CONTRIBUTION OF HYDRO-ELECTRICITY IN ECONOMIC DEVELOPMENT OF NEPAL

CHAPTER-I

1. INTRODUCTION

1.1 Background

Situated in south Asia, Nepal is a landlocked country bordered by the Tibetan Region of china in the north and India in the east, west and south. It is roughly rectangular in shape with total land areas of 1, 47,181 square km. Stretching 885 km from east to west and between 145 to 241 km from north to south. Topographically, the country can be divided into three distinct regions from north to south: the mountains, the hills and flat plains known as the Terai (CBS, 2009).

Nepal is a small hilly country which has a huge potential of hydro-power. All the large rivers flow speedily from the Himalayan region which are fed by snow and glaciers and are thus perennial. In fact, the perennial rivers and the steep slope of the country's topography provide ideal conditions for the development of some of the world's largest hydro-electric projects in Nepal. Nepal's electricity generation is dominated by hydro-power. In the highly industrialized countries, electric power is the life blood on which the whole society and economy depends. Without electric power, economic development of any country is hardly possible.

The use of water to produce hydro-electricity has advantage of absence of carbon-dioxide, sulphur-dioxide, nitrous-oxide and solid or liquid waste production. Thus the hydro-electricity should contribute to a substantial reduction emission of carbon-dioxide and other harmful gases which responsible for the green house effect. According to the national environmental policy Act of the United States of America, "The incorporation of environmental consideration in the planning of water resources, development schemes and more specially hydro-electric power generation schemes, although generally agreed to beneficial and desired has to carefully implemented" (United States of America, 1969:7).

Hydro-power is a cheap, renewable source of energy in Nepalese context. Capital, labor and energy are three primary factors that contribute to and influence economic growth and development in any country in the world. These three components are used to produce a country's gross domestic product (GDP), the total of all output produced in the country. Energy is the power that drives the country's economy. In the industrialized nation most of the equipment, machinery, manufacturing plants and office buildings couldn't operate without energy. Hydro-power provides reliable, efficient, safe and economic sources of energy for increasing effectiveness of the decentralized industrial system.

Nepal known as a highly potential country for generating hydro-electricity, has a theoretical potential of generating 83,000 Megawatt electricity and real production capacity of 527.5 Megawatt. The public Sector generated 412.5 MW and the private sector produces 115 MW, which comes to be 0.63 percent of total potential of electricity generation. As electricity plays a crucial role in balance development of agriculture, industry and other sectors, it is necessary to supply power reasonable price and its effective consumption is also equally important. It is undisputable that electricity expenditure the process of balance development. As the development of electricity call for huge investment, it is necessary to seek investment from various sources and make best use of the existing resources.

"Currently, the urban population is consuming most of electricity. But majority of people live in the rural areas and most of the agro-industries, irrigation and cottage industries are also concentrated on rural areas. As the over all development of the nation promise on the development of rural areas, balanced development can be achieved only through creating opportunity for equal consumption of power in the villages and the urban area" (Dahal, 2004:21).

Most of the developing countries are suffering from energy crisis.  Nepal has not been an exception from it. Demand and consumption of energy is gradually increasing along with population growth and economic development. Large amount of foreign exchange is required for petroleum fuel. Because of absence of production of petroleum products with in country, electricity production is justified. In Nepal, Solar and wind energy are comparatively costly than hydro-electricity. Hydro-electricity is known, renewable, non-polluting and available energy resource within the country.

Nepal has possessed first position in Asia and second in the world after Brazil in hydro-electricity potentially. In Nepal, first hydro-power plant was established at Pharping (500 KW) in 1911 A.D. It was followed by Sundarijal (640 KW) in 1935. Gradually, further projects on established making agreements with the government so as to contribute for domestic supply that meet very limited load.

The hydro-electricity is one of the most essential requisites of socio-economic development. Modern life is associated with it. Its invention and production has greatly changed the nation. Since it can be converted to any from of energy that is light, heat, mechanical power etc., it can be used now-a-ways from cooking to run big-big factories. So, it can be said that the supply of power is one of the basic factors from bringing changes about economic development. By providing electricity to large extent, the nation can be industrialized at the fast rate. So we can say that "electric power means progress." Power can be said to be the backbone of all the modern developments. All developing countries are trying to harness, their possible resource of power. In every corner of their country, thus they are progressing rapidly in all fields by raising the living standard of their people.

The generation of hydro-electric power has opened up a new horizon for speedy agricultural and for industrial development in Nepal. Hydro-electricity is one of the vital factors which is playing dominant role in the economic development of Nepal.

1.2 Statement of the Problem

"Hydro-electricity" means not only development of energy resources but also protection of environment. It is well realized fact that these sources of energy could greatly help national development. In fact there is close relationship between power and economic development of nation. The more power could be produced, the faster will be the rate of development.

"It is often argued that water resource is in backbone of the Nepalese economy which could be instrument to provide a new lease of life to sinking economy of the total 83,000 MW theoretical hydro power potential in Nepal. Commercial potential is projected to be 43,000 MW unfortunately efforts harnessing water resources and developing hydro-power have sluggish with inordinately low production of electricity (549 MW) in Nepal, which is 0.6 percent of total theoretical hydro-power potential. The poor level of hydro-power utilization is due to primary to financial resources constraints and inherent delays in project implementation. Nepal's electricity tariff rate is considered to be one of the highest in the region and the domestic charge one of the cost items in the household expenditure" (Bhadra, 2004:25).

In Nepal traditional sources of energy which includes the fuel-wood, agriculture residue and animal dung corers almost 86.24 percent of the total energy demand, in the year 2001 is 13.76 percent was covered by commercial sources including petroleum, coal and electricity. In the same year of the total energy demand, fuel-wood, agriculture residue, animal dung, petroleum, coal and electricity supplied 76.7 percent, 3.38 percent, 5.77 percent, 9.27 percent, 3.2 percent and 1.36 percent respectively (Jha and Devkota, 2007:16).

This high 76.7 percentage of fuel-wood supply as the sources of energy increases deforestation, which again causes fuel-wood crises. With fuel-wood crises, the consumption of agriculture residues for the energy purpose has also increased resulting in falling production, exposure to the risk of soil erosion and further degradation in croup productivity and biomass supply. This further led to deforestation and creates the severe environmental consequences and the rate of desertification may increase. Specially, in urban area of Nepal major sources of energy consumption are: petroleum, coal and LP gas and kerosene. These all create the air pollution and health hazard. Comparatively the hydro-power is "clean", i.e. it does not create the kind of pollution that is incidental to use of coal, LP gas petroleum etc.

The electricity is produced by the movement of fresh water from rivers and it is a renewable energy. "Energy" plays vital role in sustainable economic growth. In spite of fact that our country still depends upon other sources like fuel-wood, petroleum, etc. for power, the annual energy consumption growth rate is greater than the population growth rate. Its impacts on the forest are very severe and dangerous. So degradation of environment was due to excessive exploitation of forest resources. If the rate increases there will be serious problem in Nepal like; soil-erosion, landslide, pollution etc, which are negative effects on economic growth and human life as well. On the other hand, when petroleum price was going up, our country was facing negative impact on production of economic growth and development last year.

Nepal's huge potential in hydro-power is still untapped. As Nepal has just been able to tap one percent of its potential electricity capacity, and 60 percent of Nepal's population is still deprived of electricity.

