Tariff restructuring is essential not only for setting purchase prices (Power Purchase Agreement – PPA) and retail tariffs (consumer rates), but also for creating a transparent and institutionalized mechanism for annual review and approval of tariffs. Despite the mounting pressures and a series of debates between NEA, Independent Power Producers (IPPs), Electricity Tariff Fixation Committee (ETFC) and regulatory agencies, the government had not been able to adjust consumer prices to inflation for 11 years. This made most investments in hydropower unfeasible.
On March 20, 2011, Niti convened a broad policy dialogue forum as a culminating effort of the roundtable series to exert pressure on the government to correct the tariff rates at the soonest. March 23, the government dissolved the tariff commission and declared the next four-and-a-half years as a period of “energy emergency” and increased the Power Purchase Agreement (PPA) rate by 20 percent. Although the price to consumers was not increased at the time, the investor-incentive for rapid development of hydropower was restored.
On May 13, 2012, Niti again collaborated with NHA to organize a similar policy forum a year later by bringing in collaboration of reform constituencies involving all major stakeholders in the hydropower development to exert pressure on Electricity Tariff Fixation Commission (ETFC) to revise the electricity tariff rate.
On June 28, 2012, ETFC decided to hike the electricity tariff rate on average by 20% from the new fiscal year that started from July 16, 2012. It came with a condition that NEA will simultaneously improve its operations and bring efficiency in its work. This tariff hike will enable NEA to purchase electricity from private hydropower producers at a competitive rate, encouraging more private companies to produce electricity and to bring down the hours of daily power outage in the country.
It was not just the public forums and discussions, but also petition to ETFC to increase tariff and regular interactions that Niti had with members of ETFC and NEA officials that assisted ETFC to make its decision.
- Community Based Rural Electrification
Niti Foundation conducted a study to explore the role of electricity users’ group in managing local infrastructure through community based rural electrification (CBRE), which is a partnership between the government of Nepal and local community, where government connects the community to an electricity grid, and members of the community, after a contribution of 10% of the total infrastructure cost, form users’ group co-operative to manage the overall distribution of electricity to households.
While NEA is under criticism for its inability to meet the growing energy demands, both in terms of coverage and quality, the number of communities with CBRE has increased from one or two communities in 2060 BS to more than 200 communities in 2068 BS, and based on comparison of operating cost between NEA (Gorkha district) and community (Lamjung district) at district level and NEA (Tatopani in Myagdi) and community (Jadi in Baglung) at neighborhood level, communities are also successful in managing the distribution of electricity at a lower operating cost than NEA. The customers of CBRE expressed high satisfaction in their service provision because of the partial ownership of the infrastructure, generation of local employment, transparency and accountability, minimization of misuse and theft of electricity, fast customer service, convenience to pay electricity bills, and efficient management.
The study findings show that communities in CBRE are not just limited to provision of electricity to households; their democratic participation in managing infrastructure has potentials to trigger numerous positive social changes in the community. The study carried out in four rural communities – Gyampesal in Gorkha district, Lamjung Electricity Users Association in Lamjung district, Amilichap in Dhading district, and Devbhumi – Baluwa in Kavre district show that among many other changes, CBRE has generated opportunities for entrepreneurial activities, increased social capital among community members, and addressed issues of social equity.
- Institution Restructuring
One of the major constraints identified through deliberative policy round table meetings involving major stakeholders in hydropower development is the institutional restructuring of NEA that used to be the sole authority to generate, transmit and distribute electricity throughout Nepal. Since 1990, the emergence of numerous government institutions, such as Water and Energy Commission, Electricity Tariff Fixation Commission, Transmission Commission etc. has played significant role in hydropower development, but their role in comparison to other government organizations working in hydropower development has been less analyzed. Besides, several exercises have already been carried out by different authorities to unbundle NEA, i.e. to decentralize the role of NEA into generation, transmission, and distribution of electricity, but has not been materialized fully.
In the generation part, private power producers have already started to generate electricity, and in the distribution part, as seen from Niti’s previous researches, local communities have shown that they can manage the distribution of electricity. With emergence of multiple organizations in hydropower development and from the policy process mapping exercise conducted by Niti in 2010 and a focused diagnosis of the hydropower sector, Niti came to understand that unless the policy process is opened up to include all legitimate stakeholders, the monopoly over the content of the policy will continue to reside in a limited number of powerful actors whose personal capacities, interests and wisdom become determining factors in policy framing and not broader social goals such as equity, efficiency and practicality of the policy.
For involvement of wider stakeholders and to understand the constraints in institutional unbundling, Niti has already started the following activity:
- Niti with the support from The Asia Foundation is conducting a political economy analysis of all the organizations involved in hydropower development in Nepal to understand the role of each organization and their underlying challenges and political constraints to address institutional unbundling of NEA.
This activity will facilitate the current discussions on unbundling of NEA and will open up opportunities for multiple stakeholders in generation and distribution of electricity, while the responsibility of transmission will most likely remain within NEA.
- Laws and Regulations
The proposed electricity act had 142 amendments by CA members from across the entire political spectrum. It indicates a serious political engagement and re-thinking – as well as wider national debate – about what the electricity act for the country should be like, as well as the ancillary rules, bylaws etc.
- Investment Board
Increased investments in large scale hydropower developments will need both national and international investments, for which there is a need to develop a political strategy to create conducive investment climate. With a vision to attract investments to Nepal and to develop a conducive investment climate for investors, Government of Nepal has created an independent body -“Nepal Investment Board (NIB)” – as a one-stop shop to award large scale national projects, among which four are large hydropower projects. Niti Foundation, in its effort to address this constraint is currently partnering with NIB to create procedures and guidelines for NIB to work with investors. Niti has already identified the difficulties & challenges faced by both national and international investors in Hydropower development sector through series of consultative meetings.
Niti is also collaborating with Nepal Law Society – an association of law professionals in Nepal for preparing procedures and guidelines.