Home Kathmandu A discussion on “Benefit Sharing in Hydropower Projects in Nepal”

A discussion on “Benefit Sharing in Hydropower Projects in Nepal”

Image: Samriddhi Foundation

Kathmandu, March 24, 2016: Samriddhi Foundation hosted an ‘Econ-ity’ discussion on the cost imposed by lack of a clear benefit-sharing policy framework on private hydropower developers, at Hotel Himalaya today. The event featured the release of its latest report “Benefit Sharing in Hydropower Projects in Nepal” along with a panel and a round table discussion among the panellists and other key stakeholders.

The panelists for the event were Hon. Gagan Thapa, Chairperson, Agriculture and Water Resource Committee, Keshav Dhoj Adhikari, Joint Secretary of Water and Energy Commission Secretariat (WECS), Suman Basnet, Consultant (Renewable Energy and Management), Mr. Kumar Pandey, Secretary General at Independent Power Producers’ Association (IPPAN) and Mr. Nirjan Rai, executive director of Niti Foundation.

During the discussion, Dr. Dhruba Bhandari, a Research Fellow at Samriddhi Foundation presented findings from Samriddhi’s latest study on hydropower sector. Samriddhi Foundation recently completed a new study on the cost of lack of a clear benefit-sharing mechanism on hydropower developers. The paper titled ‘Benefit Sharing in Hydropower Projects in Nepal’ discusses one of the major challenges being faced by Nepal’s hydropower sector–sharing benefits with locals.

The study has looked into two kinds of hydropower projects, viz. small projects (below 10 megawatts capacity) and medium projects (between 20 and 60 megawatts capacity). According to the study, it is feasible for small and medium hydropower projects to spend as much as 2 percent and 0.5% of total project cost on benefit-sharing respectively.

The cost of benefit-sharing to the developers includes the direct cost (which is directly transferred to the locals), forgone revenue due to halt (opportunity cost), and re-mobilization cost after halt to meet the schedule. Developers have expressed that it is feasible to spend more money on benefit-sharing than the actual direct cost they have to incur at the moment. This highlights that developers are willing to spend more for locals as long as there is a clear and simple policy framework that is stable. “That is because developers value predictability more than additional 0/5 to 2% of project cost,” Dr. Bhandari iterated. Other participants also re-iterated that developers value predictability more.

Nirjan Rai, the Executive Director at Niti Foundation highlighted that there is a disconnect between the policy and the local communities as the revenues that developers pay to the government are only channeled back up to the district level as per the Local Self Governance Act. Kumar Pandey, Secretary General at Independent Power Producers’ Association also pointed out that the developers pay royalty to the Department of Energy Development on a quarterly basis, while the government comes up with the budget on an annual basis, which leads to there being an at least one-and-a-half-year gap between the developers’ royalty payment and the district’s receipt. He emphasised that there should be a direct linkage between royalty payment and receiving benefits.

Hon. Gagan Thapa, who was also the chair of the session mentioned that the constitution has mandated compulsory benefit-sharing with locals when it comes to the use of all natural resources and not just hydropower. Therefore, whether should or should not developers share benefits with the locals is no more a contentious issue. However, “It does not mean that developers have to do everything, from planting trees to building bridges by themselves. Once the developers make a payment to the government, the government should take care of the rest and let the developers focus on nothing but developing hydropower projects.” he said. He also added that now that Nepal has moved into a federal system of governance, there is a need to devise lots of new policies and laws, and the inputs from the session will be substantial when it comes to formulating those policies and laws.

The program ended with a lively round-table discussion amongst well-known bureaucrats, economists, policymakers, politicians, private hydropower developers, researchers and journalists. There was a general consensus that lack of clear policy framework and rule of law are some of the major impediments to development of hydropower sector in Nepal.

You can catch the quotes from the speakers and comments from the audience here.

Samriddhi, The Prosperity Foundation is an independent policy institute based in Kathmandu that focuses on economic policy reform. Established in 2007, Samriddhi aims at facilitating a discourse onpragmatic market based solutions for a free and prosperous Nepal. “Econ-ity,” is a live-audience and public forum for economic discussion providing economic analysis and discussion of economic challenges facing Nepal. This forum focuses on the most relevant contemporary issues in Nepal’s economic discourse.