OPINION ON UPPER TRISHULI CONTROVERSY Upper Trishuli 3-A Project 60 versus 90 Megawatt Controversy Santa Bahadur Pun February, 2013 Foreword: As of this writing (February 2013) the 60 versus 90 Megawatt controversy over Upper Trishuli-A (UT 3-A) project, unfortunately, remains unresolved since December 14, 2009 . The UT 3-A was designed by NEA as a 60 MW project with an annual average energy generation of 464 GWh at a high flow exceedance of 70 percent. Aware that the project had a higher power potential, NEA planted the first seed for controversy by floating the EPC tender for 60 MW with an option to quote for 90 MW as well. 90MW meant an annual average generation of 612 GWh of energy – an increase of 148 GWh – at a flow exceedance of 52 percent. The government had, apparently, already approved projects to be designed with flow exceedance of as low as 40 percent. Media reports indicate that the Chinese bidder, China Gezhouba Group Co. Ltd., had quoted a bid of 111 million US dollars but finding that its other competitor, Sino Hydro, had a lower bid of 90 million US dollars offered, just before the official bid opening, 89 million US dollars. The bids were evaluated and the 60 MW EPC contract awarded to China Gezhouba at 89 million US dollars. China Gezhouba was, apparently, the only bidder to quote the 90 MW option at an ‘additional 25 percent cost’. Thus, the second seed for the 60 versus 90 MW controversy was planted. The planted seeds started to germinate and two schools of thought in the ‘urja sector’ battled to get the upper hand. Initially, the 60 MW proponents had the upper hand with their basic argument that the project be commissioned as early as possible to mitigate the prevailing 14 hours of severe load shedding per day in the dry season. The 90 MW proponents, however, persisted arguing that this ‘rare opportunity’ to upgrade the project should not be lost for ever by the nation. This battle ‘of thought’ was aggravated by another battle ‘of costs’ between NEA and China Gezhouba over the interpretation of 90 MW at an ‘extra 25 percent cost.’ Is this additional 25 percent cost, as NEA interprets, of the ‘awarded 89 million dollars’ or of the ‘original 111 million dollar‘ bid that Gezhouba interprets? This battle of the cost naturally spilled over to the public and the 90 MW upgrading was alleged to be done entirely at the behest of local agents and contractors to line their pockets as well as those of the decision makers. In the storm of such allegations, the need to vet both sides of the coin got drowned. This article attempts to do that. 60 MW Proponents: The arguments of the proponents for the 60 MW are compelling and not illogical: • They argue that the UT 3-A was tendered and the EPC contract awarded for the 60 MW project. An upgrading to 90 MW will violate the public procurement act. • Besides, construction works on the 60 MW project has already progressed by about 20%. • Addition of the third 30 MW Unit will entail a substantial project cost escalation of about US$ 43 million . • It is not only the cost escalation but the 30 MW upgrading will result in a two to three year commissioning delay. • Addition of third 30 MW Unit will add only wet season ‘rubbish’ energy of about 15 crore units (150 Gwh). • This annual ‘useless’ energy of 15 crore means a loss of about Rs 80 crores (@ Rs 5.40 per kWh) per annum which, over the project’s 30 year life span alone, means a loss of Rs 24 arabs . • And such a delay will further aggravate the existing dry season load shedding of 14 hours per day. The above are the main points of the 60 MW proponents. As the media have reported them profusely, this article has not discussed them in details. It is true that this third 30 MW Unit will add a substantial 148 GWh of wet season ‘rubbish’ energy which is not as valuable as the dry season energy. 