Lack of a clear benefit-sharing policy impedes hydropower development

On 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. Econ-ity is Samriddhi Foundation’s regular discussion platform for sharing perspectives from different sides on political economic agendas that are important in the contemporary context.

During the discussion, Dr. Dhruba Bhandari, a Research Fellow at Samriddhi Foundation presented findings from Samriddhi’s latest study on hydropower sector. 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 are having 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 upto 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 emphasized 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 panelists were:

  1. Hon. Gagan Thapa, Chair, Agriculture and Water Resource Committee
  2. Keshab Dhoj Adhikari, Joint Secretary, WECS
  3. Suman Basnet, Consultant (Renewable Energy and Management)
  4. Kumar Pandey, Secretary General, IPPAN
  5. Nirjan Rai, Executive Director, Niti Foundation

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.

Please find some of the news articles on the event below:

  1. The Himalayan Times 
  2. Glocalkhabar
  3. Aarthik Abhiyan

The presentation on benefit sharing can be downloaded here: 

Download “Benefit Sharing in Hydro-power in Nepal” Samriddhi-BenefitSharing.pdf – Downloaded 69 times – 460 KB