At the present situation, low financial-management, blunder high tariff regime, poor infrastructure, geographical condition, regular load shedding etc. are main problem of hydro-electricity development in Nepal. The development of hydro-electricity is still at it's infancy in Nepal. According to Narayan Prasad Bhattrai, "In the context of Nepal, it is said that one present growth in non agriculture GDP requires 1.3 percent growth in the electricity energy consumption..." This shows that the growth in electric energy consumption brings sustainable growth in non agricultural GDP.

Investments on hydropower projects require huge amount of money, skilled manpower, improved technology, machineries and long period of time etc. Most of the investment seeks foreign bilateral and multilateral grants, loans etc. By this situation we are seemed as parasites on hydropower development.

With these problems in mind, the present study tries to answer the following research questions:

                                i.            What types of problems are being faced by the hydropower developers, financial institutions, government agencies and Nepal Electricity Authority in the context of hydropower development?

                              ii.            What is the present status of hydro-electricity in Nepal?

                            iii.            What is the relationship between hydroelectricity and economic growth?

1.3 Objective of the Study

The general objective of this study is to examine the contribution of hydro-electricity in economic development of Nepal and the specific ones are as follows:-

                                i.            To trace out the historical development of hydro-electricity under the different plan periods.

                              ii.            To access the present status of hydro-electricity in Nepal.

                            iii.            To examine the relationship between hydroelectricity and economic growth.

1.4 Significance of the Study

The development has been setting aside budget allocation to improve the qualities of life with basic facilities like education, health, drinking water, electricity etc. The development of hydro-electricity is still at its infancy in Nepal. Hydro-power helps the Nepalese household for fuel because they will be able to do their work without fuel wood. So it serves to save forest from destruction.

Hydro-power is required for the development of agriculture because to introduce new technology and operate modern chemical fertilizers, electric power becomes necessary. It can also serve as a substitute for petrol, diesel and various kinds of fuel to conduct trolley bus service, this is an important factor. Transportation sector can be modernized and developed by hydro-power.

Poverty is deeply rooted in Nepal, where per capita income is US$ 270 according to NPC report 2008. To make a developed country, Nepal is trying to formulated policies and initiate activities to fulfill basic needs. Nepal has to flourish its agriculture, industry, hydro-power, trade tourism etc, despite its different policies. Nepal has been facing trade deficit from history to yet. Considering this fact, hydro-power generation, tourism and agriculture and agro-processing is better and should be major priority areas for development in Nepal which have the comparative advantage. So, it is wise to develop our natural and cultural resources basically the hydro-power by using the cost effective which help to reduce the high trade deficit with India and rest of the countries, reduce unemployment increase per-capita GDP and promotes economic growth. In this scenario there is high consequence of not developing hydro-power. For the all round development of the country, development of cost effective and environment friendly hydro-power is one of the best which is persistent and urgent in Nepal.

Hydro-electric power is essential for industries. It can serve as an engine for this sector because this is a basic infrastructure for this sector to reduce cost and facilitate this sector in the country.

Every year Nepal has to import mineral fuels from foreign country in large. So, hydro-electricity can reduce those imports as a substitute for those fuels. It can boost up the economy by exporting power to neighboring country like India.

This study will review the contribution of hydro electricity in Nepal and will provide recommendations to formulate policy for the future development of the hydro electricity.

1.5 Limitation of the Study

The study is based secondary sources of data.  This study is limited only to the contribution of hydro-electricity in economic development of Nepal, So alternative sources of energy are not studied. The main constraints are time as well as financial factor.

1.6 Organization of the Study

The study has been divided into seven chapters. Which are as follows:-

Chapter one concentrates on introductory part of the study. It includes general background, statement of the problem, objectives of the study, significance of the study, limitation of the study and organization of the study. Chapter two is review of literature under conceptual framework and reviews of previous studies have been covered.

Research methodology is discussed in chapter three and deals with research design, period covered, types and sources of data, data collection procedure, method of analysis and analytical tools used. Chapter four is historical development of hydro-electricity in Nepal. Chapter five presents status of hydro-electricity in Nepal.

Chapter six is hydroelectricity and its contribution. It deals with the impact of hydroelectricity on industry, agriculture and transportation.  Chapter seven discusses the summary, conclusions and recommendations. Besides these, bibliography and Annexes are added.

                                                 CHAPTER- II

2. REVIEW OF THE LITERATURE

There are some of notable and remarkable studies previously conducted in the area of hydro-electricity development in Nepal and its role in the overall development of Nepalese economy. Both national and international experts have shown their keen interest and have increased their expertise in this sector.

Most of the industrialized countries have developed their hydro-electric potential to a high degree. Hydro-electric energy is presently extremely valuable as the price of its replacement energy (fuel oil) is very high. The value of energy storage capacity should be carefully considered with a view to study. The development of hydro-electric potential had to contend not only with economic and financial problems but also with the constraints of environmental protection. Multi purpose hydroelectric schemes and their impact or the environment should be considered in reaction to energy and water conservation as well as in a broader sense to the healthy development of society (UN, 1979:17).

Nepal has not still got success to explore the available water resources, even in maintaining the domestic need of the electricity for the lighting purpose. She analyzed that Hydro-electricity is the most useful natural resources for economic development in Nepal. It is back bone of industry, agriculture, transportation, and it is the most useful thing for social service purpose also. Power distribution in different development region is unbalanced. The water power potential of Nepal is its great asset. Developments of these resources will not only increase foreign exchange but also will be turned as Arabian oil wealth in the future with efficient management. Nepal facing many problems in the hydro-electricity development, they are lack of capital, manpower, technical knows, how and sufficient market with in the country. Beside this the most important problem is poor power plans of Nepal (Acharya, 1983:24).

Major achievements in the economic development of Nepal could be realized through proper harvesting of the vast water resources but nearly 100% dependency on overseas professionals and a failure to develop our manpower gradually to prevent realization of this goal. The opportunities in hydro-power development are not only approving new projects but also have commitment in maintaining and optimizing the efficiency of existing hydro-power plants, such opportunities mean institutional development but this has been overlooked for obvious reasons. Because of improper information management non-existent human resource development and myopic decision-making, we have made ourselves vulnerable to the decades of outside help where terms are drawn up to the advantage of multinational finding agencies. As the development of hydro-power in Nepal has always been dictated by many constraints and conditions, projects are selected by planning procedure, which is deliberately designed to produce a ‘no option’ situation in decision-making (Shrestha, 1991:18).

Nepal is endowed with various renewable sources of energy among them hydro-power is one of the richest and most useful recourses of energy in Nepal. Hydro-power though requires initially big investment for construction yet the running cost in low. But in Nepal hydropower projects can be quite comparative to any economical hydro-power project in the world. American experience shows that it is economical to contract hydro-power projects in hilly regions as in our case. Hence location of hydro-projects in hills and regulation the flood water in the plain areas where we can utilize the regulated water for irrigations purpose (Bastola, 1994:25).