90 MW Proponents: As the media have not discussed the advantages of adding the third 30 MW Unit at UT 3-A, this article, for record and readers’ sake, has discussed at length the following advantages: i) Optimum Use of Nepal’s Water Resources: Around 1995 the Ministry of Water Resources was about to award the 36 MW license to the American company, Panda Energy, to develop the Bhotekoshi project in the district of Sindhupalchowk. Similar to the present 60 versus 90 Mw debate on UT 3-A, there were strong voices in the Ministry that argued to have the 36 MW capacity lowered to do away with the ‘rubbish’ wet season energy. However, after much vetting the American developer was awarded the 36 Mw license for Bhotekoshi with the simple logic of ‘maximizing available resources’. The American developer, instead of the approved 36 MW, quietly went ahead and installed the 45 MW machines. This led to a bitter 36 versus 45 MW feud when NEA refused to purchase Bhotekosi energy over and above that stipulated in the 36 MW power purchase agreement. Much ill-feeling was generated with US Senate threats to withdraw her garment quota for Nepal. However, after protracted negotiations the 36 versus 45 MW controversy ended in a win-win for all. The overrated 45 Mw Bhotekoshi is now pumping the additional 9 MW wet season ‘rubbish power’ to the starved system ‘at a nominal price of NRs 1.625 per kWh.’ ii) Utilization of Wet Season Cheap Energy: Our policy makers, in the long term interests of the country, would need to devise ways and means to utilize this ‘rubbish’ but cheap energy. a) Export to India: The most popular policy that every one has been parroting for the last fifty years since the Panchyat days is that ‘surplus energy could be exported to the huge Indian market.’ This export policy got more credence when in 2006 the talk for the 400 kV Dhalkebar-Muzaffarpur double circuit cross border 140 km transmission line started. After six years of bureaucratic bumbling, this export became import with Nepal importing on a long term 25 year period 150 MW from ‘power thirsty’ India through this cross border transmission line, hopefully by June 2014 . Many are not aware that this cross border transmission line is presently a one-way traffic, not yet provisioned for the two-way, export as well, traffic. And many will vouchsafe that if India, as the monopoly buyer, does finally agree to import Nepal’s surplus energy, it can not be at a price higher than IC Rs 1.00 per kWh – the price of surplus Bhotekosi energy NEA buys from. b) Urea Fertilizer Factory: If such be the likely scenario, Nepal should seek other avenues to utilize her cheap energy for her own industries? One such avenue is the installation of the electrolysis-based urea fertilizer factory. As far back as 1984 when the Japanese government envisaged the 225 MW Saptagandaki project, a similar debate on what to do with surplus ‘rubbish’ energy had surfaced. The Japanese recommended a 275 metric tons per day electrolysis-based urea fertilizer plant at Hetauda as it required flue gases of cement factory. While nitrogen came from the air, hydrogen was extracted from water by electrolysis to form the base, ammonium (NH3). The plant required a continuous 24-hour 76 MW power supply but was planned to close down for three months in the critical dry season when hydropower generation was low. In other words, despite the three months’ shutdown, the plant was viable because of the availability of cheap ‘rubbish’ wet season energy. Unfortunately, the urea plant got washed away when Saptagandaki was flushed down the sewerage pipe by the extremely cheap 402 MW Arun-III. With heavy import of fertilizers, the government is now seriously mulling over the need of fertilizer factories in Nepal. Dang, where the cement factories are mushrooming, could be the most appropriate district for such fertilizer factories. Such electrolysis-based urea fertilizer factories in Nepal could help to mitigate some of the ‘rubbish wet season energy’ issue as more and more run-of-river projects get commissioned. c) Seasonal Tariff: The other avenue that requires to be explored diligently is the Time of Day tariff already approved by the Electricity Tariff Fixation Commission. In the present power and energy crisis, there is very little margin between the peak and off-peak tariff. Adequate homework should be done now so that when the energy crisis eases, a new Time of Day tariff would become effective. Above all the Tariff Commission should, to address the ‘rubbish wet season energy’ issue, explore in depth the concept of Seasonal tariff. Seasonal tariff so that the wet season cheap energy will be consumed by our own industries, particularly the