Lessons Learnt

We have devoted a vast amount of scarce economic resources to reform our electricity sector over the years. Yet, the reform process can be dubbed ineffective while the empirical evidence of reforms has departed from the anticipated underlying motives. So, have we ever wondered upon what it takes to successfully reform the power sector in a developing country? In a recent paper titled “Reforming the Power Sector in Transition: Do Institutions Matter” published as University of Cambridge Working Papers in Economics, we have emperically formulated relevant policy recommendations for an effective electricty sector reform. Although the study focusses on ‘transition economies’ (TECs hereafter); the lessons learnt can certainly be tranferred to other developing countries like Nepal as economic transition is an ongoing process.
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Hope Looms

It is certainly a relief to know that Kasturi Trade Link and Hydro Air are planning to initiate a project to generate electricity from valley’s garbage within two years amidst the on-going energy crisis. Although the generation capacity is limited to 3 MW in the early phases of production; the consequences are far reaching than just the scale of production in my view. According to my first view, the switch towards alternative energy sources is indeed essential given our excess reliance in hydro coupled with a poor track record in developing hydropower projects as anticipated. My second line of thought states that people will now no longer perceive garbage as just a ‘waste’ but instead a resource with immense value attached.
Generating energy from waste can be an alternative source of renewable energy in the country with some potential to mitigate the ongoing power crisis. The success will depend upon the importance attached to such technology in the national and municipal policy framework. We have to ensure that we are eventually burning waste to produce energy and not burning money instead.
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Policies Without Directions

The establishment of the Ministry of Energy as a separate ministerial entity also installed high hopes across the nation. The country believed that the energy sector deadlocks would eventually get a proper impasse with a distinct energy ministry in place. While the customers hopes have gained greater heights in recent times; the sectoral deadlocks is deepening with no immediate signs of easing up. Given the importance of the energy sector for a country experiencing a systemic change; the logic of such segregation is vindicated on the grounds that the acute energy concerns can receive the much-needed priorities. Unfortunately, the practice is no longer in harmony with the theory prompting me to raise two major questions here. Firstly, is the current sectoral performance an improvement from the previous performances under an integrated energy ministry? Secondly, are the taxpayers funding the energy ministry largely benefitting from the service that is being currently rendered to them? The answers are certainly not pleasing as I have been arguing in my previous articles which justify an analysis into this issue.
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On Power Theft

Power theft is critically proving to be one of the unsuccessfully addressed acute concerns of the Nepalese electricity sector. Though the actual estimate on Nepalese non-technical losses is unknown; an overall system losses of 26.58% in 2010 indicates that electricity theft is being gravely practiced in the country after accounting for inefficiencies in system use, technical transmission and distribution losses from grids inefficiency and gratis. At one end, not all people are willing to pay for energy usage and connection charges despite their ability to pay. On the other end, electricity theft has also become institutionalized in the political and economic governance settings providing the theft-culture more robustness and longevity.Power theft has resulted in significant lost earnings for NEA creating a fund-crunch for investment in the power system while also necessitating capacity expansion in generation to cope with power losses. Electricity theft is identified as one of the fundamental drivers behind Nepal Electricity Authority’s (NEA) whooping financial loss of Rs. 5350.92 million incurred in 2010. Yet, the practice towards electricity theft control remains largely apathetic in the country.......Theft practice thereby creates negative externalities for other responsible electricity users who actually pay for their power usage and connections.
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Silver Jubilee of Nepal Electricty Authority (NEA)

Nepal’s power sector is currently battling out the toughest challenge ever-encountered in the last two and a half decades of its electricity sector reforms experience. The sector is faced with an upheaval task of electrifying the nation under twin scenarios of escalating electricity demand and growing political instability. Unlike others, I preferred to label them as ‘scenarios’ than ‘problems’ because the actual problem in my view has been the immature engineering of the sector that is proving unable to cope the long-foreseen pressures of soaring demand and vagabond politics over the years.After the establishment of the vertically-integrated Nepal Electricity Authority (NEA) in 1984; several policies and acts followed suit to provide appropriate institutional framework for implementing electricity reforms. The Hydropower Development Policy of 1992 was supported by the Water Resources Act of 1992, the Foreign Investment and Technology Transfer Act 1992, the Electricity Act 1992 and the Industrial Enterprises Act. The Hydropower Policy of 1992 was subsequently amended in 2001 and led to the formulation of the Community Electricity Distribution Bye Laws in 2003. All the above mentioned acts and policies in paper addresses the acute concerns revolving the Nepalese power sector such as capacity expansion, imports reduction, private participation, losses reduction, rural electrification, environmental protection, etc. Yet, the practice has unusually departed from theory while the empirical evidence from two decades of electricity reforms has starkly defied the logic of reforms in Nepal.
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From Cancun to Nepal

The unsettled conflict between ‘science and politics’ initiated in Copenhagen during December, 2009 seem to have finally pacified with the recently concluded Cancun Climate Summit. But, it might be too fast to conclude that ‘science’ eventually won. Apart from striking an agreement on meaningful long term global action; the summit was an ideal opportunity for climate scientists to recover the credibility damage from the controversial IPCC claims on climate change. While the former motive was at least agreed in theory, the latter intellectual scar can take some more time to heal. The Cancun Summit was not touted as a successor to the soon-expiring Kyoto Protocol unlike the Copenhagen fiasco. So, expectations were quite low in the built-up to Cancun. An agreement thus became possible by compromising on several realistic expectations related with economic, developmental and national sovereignty concerns. Nepal was one of the notable participant in Cancun as the country belongs to a group of V11 (vulnerable 11) along with Bangladesh, Vietnam, Kiribati, Barbodas, Bhutan, Ghana, Rwanda, Kenya and Tanzania. These countries are among the lowest carbon emitters but are the most vulnerable to climate change and in need of substantial funds to adapt to climate change with a long-term view of transition towards a low-carbon economy. The credibility of an accord reached devoid addressing the major concerns of the ‘vulnerable’ and many other less-developed countries may in itself be questionable and is a valid topic of discussion. Moreover, it is necessary to understand the milestones achieved in Cancun and accordingly draw perspectives on the possible social-benefits or enhancement in social welfare that a country like Nepal could realise from Cancun.
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Infrastructure Reform in Nepal

''Infrastructure reforms is always entertained much more in practice than in theory''.
Reforming nationwide infrastructures has been the talking point as an aftermath of the recently unveiled national budget. The government’s motive to reform overall infrastructure undoubtedly grasps and reflects one of the important national priorities. Infrastructures are indeed the national capital stocks. So, well implemented infrastructure reform programs from an economic perspective can engender major macroeconomic consequences in terms of higher economic growth and in raising overall employment level. A World Bank paper by Antonio Estache et al. published in 2002 in the Latin American context indicated that a 10% increase in infrastructure stocks can lead to a 1.5% increase in the Gross Domestic Product (GDP). Using the concept of proportionality to the famous ‘’Okun’s law’’ implies that a 1.5% increase in GDP can thus decrease unemployment by 0.5%. Based on these numbers, it would be an overwhelming achievement for the economy if we can invest and raise the national
capital stocks by even 10% from the current level.
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