Electricity is an essential and important commodity as water and air for mankind in the modern world. Per-capita electricity consumption is considered as the yardstick for the development of a country. Electricity, for every person, should be the goal of development because it helps every one to live with facilities of modern lifestyle, clean and easy way of cooking, heating and cooling rooms, washing, saving and clearing are the rational ways of daily living for man with the help of electricity. Out of the total population of the nation only 15 percent people are facilitated with electricity whereas the rest are still inside the darkness of misfortune on scarcity. Electricity brings about economic welfare by the development of agriculture. Regarding industrial development, he mentions that electricity is essential to set up the different types of industries. Therefore, electricity is the most important over-head for country's development by establishing small, medium and large scale industries. The high cost imported fuel could be substituted with low cost of indigenous hydro-electrical power in the field of transportation. Nepal's transport economy is facing a big challenge stir up by world oil crisis. The running of transportation like rail way, ropeway, trolley bus etc. is highly essential for ordinary life. Therefore, rivers in Nepal are not only ornaments are utilized properly (Paudel, 1996:21).

The report (1996), published by financial time energy, London entitled “electricity in south Asia” has focused on Nepal’s hydro-power situation, prospects and problems. Some of the conclusions of this report are:

The Himalayan Kingdom of Nepal nestles between India and China. It was ranked seventh poorest country in the world by US Aid in 1995. Agriculture is the main economy activity. The country’s main resource is hydro-power with a theoretical potential of 83,000 MW up to 25,000 MW of is exploitable. However, its exploitation is difficult because of the terrain. So far only 1% of the potential has been tapped. Hydro-power, however, remains the country’s greatest potential sources of both electricity and revenue.

The transmission and distribution power represents one of the key challenges to the electricity industry in Nepal. The rugged and difficult that may be of the northern community may never be supplied with power from central hydro-power plants. The cost is simply too great. The government of Nepal, aware that change will be required has been working towards a policy for promoting privately financed hydro-power projects. This will include a verity of options such as Build-Own-Transfer (BOT) and Build-Own-Operate-Transfer (BOOT) as well as the provision of site licenses.

A report (1997), published by financial time energy London entitled “Investing in hydro-power” has presented, mountain terrain often offers some of the best opportunities for small hydro-power plants. Such areas are frequently remote from national grid system. Making the use of small local resources even more attractive, several countries are encouraging private sector involvement in small hydro-power development. Hydro-power is capital intensive. Most of the investment is required at the start to build the project. It is necessary, therefore, to take special care with costing during the feasibility study to ensure the project will be economically viable.

Nepal is known as the second richest county in water resources after Brazil. If fact that hydro-electric power plays a vital role in over all development of developing country like Nepal. Perennial rivers and steep topography have been proved to be the divine gifts of Nepal to generate hydro-electricity. Which is comparably cheaper, more affordable and permanent sources of energy that the energy we obtain from coal, petroleum and oil gas. Adequate development of it promotes economic condition of the nation as well as human civilization (Shrestha, 2000:35).

Nepalese socio-economic prosperity geared by development of Nepal. Instead of the high capital cost oriented mega hydropower, the small and the community managed level of micro hydro power are preferable for the small developing country like Nepal (Gyawali, 2001:54).

Development areas need more energy, which multiplies human labor, increasing productivity. Among others it lights buildings, Purifies water, power various kind of machinery. Collected and disseminate information. Electricity is one of the most reliable sources of energy. It is an essential ingredient of economic development and is equally necessary for non-commercial uses. Nepal's tremendous potential of water resource is not only renewable but also environmentally safe to be exploited. These resources can bring about progress and prosperity. For hydro- electricity generation, technical studies have been conducted by scholars, academic and research institutes. Feasibility studies indicate that relatively low-cost hydro-power could be generated from many projects in Nepal. Although there is an increasing participation from private sector in Nepal’s hydro-power sector, there is a need to encourage more such involvement. Actually, private sector participation and foreign investment are crucial if more hydro-power to be produced and more areas of Nepal are to be electrified in the years to come (Basnyat, 2002:26).

Micro hydro-electric plants can be set up at low costs. Since such plants can be established in short duration, rural can be done with minimum transmission cost and loss. Such power plants not only help in meeting the increasing demand of power but also help in flood control and enhancing irrigation facilities. The establishments at micro hydroelectric plants will illuminate rural horns. It will also assist the people in improving traditional technology. No doubt, power helps in operating industries. It is natural, therefore to except rural people to be interested in establishing cottage and small industries. This will help rural folks in income generation and meeting their daily needs (Basnyat, 2002:27).

The preservation of the environment may be helped through the reduction of pressure on agriculture land and dwindling forest. This is possible through micro-hydro power. Actually, the micro hydro-technology is dependable and also suitable for hilly regions, where the majority of the people live without lights.

     High GDP cannot be accomplished without technological progress, which requires increasing of commercial energy. Use of energy is essential for industrialization and transformation of agriculture to the other sector. More time and labor are required to collect fuel wood. As a result, there remains very little time for productive works. The use of hydropower helps to reduce deforestation that will grow agricultural production through conserving the soil, pumping, irrigation water, drying corps, grinding grains, using tractors, threshing machine. The demand of commercial energy is positively linked with increased income of household. He emphasized that micro and small hydropower should be developed to meet rural demand for energy but medium and large-scale projects are essential to meet the demand for industrial and commercial sector (Dhungel, 2002:28).

Hydro-power is contributing significantly to the growth of economy by helping the growth of industrial and commercial sectors. If we look at the electricity consumption data of industrial and commercial consumers for the last decade from 1991 to 2001, we find that in the industrial sector the electricity consumption has increased from 206.89 GWH to (520) 634 GWH and in the commercial sector it has increased from 36.34 GWH to 94.166 GWH .The electricity consumption has just increased by 2.5 fold. The total consumption these two sectors constitute nearly 48 percentage of the total electricity sale. This makes clear the contribution of hydro-power to the development of industrial and commercial sector. So, it is vital for the national economy (Water and Energy Commission, 2004:7).

The scope and prospects of the micro-hydro system in Nepal is very high. The national grid, which runs along the densely populated terrain with is higher level of economic activities, can not a solution for northern rural hilly areas at present. These areas have very few economic activities are sparsely populated. This makes grid fed electricity for these areas economically unfeasible. Hence the importance of micro hydro-power plant (MHPP) is more stressed. A supply of energy is suitable form is considered to be on of the main inputs required to raise the standards of living of the people and to minimize damage to the ecosystem. Per capita consumption of energy has to increase significantly in order to develop systems and infrastructure necessary for improvement of living conditions and increase in incomes. So, MHPP schemes are playing the dual role i.e. selling electricity by expanding the energy market to the remote place and contributing to the development of these areas. Nepal has huge resources of water and a major portion is still to be explored. So with the effective planning and development of this sector can change the future of nation. So, the policy making organizations of government and the private sector should work together in developing this sector and achieve maximum benefit from it (Maharjan, 2004:23).

Nepal is water rich country, but with little efforts are towards harnessing water resources and developing hydro-power. In recent years, economic growth rate is confined fairly below the normal target 4.3 percent during the tenth plan (2002-07). Growth has been inadequate to make crucial impact on poverty. Unless water resource is effectively utilized, it would be difficult to attain the millennium development Goals set by Nepal (UNDP, 2003).  In Nepal the underdevelopment of water resources can be attributed to financial constraint and inefficient management. Hydro-power is an exportable commodity. India is the potential market for the electricity that Nepal produces. India's willingness to pay for Nepal's hydro-power is one of the key factors for sustainable hydro-power development. Both the countries receive power from each other. Hydro-power is one of the potential areas of co-operation between Nepal and India (Dhital, 2004:29).