growing cement factories that require continuous power. Such a policy will boost employment opportunities within the country and make Nepalese products and services more competitive in the international market. Seasonal tariff so that our own domestic consumers will be the first to avail that benefit and then and only then should we explore cross-border sales. iii) Flexibility in Planned Maintenance: In order to prevent loss of revenue, all planned major maintenances of hydropower plants are done in the dry season when the river flow is low. In the case of UT 3-A with two 30 MW Units, when a unit is taken-off for maintenance, river flows to the tune of about 14 MW of valuable dry season power will be unnecessarily spilled. The installation of a third Unit will prevent this spillage of valuable dry season energy. Such spillage of valuable dry season energy and ease of maintenance has been envisioned by providing three Units in both the lower 69 MW Marsyangdi and the 144 MW Kali Gandaki A. iv) Upgrades 37 MW Upper Trishuli 3-B to 55 MW: The other important benefit to the country of upgrading the Upper Trishuli 3-A to 90 MW is the upgrading of the planned lower cascading 37 MW Upper Trishuli 3-B to 55 MW. The average annual energy from this 37 MW cascading lower Trishuli 3-B is about 296 GWh and the upgrading will add another 100 GWh for the system. v) Cost per Megawatt: Projects are graded on the basis of cost per kWh of energy they produce. However, the project’s cost per Megawatt grading is more popular with the general layman. Assuming that NEA does agree to China Gezhouba’s demand for US$ 43 million extra, this increases the 90 MW (612GWh) UT 3-A project cost to US$ 132 million which means US$ 1.47 million per Megawatt. Now compare this with the cost per Megawatt of the projects NEA is presently executing: a) 30 MW Chameliya (184 GWh) estimated at US$ 100 million but already spent Rs 8.8 billion – US$ 3.33 million per MW b) 14 MW Kulekhani III (41 GWh) estimated at Rs 2.4 billion (about US$ 30 million) – US$ 2.14 million per MW and c) 32 MW Rahughat (188 GWh) estimated at US$ 68 million – US$ 2.13 million per MW . Both Chameliya and Kulekhani III have suffered heavy delays . While Kulekhani III was scheduled to be completed by July 2012, Chameliya’s commissioning date of December 2012 has also passed. Rahughat has already shown signs that it will suffer the same fate as its sisters. These three 76 MW projects with a total average annual energy of 413 GWh only is estimated to cost US$ 198 million i.e an average cost of US$ 2.6 million per MW. It is in this context that our policy makers should seriously mull over the UT 3-A’s 90 MW with 612 GWh of energy at an extremely low US$ 1.5 million per MW. Final Word: To conclude, while the argument of 30 Mw third Unit entailing project delays and cost escalation are valid, optimization of water resources, flexibility in planned maintenance, upgrading of tailrace 37 MW UT 3-B to 55 MW and the cheap US$ 1.5 million per MW cost are equally valid. Of course, utilization of wet season cheap energy for Nepal’s own domestic uses whether urea fertilizer factories or cement industries and domestic users through Seasonal and Time of Day tariffs must be accorded top priority. Unfortunately, this controversy is very much representative of the fluid political environment bedeviling our New Nepal. Former Finance Ministers Dr RS Mahat and Dr. PC Lohani, both of whom incidentally hail from Nuwakot district where the project is located, along with other ex-Ministers called the government’s 90 MW upgrading plan ‘illegal, inappropriate and guided by vested interests.’ Dr. RS Mahat even charged that Prime Minister BR Bhattarai had abused his power ‘for personal and party’s benefit. There is no other motive than earning cash.’ These are indeed very serious charges. The government should in a transparent manner make genuine efforts to dispel such fears from the public. The project and the nation itself should not be hostaged by such mere 30 MW upgrading . The nation has far more important decisions to take in the ‘urja sector’ alone. It is hoped that decision makers would weigh both sides of the coin carefully so that the 90 MW upgrading opportunity would not be lost forever to the nation. The End