At an October 2003 'track two' meeting in the Nepali capital between the Centre for Policy Research, (CPR) from New Delhi and the Institute for Integrated Development Studies (IIDS), Kathmandu on Indo-Nepal water resources development, the Indian delegation extolled the virtues of the 'Bhutan model'. According to them the USD 600 per capita income accrued to Thimphu from 336 megawatt (Mw) Chukha is expected to rise to USD 1200 once the 1,020 Mw Tala hydroelectric project comes on stream in 2005. The CPR representatives also apprised the Nepali participants that India's National Hydroelectric Power Corporation Limited (NHPC) was in town, negotiating the 300 Mw Upper Karnali hydropower project. A CPR gentleman further stated that the estimated equity distribution for the project could be 85 percent NHPC, 10 percent for the Nepal Electricity Authority (NEA) and the remaining 5 percent for the Soaltee Group, a Nepali private company. The Nepali participants were not bowled over by the Bhutan model projects as they were constructed entirely on India's financial strength and ended up with India-imposed power tariffs. The Nepalis instead questioned the status of several regional projects: the American-led Four Border South Asian Regional Initiative on Energy (SARI/E), the Asian Development Bank (ADB)-led Arun Valley Development and the Australian Snowy Mountain Electric Company's seven-year old project called West Seti. Furthermore, the Nepalis summed up that all roads lead to Delhi. But it was on the Upper Karnali issue, that Nepali eyebrows were raised, for the 85-10-5 sharing of the spoils was not something that was in the public domain before this.
How much private sector?
The fact that His Majesty's Government of Nepal (HMGN) had traded off the 300 Mw run-of-the-river Upper Karnali to the Government of India (GOI) had been reported in the media for some time. However, the sudden appearance of the GOI owned public sector undertaking, NHPC, in the present politically troubled waters of Nepal does indeed raise many questions, at least among the more critically inclined. When HMGN offered these two projects to GOI, it was believed that the private sector of both the countries— Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Confederation of Indian Industry (CII), and the Federation of Indian Chambers of Commerce and Industry (FICCI)— would be involved. During King Gyanendra's last India visit, a memorandum of understanding (MOU) between FNCCI and FICCI was initiated for joint private sector participation in trade and investment with a tourism and hydropower development focus. In fact, knowledgeable circles assert that the strong Indian multinational, the Reliance Group of the Ambanis, was very keen to execute the Upper Karnali project. Reliance must have also had its eyes on the much larger jewel, the 10,800 Mw Karnali Chisapani "Kohinoor", to demonstrate that it could succeed where Enron had failed in the past (see Himal March 2002). As it transpired, it was the GOI which effectively blocked Reliance's bid. GOI's policy, for the time being, seems to be that all infrastructure projects in Nepal will have to have the full stamp of Indian public sector undertakings. It was presumably this presence of the public sector that prompted the Embassy of India in Kathmandu to go out of its way to extend reassurances to Nepal. The Commercial Secretary of the embassy made the laboured explanation that this is "…the first time that an Indo-Nepal hydel project is being envisioned on commercial lines. … It is not a project run on a government to government basis but being done by a company on a commercial basis that makes sound economic sense".
Nepali reactions
There were varying reactions to the recent developments on Upper Karnali but all have the same conclusion: that the aggressive approach of GOI and NHPC indicates that they are going for the "quick and final kill". Some, like Ananda Bahadur Thapa, former Executive Secretary of Nepal's Water and Energy Commission, bemoaned the possible death of a 4,000 Mw storage scheme that could also have been built on the river at this stretch. It will be interesting to see how the two governments react to this complaint: a run-of-the-river power-only project as opposed to a project with valuable stored water in addition to power. Others lamented that the "jewel in the crown" in the country's hydropower treasure chest should have been for Nepal's own domestic use and is wrongly being licensed for export. The cheap power, they argue, would have played a vital role in stabilising Nepal's spiralling power tariff. There are still others who question the tiny 15 percent equity that Nepal is being apportioned. This point has been rebutted by some Nepalis themselves with the query, "How much cash does NEA have? Has NEA ever paid dividends to HMGN? Therefore, in the circumstances, can NEA afford to cough up the equity investment for Upper Karnali?" Apparently these Nepalis have been badly bitten by the "commercialisation bug" of the industrialised countries which now plagues the developing world. The question that should actually be raised is, which South Asian electric utility coughs up its own cash for its capital intensive generation expansion works? But one does, however, hear that some Nepali investors are seriously jockeying for reasonable stakes in the pie. There is no question that the pie needs to be apportioned properly. As the rightful owner of the resource, it is Nepal, and no one else, that should be doing the apportioning.
The Upper Karnali project is located in the corner of the districts Dailekh-Achham-Surkhet in midhill west Nepal, on the Karnali river (the Ghaghra in India), one of the mighty tributaries of the Ganga emerging from the central Himalaya (see map). The backwater of the 10,800 Mw Karnali Chisapani project is quite far away from the Upper Karnali powerhouse site. One does, however, notice the tellingly seductive loop of the Karnali river when it suddenly changes its course by a full hundred and eighty degrees. No doubt, this is nature's precious gift to Nepal. A mere 2.2 kilometre tunnel creates a drop of 141 meters to generate an average annual energy of 1915 million units. In contrast, the 144 Mw Kali Gandaki project, financed by the Asian Development Bank (ADB) and Japan's Overseas Economic Cooperation Fund (OECF), has a six km tunnel to get the 115 meter drop to produce only 842 million units. In the case of the Upper Karnali, accessibility is already available through the Surkhet to Jumla road that touches the project's proposed headworks. A mere 22 kilometres of road is necessary to connect the headworks with the powerhouse. This is the reason why all eyes are focused on this 300 Mw "jewel".