More electricity and more fossil fuels are going to be needed to produce next unit of output. The investment in hydro-power sector will have to be increased not only to cope with the rising trend in electricity demand but also for the extra demand resulting from the substitution of fossil fuels that may be deemed necessary. Nepal has relative abundance of fresh water which gives rise to its comparative advantage in hydro-electricity generation and year-round irrigation. Nepal can, therefore, become rich if she can able to use electricity in industry and water in agriculture. Furthermore, cheap electricity can be an attraction for foreign private investors to locate their industries in Nepal (Bhadra, 2004:31).

The World Bank has supported several hydro-power projects, with an emphasis on expanding generation and distribution, as well as improving technical and operational efficiency of the NEA (WB, 2004:27).

The pattern of energy consumption in domestic sector should be shifted to other highly important sector, particularly electricity based industries and transportation. Priority should be given to develop medium sized hydro-electricity project in general and micro power projects in particular in hill and remote areas. Preference should be given to mobilize domestic financial resources by encouraging private sector investment in hydro-power projects. Foreign direct investment could also be one of the potential sources of finance for hydropower development. So, the existing legal as well as institutional problems hindering FDI in hydropower sector should be resolved. NEA should be given authority and autonomy to work more efficiently. On it parts, NEA should strengthen its finical condition are reduce electricity loss, which is 25 percent at present with distribution system. Foreign loan should be accepted and invested in such hydro projects where adequate return would be generated to repay back the loan (Bhattarai, 2005:52).

A report (2005), published by "National water plan" has presented the following action programmes which are enumerated below:-

·         Programme to develop cost effective micro, small and medium hydro-power by introducing necessary steps to utilize and maximize local professional, financial, material, equipment and labor resources in hydro-power projects,

·         Programme to improve power system planning by through encouraging suitable types of hydro-power projects to address the present seasonal imbalances in supply and demand,

·         Programme to encourage private investments in hydropower development and electric power distribution by establishing an independent Electricity Regulatory Commission to create a conducive atmosphere to raise the confidence and attract private sector to invest in hydro-power development,

·         Programme for power sector reform and development. The key activities are reconstructing the NEA through appropriate corporation and ultimately privatizing it before 2027,

·         Establishing Rural Electrification Agency at the centre to develop and support rural electrification programmes,

·         Establishing hydro-power Research Centre and coordinate with other existing academic and research institution.

Hydro-power potential of Nepal is huge and sustainable hydro-power development becomes the key to make Nepal's economics growth meeting the national goals and priority of poverty reduction. Hydro-power has a number of benefits:

1. It is a continuously renewable electrical energy source.
2. It is non-polluting i.e. no heat or noxious gases are released.
3. It has no fuel cost and with low operating and maintenance cost, is essentially inflation proof.
4. Hydro-power technology is a proven technology that offers reliable and flexible operation (Adhikari, 2006:58).

Pradhan (2007), in his article “Challenges and issues on the domestic hydro power projects and perspective on export oriented hydro-power projects” from the Half yearly journal ‘Vidyut' have found two basic markets for power generated under Nepal hydro-power development programmed, they are:

·         Challenge and issue on the domestic Hydro-power projects:

In the steep terrain country like Nepal with dispersed villages in the hill and mountains, electrification is very costly. This situation poses challenges in managing the financial resources to expand the electrification network. The electric tariff in Nepal is high, the high tariff represent most critical aspect of the development policy at present. The challenges lie in developing cheap and reliable hydro-power projects so as to keep the tariff within reach of everyone.

·               Perspective on export oriented projects:

Local developers in Nepal have been involved mostly in the smaller power plants. For large projects involving huge capital and international agreement, it is beyond the national investment capacity and requires external financial support. While supply to provide domestic demand is highest priority, efforts to make advantage of opportunities for power export to India. Nepal's hydro potential opportunity for Nepal to become a major power exporter to India and at the same time earns revenue power sales to help develop Nepal’s own domestic economy.

Despite excessive reserve of water resources the country is unfortunately facing the problem of load shedding every day and Nepal has to spend billions of rupees from India. In order to solve this situation quickly, it is essential to attract domestic and foreign investment. Due to the growing domestic and external demand for energy, investors are attracted towards it. If this opportunity is properly utilized, the national gain will be high. Therefore, domestic resources to be mobilized for small and medium scale hydro power projects and foreign investment and resources to be mobilized for large scale hydro projects. Nepal has planned to produce 10,000 MW hydro-electricity within next 10 years period. Nepal's government has allocated Rs. 12.69 billions in the hydro- electricity sector next year (Bhattarai, 2008:25).

From the review of literatures, it has been found that very few research has been made in the contribution of hydroelectricity in the economic development of Nepal. Some thesis, article and report have been prepared on the contribution of hydroelectricity. Previous researches were related only with hydroelectricity development in descriptive way and no statistical analysis was done. So, the researcher can make further research on contribution of hydroelectricity and its impact on GDP. Though the different thesis has been written in the hydroelectricity subject historically, all these researches were about the contribution of hydroelectricity. Likewise, very little research has been made regarding impact of hydroelectricity on economy. Similarly the contribution and impact of hydroelectricity on GDP, which has the significant portion in hydroelectricity generation, has not been studied till now. Hence the researcher has attempted to fill this gap by studying the contribution of hydroelectricity in the economic development of Nepal using statistical tool like regression.

CHAPTER- III

3. RESEARCH METHODOLOGY

 3.1 Research Design

This research is mainly exploratory and descriptive. However, in some instances analytical too in nature. In this research, the researcher has systematically tried to explain "the contribution of hydro-electricity in the economic development of Nepal" and shown the relationship between hydro electricity and economic development with the help of statistical tools.

3.2 Sources of Data

The data used in the study are mainly limited to macro economic indicators and other variables to relate to electricity. Qualitative data are not available, so mostly quantitative (secondary) data are used in this study. The secondary sources include the previous studies carried out on the issue of hydro-power through various institution, organization books and thesis. The specific variables are GDP from electricity and electricity contribution in absolute term.

3.3 Tools of Analysis

The available data from various sources are collected, classified and tabulated to meet the needs of the study. Simple statistical tools like diagram, graph, percentage etc. are used for analyzing the data whenever necessary.

In order to support the study, different statistical and mathematical tools such as percentage, ratio, arithmetic mean, and hypothesis testing have been used. It is, therefore, evident that the subjective patterns of analysis guided by theoretical tools and statistical as well as mathematical tools have collectively been exercised to explain the different component of the study raised basically through the major issues related to GDP and hydroelectricity in Nepal. 

Statistical method attempts to establish the nature of relationship between dependent and independent variables. It also provides a mechanism for prediction or forecasting. The regression of Y (=GDP from electricity) on X (=Electricity capacity in absolute term) is used to estimate the value of the dependent variable Y for any given value of independent variable and vice versa.

The regression equation of GDP on Total Electricity Contribution has been estimated. The estimated form of the equation given by:

Y= a+ bX

Y= GDP from electricity

X= Total Electricity Capacity

a= Autonomous element which does not vary with Electricity Capacity

b= Slope coefficient

bx= Induced element which varies directly with Electricity Capacity

3.3.1 Statistical Test of Significance

Standard errors of estimates SEE, like standard deviation, measure the reliability of the estimating equation and estimating coefficients. The larger the SEE, the greater happens to be the dispersion or scattering of given observations around the regression line (or coefficients) and no better the estimate. On the other hand the smaller value of SEE, the better will the regression line (or coefficients) and the better the estimate based on the equation for this line. With help of SEE, it is possible to ascertain how good and representative the estimated regression line (or coefficients) are as a description of the average relationship between two series. For this study, the SEE, for regression coefficients have been calculated by using a computer.

