Furthermore, the Saarc Framework Agreement for Energy Co-operation (electricity) was signed during the 18th SAARC Summit, held in Kathmandu, while the Investment Board Nepal (IBN) approved a proposal by a Chinese developer to develop the 750 MW West Seti Hydropower Project this week.

The history of Nepal’s tryst with hydropower is not new, though. The country started generating hydroelectricity 103 years ago, even before China, with a 500 KW plant in Pharping. But owing to the lack of proper planning and investment, it merely completed projects with a total capacity of just around 750 MW in the next 100 years. As of fiscal year 2013-14, the Nepal Electricity Authority (NEA) supplied 436.4 MW electricity, of which 22 MW was generated by the Independent Power Producers (IPPs) and 116.2 MW was imported from India. But now, trying to take a giant leap forward, the country is aiming to complete three mega projects (West Seti, Upper Karnali and Arun III), which will be generating a cumulative total of about 2,250 MW of hydroelectricity in the coming decade. While the Upper Karnali and Arun III are export-oriented, West Seti, which is being developed by a Chinese developer, CWE Investment Corporation, is meant for the domestic market. Apart from these, there are a number of other big and small projects being developed domestically.

Energy experts say that the recent development in the energy sector seems to have come out of a sense of desperation of the country’s impatiently trying to develop and modernise itself-in an attempt to prove to the international community that it has come a long way from the more than decade-long civil war and that it is all set to become an investment hub.

The construction of such mega projects has a number of advantages for the country. Both the Upper Karnali and Arun III, as per the PDA agreement, have agreed to provide 12 and 21 percent free electricity to the NEA. In total, Nepal will get 305 MW of electricity free from the two projects worth Rs 247 billion in total. These projects will definitely play a significant role in countering the challenges posed by load shedding. Furthermore, since both these projects are built under the Build-Own-Operate-Transfer (BOOT) model, the developers will have to hand it over to the Nepal government after operating them commercially for 25 years.

Though these recent developments show grounds for optimism, the projects will have to overcome many challenges before and after completion. Former energy secretary Sheetal Babu Regmi says that signing the PDAs was a relatively easy task, compared to the problems the projects will have to face here onwards. “The biggest challenge for GMR, the developer of the Upper Karnali, will be completing the financial closure within the stipulated time frame, while finding the market will be a problem for the Chinese developers,” Regmi says.

As per the PDA, GMR will have to complete the financial closure for the project within two years from the date of the agreement signing. “Since GMR’s financial health seems to be questionable, the task might be a bit difficult for them.” Similarly, since the NEA has not assured the West Seti developers that it will purchase the power generated by the project, it is natural for the Chinese developers to be worried about the market. NEA Managing Director Mukesh Kafle says that the authorities have not been able to decide matter regarding the signing of the PPA with the Chinese company because it is a storage-type project, in which the water is stored in a reservoir, and thus requiring huge dams to be built, which adds to the overall cost of the project and the price of the electricity generated. The other reason behind the NEA’s reluctance to sign the PPA is that the NEA is expecting surplus energy during the wet season in the coming three to four years, given that most of the projects in the country are run-of-the-river type, while it will still have to import energy from India during the dry season to meet demand.

Except for Arun III, the other two projects are also likely to face hurdles in the process of land acquisition, as well as in providing compensation for and in rehabilitating the affected families. While the locals of Sankhuwasavha, where Arun III is to be developed, seem to be largely positive regarding the timely construction of the project, the same cannot be said about the other two.

And along with all these issues, there is also a persistent fear of political backlash against at least one of these projects. A chunk of radical political factions, especially the ones led by Mohan Baidya Kiran and Netra Bikram Chand, are still opposed to the handover of the Upper Karnali project to foreign developers. According to Regmi, since the PDA between the government and GMR was signed hastily and without proper assessment of the situation on the ground, it will be hard for the government to ensure a proper political climate and provide the strong backing necessary for the completion of the project.

Thus, despite the brimming enthusiasm among Nepalis that the days of load-shedding may soon be over, it seems that the number of days leading to the end of blackouts is still up in the air.