1. Introduction

This Corporate Development Plan (CDP) aims to present the strategic plans adopted by Nepal Electricity Authority (NEA) for the five-year period FY 2004/05 to FY 2008/9 with regard to its generation, transmission, distribution and other institutional strengthening activities. This CDP includes an outline of the investment plan that such infrastructure development would call for and analyse the implications on financial projections of NEA. The CDP also charts out the strategies for successfully financing the investment plan and outlines the performance that NEA aims to attain by way of its investment plan.

2. Present Performance

 NEA presently serves 1,060,700 customers (a growth of about 9.28% over that of the previous Fiscal Year) across all the 75 districts of the country. Electricity supply is provided through ten medium-sized and forty small hydropower plants owned by NEA and ten hydropower plants owned by IPPs. Besides, four diesel and two multi-fuel thermal power plants under the ownership of NEA also cater to the demand. In terms of installed capacity of NEA’s integrated grid, hydroelectric power accounts for 549.553 MW (including 147.083 MW under private ownership) and thermal power, 56.69 MW. During the time of deficit, power up to 50 MW is imported from India as per the Indo-Nepal Power Exchange Agreement. Nepal and India have agreed in principle to increase this level of exchange from the existing 50 to 150 MW. Nepal is also entitled to 70 million units of energy annually from Tanakpur in the far west under the Mahakali Treaty and 10 MW  power according to Koshi contract. Although the integrated grid has a total of 549.553 MW installed hydropower capacity, only about 459.861 MW can be generated from hydropower stations during the winter season when the power demand is at its peak.

 In the area of transmission and sub-transmission of electricity, the NEA system has grown into a network of more than 1565 km of 132 kV, more than 420 km of 66 kV and around 2500 km of 33 KV power lines. Distribution and customer services are provided with lines around 8000 km of 11 kV (source: GIS maps, NEUS-2000 Report). In keeping with the HMGN policy of extending electricity services to the district headquarters, all the headquarters of the 75 districts of the country are provided with electricity. The remaining areas are being progressively electrified. In order to accelerate the pace of expansion and conduct management of rural distribution systems in a sustainable manner, NEA has adopted a concept of community participation in rural electrification schemes. The overwhelming response from user groups and cooperatives to NEA’s invitation for proposals on operating the distribution system by the community themselves has led to 80 agreements already in place.

 NEA continues to be the sole purchaser of IPP's power production. To date, twenty six (26) PPAs totalling 216.047 MW have been concluded, of which 147.083 MW have already been commissioned. Out of the 16 IPP projects for which PPAs are concluded, 14 projects are expected to be commissioned by FY 2007/08 resulting in augmentation of generation capability by 58.764 MW. Another 36 requests for PPAs amounting to 81.031 MW of power are under scrutiny.

 3. Issues and Perspectives

 The extremely limited investment capability of the country continues to remain one of the major impediments in the development of the Nepalese power sector.  Resource mobilisation in recent years to finance development plans in the public sector has been ineffective. Similarly the current trend of private sector investment in the power sector is also not very encouraging. The continuing investment of the private sector in only small capacity plants in the 1- 5 MW range does not provide any substantial relief in meeting the growing needs of the country’s power system.

 The dominance of run-off-river (ROR) and daily pondage hydropower plants in the Nepal power system has led to the creation of difficult periods of acute capacity shortage during the dry season when the demand rises sharply while the wet season sees a glut of energy available in the system which has yet to find a market. The cost involved in the relatively higher installed capacity of ROR plants has been partially responsible for the current high tariff. Attempts by NEA to amend its present tariff structure to introduce seasonal tariff in certain consumer categories to encourage the demand side management is yet to be approved by concerned authorities. The need for a suitable storage hydropower project in the system to balance the phenomenon of seasonal shortage and surplus has become acute and several donors were approached for assistance.  All financial assistance to HMGN from external donors and lending institutions in the form of grants or soft loans for the power sector are channelled to NEA for project execution as an HMGN loan to NEA carrying an annual interest rate of 10.25 percent. Considering its current financial health burdened by the high cost of energy purchased from IPPs on a take or pay basis, the application of this high interest rate by HMGN even on outright grants that barely carry any risks, needs review. In addition, as prescribed in most grant assistance agreements procurement of plant, equipment and services from a limited market makes the purchase more expensive in the absence of an international competitive bidding. NEA is therefore pursuing the Government to reduce this interest rate in order to improve its financial health. This will also have a positive impact on NEA's current tariff. In addition, having identified the concept of establishing subsidiary companies and floating power bonds as feasible resource mobilisation techniques, NEA is also pursuing the government for its approval for implementing these options to raise capital from the local capital market to finance its development plans. With scarce resources from its own earnings, investment in rural electrification that does not ensure any substantial returns has always been a dilemma. NEA, however, in its attempt to make rural electrification self-sustaining, is garnering the active participation of local communities for the extension, operation, and maintenance of rural electrification schemes with a major subsidy from HMGN. In addition, NEA has also taken up rural electrification schemes through loans and grants from multilateral donors in areas that promise a reasonable rate of return.

4. Electricity Demand Forecast (Load Forecast)

The electricity demand forecast, covering the period up to FY 2019/20 is prepared considering the country’s macro- economic indicators and rural electrification expansion programmes. Power consumption data of FY 2004/05 has been taken as a basis for this load forecast. Total energy requirement in Nepal is projected to grow by an average of 8 percent per annum over the forecast period, from 2,299.9 GWh in FY 2003/04 to 7894 GWh in FY 2019/20. Peak demand is projected to grow from 512.2 MW in FY 2003/04 to 1733 MW in FY 2019/20. The result of the Load Forecast Study-2004/05 is presented in

Table 1: Load Forecast Study FY 2004-05 

 Note: Data given for FY 2004-05 are budgeted.

*Actual peak load in FY 2004-05 was 556.3 MW on excluding export to Ramnagar.

Power Demand and Supply Situation (till 2009/10):

The capacity balance at the time of system peak up to FY 2009/2010 incorporating the planned projects as given in the Generation Expansion Plan is presented in Table 2.

Table 2: Capacity Balance with Planned Projects

 [1]peaking capacity in the winter months of December

The Capacity Balance presented above shows that there is shortfall of supply over demand from FY 2005/06 even after utilizing the existing thermal generating capacity of NEA, the 50 MW import available under the Power Exchange Agreement with India and the limited number of planned projects that could be made available for generation in FY 2008/09 and 2009/10. Contingency measures such as increased import, utilization of available captive generation of industrial establishments and demand side management need to be explored in those years.

Considering the availability of the captive generation, which is not in appreciable quantity, the increased import and the demand side management could prove to be effective. Out of the two alternatives, the demand side management along with the use of efficient lamps in domestic households and other usages for the coming fiscal years could prove to be more effective. If a 10% penetration could be made in Name Kathmandu Type Valley only, where the peak load is more than 200 MW, the peak demand reduction will be more than 15 MW, considering 57% as lighting load (WECS report).

5.Power Generation Expansion Plan

A new Generation Expansion Plan study for the planning period FY 2005/06 –2019/20 was carried out. The results of the Study are presented in Table-3.