3.3.2 Test of the Goodness of Fit (R²)

After estimating the Regression parameters, R² is used for judging the explanatory power, which measures the dispersion of observation around the regression line. It is essential, because the closer the observation to the line, the better the goodness of fit, that is the better explanation of the variations in Y by the change in the explanatory variables. R² shows the percentage of the total variation in the dependent variable that can be explained by the independent variable and is the square of the correlation co-efficient. The formula to derive R² is mentioned below:

3.3.3 Test of Significance of the Parameter Estimates

It is applied for judging the statistical reliability of the estimates of the regression co-efficient. The following tests have been performed to test the hypothesis of the study. Based on the findings of the past studies researcher hypothesizes about some of the relationship of hydroelectricity capacity and GDP from electricity. These are as follows:

H₀: There is no relationship between hydroelectricity capacity and GDP from electricity.

H₁: There is relationship between hydroelectricity capacity and GDP from electricity.

t-Test

This test will be performed in order to identify the statistical significance of an observed sample regression co-efficient and the formula for calculating the value is:

            The calculated t-values have been compared with tabulated t-values at a certain level of significance, for a given degree of freedom. If the calculated t value exceeds the table value, it is inferred that estimated co-efficient is significantly different from zero.

F = Test

            F test is used to examine the overall significance of the model

            The formula for calculation is F =

            R² = Co-efficient of determination

            K = Number of explanatory variable including intercept term

            N = Number of observation in the sample

The calculated F-Variance ratio is compared with the tabulated value at a specific level of significance with (K – 1) and (N – K) degree of freedom.

                                                CHAPTER- IV

4. HISTORICAL DEVELOPMENTS

While giving an overview in the power development in Nepal, it would be relevant to see it in the historical perspective of the country. Nepal was ruled the Rana regime for 104 years till 1951 AD. There was not a policy of power development. It was mainly for providing facilities to the ruling class of Kathmandu and lights some streets of Kathmandu valley.

4.1 Hydro-electricity Development in Nepal before First
      Five Year Plan

            The history of power development of Nepal begins with the establishment of Pharping Hydro Power Plant of 500 KW capacity in Kathmandu valley in 1911 AD at the time of Rana Prime Minister Chandra Sumsher and the regime of king Prithivi Bir Bikram Shah. It was a milestone in the power sector and thereafter the commercial activities of power were initiated.

In course of time, to meet the increasing demand of power, another plant of 640 KW capacity was built at Sundarijal at the time of Juddha Sumsher J.B.R in 1935 AD. The government activities in the power sector were limited to the Kathmandu valley. The need of power was realized outside the valley also. Therefore, some power plants were established/commissioned, especially in Biratnagar and Birgunj by the private sector. In this connection, Sikarbas hydro power plant was built up by Morang hydroelectric Co. in 1942 and in 1961 A.D. it was completely washed away by a landslide.

Thus it is seen that the development of power was in a very infant stage during the Rana regime.

But even after the dawn of democracy in 1951 A.D., the pace of power development could not be accelerated, prior to the first five year plan period (1956-61), power installation were a few as given in table no.

                         4.2 First Five-Year Plan Period (1956-1961)

            In the first five-year plan period, electricity was given forth priority. In addition, Rs. 3 million was allocated with the objectives of generating 20,000 KW of electricity, which included both diesel and hydro-power. Nepal made agreement for the first time with USSR and India to get aid to construct the most important hydro electric project like Panauti and Trisuli respectively. Similarly agreement was also made with India for the construction of hydro electric project in Pokhara with the capacity of 500 MW. Agreement was also made with UK for the construction of hydro electricity project in Chisapani with the capacity of 400 KW. The first five year plan enunciated a policy to study the feasibility of small and medium size hydro project in Nepal. This was only achievement of this plan.

4.3 Second Three-Year Plan Period (1962-1965)

The plan laid emphasis on the establishment and expansion of transmission lines and diesel plants on temporary basis to meet the demand, until the hydropower plants in some big towns like Kathmandu, Birgunaj, Hetauda and Biratnagar etc. were complete. In order to produce more power to meet the increasing requirement of industrial and agriculture development, and effective manage the distribution of power, a separate organization under the name of Electricity Corporation was established in 1964 AD as a government enterprise.

            The plan had given second priority next to road construction with the objectives of predicting 30,000 KW of electricity both from hydro power and diesel. The total expenditure estimated for this Programme was Rs. 9.1 million. However, in reality the expenditure increased to Rs. 13.75 million and 7600 KW additional electricity was produced against the target of 12,250 KW. The included 2,400 KW from Panauti hydro-electricity project constructed with the aid of USSR.

4.4 Third Five-Year Plan Period (1965-1970)

            This plan gives first priority to hydro-electricity generation along with transport and communication with the objectives of providing 60000 KW extra electricity. The budget allocated was Rs.60 million. Only 19000 KW electricity was generated during this plan period and of which included hydro-electricity and diesel power. This includes Trisuli (9000 KW) and, Phewa in Pokhara (1088 KW) and started generating in 1969 AD. Both of these projects were constructed with the assistance of India. During this planning period, Trisuli and Koshi were not fully able to generate their estimated power potentiality. Simultaneous Sunkoshi project and Dhankuta small hydro electricity project were also under construction.

            During this period, transmission line from Kahtmandu to Birgunj (66KV) was fully completed and Dhran-Dhankuta, transmission line was under construction. Locations of micro hydropower were also surveyed.

4.5 Forth-Five Year Plan Period (1970-1975)

The fourth plan laid emphasis on transmission and network improvement, fixation of power tariff, power purchase from India for various project, use of foreign exchange to build diesel plants to meet the demand of Bagmati and Narayani Zones. Similarly, efforts where made to make power available at least in one place of 12 out of 14 zones of the country. A policy was also formulated for power development categorizing into five headings, such as construction transmission lines, small hydel project, diesel installations and survey. A part from these no specific energy policy was formulated in this plan.

In this plan period, the total electricity from hydro-power was 26,040 KW and from the diesel was 5,256 KW. Transmission line of 152.2KM length was also constructed during this period.

                         4.6 Fifth Five Year- Plan Period (1975-1980)

In the fifth plan, policies were formulated to fulfill the short term and long term demand with in the country to export excess power to India and to expand village electrification. To promote agriculture development village industries and production activities, it is also formulated a policy to fix the tariff on the basis of actual cost of projects to limit the electricity services and activities in government sector and handover the operation and distribution of electricity gradually to other electricity entities making them capable in business activities.

4.7 Sixth Five Year Plan Period (1980-1985)

            Like other previous planning periods, the sixth plan has given main emphasis on hydro-power sector to develop hydro power stations. Sixth five year plan projects surveyed and electrified in new places with the help of new transmission line and station. The plan laid emphasis on the development of small hydro projects in the mountain and remote areas. In order to find out alternative sources of cheaper energy, search and survey activities were initiated. The plan also laid emphasis on narrowing down of regional imbalance in power distribution. Private sector was encouraged to invest in power sector including alternative energy sectors.

4.8 Seventh Five Year Plan Period (1985-1990)

The seventh plan period has come with the possibilities of different hydro-electricity for power generation. The plan considered development of multipurpose projects with electricity based transportation to substitute import of petroleum. And on the other hand small hydro electricity projects were completed which were started during sixth planning period.

The plan purposed also encouragement to the private sector in the establishment and operation of micro hydel plant, particularly in the rural areas. During the plan period, Nepal Electricity authority (NEA) was established margin Electricity Department and Nepal Electricity Corporation (NEC). In the plan period a total 720 km. transmission line of 132 KV capacities was completed and to the target in seventh plan was 103.05 MW.

4.9 Eighth Five Year Plan Period (1992- 1997)

            The eight plan emphasized on hydro-power sector to develop hydro-power station considering the inadequate government funding for electricity development. In the plan comprehensive policies for hydro-power and energy development were formulated. Indigenous labor, skill and resources as well as foreign investment and technology were utilized. Efforts were also initiated for the diversified use of electricity, control of leakage and reliable supply of electricity. Tariff rates were also changed making them more realistic. Private sectors (national and foreign) were involved in electricity generation.

The NEA was made responsible for making arrangement for the purchase of hydroelectric plant, and for transmission and distribution lines where required by private sector. The agreement on "Mahakali River" integrated development between Nepal and India paved the way for foreign investment in large hydro-power project such as Pancheswar. The achievement of eighth plan was agreement on power generation and trade has been completed with the purpose exporting electricity to India. In power generation the 'Jhimruck' hydro- electricity project of 12.5 MW has been completed and construction of 'Kali-Gandaki-A (144MW) has been initiated. By operating and strengthen of Trishuli Devighat hydro-power project it was target to add 12.2 MW of power, and after competition of this project 11mw has been added. Some micro plants which were started from seventh plan period and finished in eighth plan are Namche, Achham and Tatopani etc. The government has made its policy to electricity the 1200 villages of 21 districts of country during eighth plan.

4.10 Ninth Five Year Plan Period (1997- 2002)

            The plan enunciated a long term policy with a view to raising the share to electricity energy consumption about 1 percent to 3.5 percent in the next 20 years. The plan also laid emphasis on development of multipurpose projects like Koshi 4,700 MW, Karnali 10,800 MW and Mahakali 4,680 MW for domestic use as well as for export. The major policies mentioned in the plan included institutional reforms to attract private sector in power generation and distribution.

           

In the ninth plan, in order to develop hydro-power, various programmes such as generation and supply of electricity, power transmission, system strengthening, rural electrification and feasibility study and design were to be implemented. The programmes of power generation of ninth plan in annex 13.

4.11 Tenth Five Year Plan Period (2002-2007)

            The tenth plan lays emphasis on the construction of small, medium, large and reservoir type of hydro projects. The plan intends to promote integrated development of water resources involving private and public sector. The plan also lays emphasis on rural electrification, control of unauthorized leakage of electricity. Rural electrification has an important role to play in accelerating, agricultural growth and rural development. According to tenth five year plan, it requires a huge investment to provide electricity services to the rural areas from national grid system, therefore the rural areas from national grid system therefore the rural development and economy can significantly benefit from development of decentralized renewable energy.

Objectives:

The following objectives have been set for the electricity sector to reduce poverty in a sustainable manor in the tenth plan.

i.          To reduce electricity at low cost harnessing the existing water resources.

ii.        To supply reliable and high quality electricity at reasonable price throughout the kingdom by integrating economic activities.

iii.      To expedite rural electrification so that it could contribute to the rural economy.

iv.      To develop hydroelectricity as an exportable item.

Quantitative Targets:

The following targets have set for achieving the objectives of the tenth plan.

• Hydropower projects will be constructed to supply 842 MW electricity, out of which 70 MW could be exported.
• Additional 10 percent people will be supplied electricity through the national grid for which power will be supplied to 2,600 village development committees through the national grid and additional 5 percent people will be supplied power through alternative sources of energy.
• Per capita electricity consumption will be raised to 100 KWh.

Strategy:

Power sector plays an important role in the development of industry and commerce, increasing employment opportunities, and in the social and economic development. Rural electrification contributes significantly to modernization of agriculture, supplying power to households and ground water irrigation in the Terai at low cost. And it helps in raising agriculture productivity, production, income generation and economic development.

Electricity relieves women of difficult jobs and helps in protecting them from in house pollution. Similarly it helps in distance learning and communication in the rural areas. Therefore, electricity helps in the economic and social development of the rural areas and in dispensation of justice. In this context, the following are the main strategies of the sector. Open and liberal economic policies have been adopted in all fronts with emphasis on private sector led growth. In the power sector, private sector is given full freedom for investment. As a result private join venture companies have initiated to construct some hydro-projects under the Built-Own-Operate and Transfer System (Boot) in the tenth plan. The programs of power generation of tenth plan are in annex 14.

4.12 Eleventh Three Year Interim Plan period (2007-2010)

            In three year interim plan, production of electricity will be 105 M.W. including private and public sector, which will be supplied to reduce load shedding. In which, 20 M.W. contribution will be from private sector and 85 M.W. from public sector. In this period, contribution of private micro-hydro power project is very important because 20 M.W. will be fulfilled from this sector and than 70 M.W. from Middle Marshyangdi and 14 M.W. from Kulekhani III.

            In the budget speech of FY (2007/08), finance Minister determines to produce 10,000 MW electricity in the 10 year. According to this plan, construction of hydro-electricity project will be started with in three year interim plan having capacity of 2085 M.W. The programs power generation of Eleventh Plan is tabulated in annex 15.                                CHAPTER-V

5. PRESENT STATUS OF HYDRO-ELECTRICITY IN NEPAL

5.1 Hydro-Electricity Potentiality in Nepal

            The theoretical, technical and economical potentiality of main river system has been estimated 83.28, 45.61 and 42.133 million KW respectively. Following table has presented potentiality of major rivers.

            The table shows that Nepal has 83.29 million kilowatts of hydro. Electricity potentially 50.5 percent (42.133 million kilowatts) is economically viable. The highest potential is possessed by Karnali and Mahakali rivers from theoretical, technical and economic perspective. Southern rivers possess low potential because they do not follow from the Himalayan region.

5.2 Physical Achievement in Hydro-Electricity Development

            Since the installation Pharping hydel plant 1911 A.D. Nepal has traveled 95 years in the journey of power development. Though at the time of establishment of pharping hydel plant, it was supposed to be the largest one in the South-East Asia, but even after the completion of the ten plans, the development of power in Nepal still in infant stage. Table 5.2.1 has shown the physical achievement in hydro-electricity development in different plan period.

            The table shows the achievement was lowest is first plan (3.75 percent). The rate of achievement increased significantly in the subsequent plans, although the performance varied from plan to plan. The achievement was highest in the seventh and Eighth plan (around 96). But the achievement was lower in the Ninth and Tenth plan.

5.3 Hydro Electricity Consumption Situation in Nepal

            The position of energy consumption pattern in different year is shown in the following table.

Percentage Share of Total Energy Consumption Situation in Nepal

            The table presents the energy consumption pattern of Nepal from 1999-2009. The overall energy consumption of Nepal is largely dominated by the use of traditional forms of energy. The share of traditional fuels of energy to the total energy consumption is estimated 87.71% in 2009. Remaining 12.31% of energy is consumed through other types of sources.  The share of petroleum, coal, electricity and renewable is accounted 8.19%, 1.76%, 1.82% and 0.53% in total energy respectively.

            Trend of electricity consumption pattern is very negligible. The table has shown the share of hydro-electricity is only 1.82 percent. In total energy consumption in the year 2009 (Annex 6). Table 5.3.1 has presented the increasing trend of hydro-electricity consumption but it is nominal growth rate of consumption pattern since 1999.

5.4 Growth of Electricity Consumers

Following Table shows the situation of electricity consumer from 2001-2009. The table 5.4.1 shows number of consumers is greater in domestic sector as compared to other sectors. Its consumers are increasing continuously from 1999. Number of consumers in domestic sector is accounted 1339253 in the year 2009. Electricity consumers in transport sector are lower as compared to other sectors. It is accounted just 39 consumers in 2009. 5.5 Per-capita Electricity Consumption

            Electricity consumption is an indicator of economic development of a country. Lower level of consumption of electricity as commercial energy indicates lower level economic development of the country and vice-versa. Generally, per capita electricity consumption is used to measure living standard of people of a country. Nepal's per capita electricity consumption is one of the lowest in the world. Recent study shows that 14 percent of the total population has access to electricity and most of the electricity facility is concentrated in urban areas. The per capita electricity consumption of Nepal was 47 KWH in 1998, the Lowest among selected developing Asian countries (Bhutan 600 KWH, Bangladesh 81 KWH, Myanmar 60 KWH, Pakistan 237 KWH, China 934 KWH, Maldives 220 KWH and India 443 KWH (Dhungel 2004).

The per-capita energy consumption in different year is shown in following table.

            The UN data base shows the situation of per capita energy consumption from 1980 to 2009. It is presented in the above table and Figure. It has shown the situation of highest per capita energy consumption 106.0 KOE in 2009 compare to other years. The UN data base has indicated 142^nd energy consumption position of Nepal in the world.

5.6 Electricity Import and Export

            The agreement between Nepal and India indicates both the countries exchange electricity as per the need. The exchange points are located at various places in the border line. Though there is a provision in the agreement to exchange to about 150 MW of electrical power between the two neighbors, but due to lack of transmission facility, it is limited below 100 MW.

            The electricity imported from India along the points of exchange for the year 2009 is about 412 Gwh whereas export to India is about 61 Gwh. The table 5.6.1 below shows the quantity exchanged between the two countries since 2001. It can be seen that except for the year 2005, Nepal is the net importer of electricity.

5.7 Total Power Generation in Nepal

            Following figure shows the total power generation by different sectors. The figure has shown the highest contribution of NEA in hydro-power generation. It is accounted 62.63 percent. Thermal generation of NEA is 36.72 percent and IPP's generation is listed, 0.64 percent.

5.8 Loan and Aid to Hydro-Electricity Development in Nepal

            The investment in hydro-electricity is made by NEA/GOVN, multilateral and bilateral donor agencies and private entrepreneurs. About 80.0 percent of power development is funded by external financing. The fund is allocated to Government of Nepal, which is lending by NEA through subsidiary loan agreement (SLA). The government receives the loan at 0.75 percent to 1.25 percent interest rate with a 30-40 years repayment period. The lending rate is 10.25 percent, some funds are grant money. The total cost, road construction and environmental impact have also been included as part of the project cost. Thus, the cost of hydropower project is site specific. Cost effective process needs an in-depth analysis to identify the areas where cost can be reduced by technical administrative and legislative approaches (CEDEOCON, 2009).

5.9 Electricity Sales

            Following the table shows the situation of electricity sales from 2001-2009.

The table 5.9.1 shows the electricity sales from 2001-2009. Where, more electricity is sold to domestic sectors compared to other sectors. Electricity sales are increasing continuously for different sectors, its clear that the calculation of growth rate and percentage share of electricity sales in 2001 and 2009.

5.10 Revenue from Electricity

            Following table shows the Revenue from electricity under 2001 to 2009

           

Table 5.10.1 shows the revenue from electricity from 2001-2009, where more revenue from domestic sector than other sector. The revenue from electricity is increasing continuously.

5.11 Load shedding in Nepal

            In the present situation, load shedding has become great problem of Nepal. Nepalese people are suffering from continuous around 112 hours load shedding per week. This situation is symbol of weakness of Nepalese government because Nepal is the second richest country in water resources. At this moment load shedding had negative impact on every sectors like industry, transportation, domestic, school, hospital etc. It is an obstacle to develop economic and domestic activities. The eleventh Three Year interim plan focused on to remove the problem of the load shedding.

            Eleventh Three Year Interim Plan will play important role to reduce load shedding comparison to previous year. NEA will import 60-110 M.W. electricity by the end of FY 2065/66 form India to decrease the time of load shedding. Middle Marshyangdi hydro-project will minimize load shedding in FY 2065/66 which will be connected to central grid. After interim plan 600 M.W. electricity will be connected to national grid.

                                                 CHAPTER-VI

6. HYDRO-ELECTRICITY AND IT'S CONTRIBUTION

6.1 Impact of Electricity

6.1.1 Impact of Electricity on Industry

Nepal is the less developed country in the world. Large scale industries are impossible to set up without electricity. Hydro-electricity plays a vital role in economic development of the country by providing energy to the industrial sector. Nepal is rich in hydro-power if we can utilize this available resource; it will give great help for the industrialization of country. Therefore, hydro-electricity is the most important over head for country's development by establishing small, medium and large scale industries with in the country.

            The industrial sector energy consumption is about 3.47 percent of the total energy consumption in 2007/08. The energy consumption has been increasing marginally during the last few years since 1998. The industrial energy consumption has increased at the rate of 1 percent only. It is estimated that about 12.7 million GJ of energy is consumed in the industrial sector in 2007/08. The electric energy consumption of 2750 GJ in the year 2007/08 (Energy Synopsis Report, 2009) (Table-6.1.1.1)

6.1.2 Impact of Electricity on Agriculture

           

            Nepal is an agricultural country. Agricultural plays important role in Nepalese economy. In agricultural sector we could not applied scientific method of production for raising productivity lack of electricity. It has become essential to increase electricity facilities. For modernizing agriculture sector, we have to make available irrigation facilities. To develop agro-based industries electricity can play an important role. In agriculture sector until now we only used to energy of animal and human power. By applying electricity in production process we can increase production. By increasing productivity of agriculture we can able to increasing national income.

            The total energy consumption in agriculture sector is about 3 million GJ in the year 2007/08. It is about 0.84% of the total energy consumption of country in the same year (2007/2008). The main fuels used in this sector are high speed diesel and electricity. But the electric consumption in these sector is small amount, only 180 GJ in the year 2007/08 (Energy synopsis Report, 2009). (Table-6.1.2.1)

6.1.3 Impact of Electricity on Transportation

Transportation is the most important overhead in the process of economic development of any nation. In the field of transportation, hydro-electricity is very essential in Nepal. It is because in Nepal with a low-cost of indigenous, hydro-electrical power may be substitutable for high cost imported fuels transportation. In Nepal, transport sector so far consume very little amount of electric power. In the present situation the government of Nepal is trying to develop the transportation sector by providing more electricity.

The total energy consumption in the transportation sector has been showing in an increasing trend. The total energy consumption of this sector in the year 2007/2008 is about 13.8 million GJ. The high speed diesel takes the highest share with 63 percent. But the contribution of electricity is nominal (only 0.15%) to this sector. (Energy Synopsis Report, 2009) (Table-6.1.3.1)

6.2   Hydro-electric Contribution on Economic Growth

          Hydro-electricity power is one of the needs for social and economic upliftment of nation. If we utilize hydro-electric power in a planned way it helps to raise the economy of the country. The developed countries like USA, UK, France, China, and Japan have developed the nation through electricity. The highly industrialized countries of the world electricity have become virtually lifeblood on which the whole economic depends.

            Hydro-electricity is an essential and important commodity for mankind in the modern Nepal. Per capita electricity is usually considered the yardstick of economic growth and development of a country. In the context of Nepal, following figure and table has shown the relationship between hydro-electricity and economic growth. The table 6.2.1 has analyzed the contribution of hydro-electricity on GDP. GDP increases due to continuous development of industries, raising the productivity of agriculture, development of transport-communication, raising the employment level and export promotion. So there is positive relationship between hydro-electricity and GDP.           

            The table 6.2.1 has shown the relationship between hydro-electricity contribution and economic growth in the time 1998/99-2008/09. The table has shown the highest contribution of hydro-electricity in GDP fiscal year 2006/07.

    6.3 Statistical Analysis

            Relationship between GDP from hydroelectricity and hydroelectricity capacity (X) in absolute term        

            To examine the effect of hydroelectricity and GDP is the major objective of this study. There is no unanimous agreement among the economists about the productivity of hydroelectricity, so this section explores the empirical relationship between hydroelectricity and GDP.

            If hydroelectricity can be shown to have had a tremendous effect on the economic growth and the overall welfare of the country, then the increasing level of hydroelectricity can be argued to be necessary for further growth of the economy. The basic starting point is the examination of direct relationship between the GDP and the amount of hydroelectricity. In all statistical analyses, number in parenthesis, below the coefficients for variables, indicate their respective t-values. All regressions in this chapter are conducted by the using of SPSS Computer Software. The regression equation mention below represents the relationship between Hydro-electricity and GDP from hydroelectricity in rupees which is given by:

The Electricity (X) is growing over the time whether this growing of electricity is contributing for output growth or not? This situation explores the answer of this question. Let us consider the following estimated relationship between change in electricity and change in GDP. This equation is estimated by Ordinary Least Square method. To answer this empirical question, following empirical equation is estimated.

The fitted equation of the regression model is

         As shown in the equation constant or intercept coefficient (a) is 128.392, which shown that average effect of Hydro-electricity contribution on dependent variable i.e. GDP and price are zero or other variable exclude from the model is positive. The result shows that the coefficient of Electricity (b₁) is 0.249 which explains that one percent change in electricity contribution causes 24.9 percent change in GDP, holding other thing constant. It means there is positive (+ve) relationship between Electricity contribution and GDP.

            The coefficient of determinants R² is 0.629 which depicts that around 62.9 percent variation of GDP is determined by the explanatory variables (electricity contribution). As such, the calculated 'F' value is greater than tabulated 'F' value, so the overall regression line is significant and it shows a better association between the variables in the equation. Similarly the number in parenthesis (*) indicates the 't' value of respective parameters. Where single star (*) indicates insignificant't' value at 5 percentage significant level and double star (**) indicates the significant value of 't' at 1 percentage significant level. At the last the value of (D.W.) is 2.308 which depict no auto correlation between the variable.

                                                 CHAPTER- VII

7. SUMMARY, CONCLUSION AND RECOMMENDATIONS

7.1 Summary

            Nepal is a Mountainous and landlocked country of the south Asian region located between the two populations countries of the world. India to the east, south and west and China to the North. Nepal has possessed first position in Asia and Second in the world after Brazil in hydro-electricity potential.

            Hydro-electricity is the most versatile sources of energy and provides infrastructure for economic development and growth of Nepal due to its advantages over other sources of energy.

            Energy consumption process in Nepal is dominated by traditional fuel resources and position of hydro-electricity consumption is nominal in every consuming sectors. Share of hydro-electricity consumption in over all energy consumption is 1.5 percent. Electricity consumers are increasing continuously from 1998. At the present the highest numbers of consumers are in domestic sectors and lower in transport sectors as compare to other sector. Per capita consumption is used to measure living standard of people of a country. But Nepal's per capita electricity consumption is one of the lowest in the world.

            India is only one country of electricity trading to Nepal. Electricity trading situation is not satisfactory now. Only in the year 2003 net power export is in favor of the Nepal. The investment in hydro-electricity is made by NEA/GOVN, multilateral and bilateral donor agencies and private entrepreneurs. About 80% power development is funded by external financing. The present situation, low finance, management blunder, high tariff regime, poor infrastructure, geographical condition etc are main problems of hydro-electricity development in Nepal. In the context of Nepal hydro-electricity is a critical factor for economic development and growth. The empirical analysis shows the positive relationship between hydro-electricity and economic growth. At the end of FY 2005/06, the total achievement of hydro power was 557 MW. Its contribution in over all energy consumption is only 1.5 percent.

7.2 Conclusion

            Nepal has vast hydro-resources, which represent a source of potential wealth. Commercially exploitable hydro-power generating potential is estimated to be 43,000 MW. In the context of renewable energy, hydro- power could be sustainable energy source in Nepal. So, all development strategy is followed by water resource development.

            Hydro-electricity is the engine of growth and development of Nepal and economic activities can't accelerate without electric fuel. It is back bone of the modern developments and essential for industrialization, agricultural development, transportation and other sectors. Its contribution in over all energy consumption is only 1.5 percentages. In Nepal, there is big push for Nepal's water resources as the dominant National strategy not only for sect oral gain but also as a engine for countries overall economic development. In Nepal, the private sector has indeed meet with some success implementing rural electrification projects. There is found that private sectors in Nepal have given interests in undertaking rural electrification projects. What is needed to implement such projects is the existence of enabling promotes private sectors involvement in rural electrification.

7.3 Recommendations

            The following recommendations are made on the basis of the findings of the study.

·   There is a positive relationship between hydro-electricity and economic growth then hydro-electricity should be developed in time. Nepal should adopt two approaches for development of hydro-electricity. First, it should cater to domestic (national) needs and second export power for neighboring countries. In order to meet the domestic power requirement, the government should encourage private sector to establish micro and small hydro-projects by internal finance and resources. In order to export power, the government should encourage foreign investor to establish of medium and large scale hydro-project by foreign loan and grants.

·   In new Nepal, new vision, new policy and new construction should be used for national development. Due to the lack of policy for investment in hydro-electricity in Nepal, we can not invite the foreign construction company to construct the hydro-electricity project, we make good farsighted policy to invite the foreigner for construction; we will produce huge amount of electricity with in few years. So our constituent assembly should make National policy and suitable environment to invite National as well as foreign investor.

7.4 Further Research issues

In following areas further studies can be carried:

·   This study has been carried on contribution of hydroelectricity in the economic development of Nepal using relationship between GDP from hydroelectricity and electricity capacity but a research on effect of investment and political situation on hydroelectricity  generation is desired

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