Stockholm World Water Week Water and Green Growth Seminar “ The Water and Energy Nexus

1. Stockholm World Water Week Water and Green Growth Seminar “The Water and Energy Nexus in the context of Green Growth” 2nd September 2014 14:00-17:00

2. Water and Green Growth Seminar • Session 2. Putting Green Growth in practice TheAndhikhola Hydel and Rural Electrification Project (AHREP) in Nepal Prof. Dr. Phoebe Koundouri AUEB: Athens University of Economics and Business LSE: London School of Economics and Political Sciences ICRE8: International Centre for Research on the Environment and the Economy

3. Our Team Prof. Dr. Phoebe Koundouri Prof. Dr. Ben Groom Dr. Osiel González Dávila pkoundour@aueb.grb.groom@lse.ac.ukosiel.davila@soas.ac.uk

4. Detailsof the Project • Project: Water and Green Growth-Phase II • Funders: Ministry of Land, Infrastructure, and Transport of the Republic of Korea (MOLIT), Korea Water Resources Corporation (K-water), World Water Council (WWC) • 5 case studies: 1. Australia:Murray-Darling Basin: Water Trading and Water Use Efficiency (status: approved) 2. China:Shanghai Pudong: Public Private Partnerships (status: approved) 3. Nepal:The AndhikholaHydel and Rural Electrification Project (status: under review by the WWC) 4. Egypt: Desalination for Agricultural Development (status: under review by the WWC) 5. Malawi/Tanzania: The Songwe River Basin Development Programme (status: on-going, collecting Surveys)

5. The Water and Green Growth project defines green growth as: “Astrategy that fosters economic growth and development, protects natural ecosystems and the resources and the environmental services they provide, and enhances socially-inclusive development” (WWC 2012:11).

6. Institutional Framework Modified from Saleth and Dinar (2004)

7. Saleth and Dinar's (2004) Analytical Framework

8. This case study report • Analyses the impact of the Andhikhola Hydel and Rural Electrification Project (AHREP) on Nepal’s green growth strategy followingthe NewInstitutionalist approach. • 20 relevant stakeholders were contacted and a detailed questionnaire about AHREP’s institutional context and performance was applied to each of them by an experienced local consultant. See example here: https://www.dropbox.com/s/c1cwa26940rfzj1/WGG%20Questionnaire%20-%20Integrated%20Type%20AB.docx?dl=0

9. Contents Ⅰ. The Need for Hydropower in Nepal Ⅱ. The Andhikhola Hydel and Rural Electrification Project (AHREP) Ⅲ. AHREP’s performance Ⅳ. Conclusion

10. Ⅰ. The Need for Hydropower in Nepal

11. Ⅰ. The Need for Hydropower in Nepal • Nepal is facing a severe energy shortage particularly in rural areas. • Demandfor energy is increasing due to population growth. • Current electricity supply can be characterised as “unreliable, expensive, insufficient.”

12. Waterand Energy Nexus Nepal has a vast potential for hydropower production - Water availability: 225 billion m3 per year - Theoretical hydroelectric potential: 83,000 MW - Technically and economically viable: 42,000 MW Current hydropower output barely exceeds 700 MW.

13. Nepal’s Energy Profile Source: Bergner (2013:9)

14. II. The Andhikhola Hydel and Rural Electrification Project (AHREP)

15. II. The Andhikhola Hydel and Rural Electrification Project (AHREP) • Located in the Nepalese mid-hills: 280 km southwest of Kathmandu, 80 km southwest from Pokhara and 80 km to the north from Butwal.

16. AHREP: • Generates 5.1 MW of electric power. • Distributes it up and down the valley to rural areas. • 1966: United Mission to Nepal (UMN) created the Butwal Power Company Limited (BPCL) in partnership with the Nepalese Government (currently BPCL owns AHREP). • 1982: construction of AHREP began • July 1991: AHREP came into full commercial operation • The Nepalese Government, the Norwegian Agency for Development Cooperation (NORAD) and the UMN funded the project. • AHREP’s Installation Cost was $280,000 (relatively low investment).

17. AHREP customers • 2003: 16,700 domestic consumers 13,526 unmetered or cut-out* 3,174 metered 174 industrial consumers *Cut-out customers are supplied 25W up to 400W of electricity through current-limiting devices and have a demand based fixed tariff.

18. Current Tariff Structure

19. BPCL objectives for electricity tariffs • National economic resources must be allocated efficiently (prices should reflect the true economic cost of supplying electricity). • Principles of fairness and equity must be reflected in the construction of the tariff structure. • Electricity tariffs should raise sufficient revenue to meet the financial requirement of the utility and allow to cover the system expansion costs. • The structure of the electricity tariff should be simple enough to facilitate the metering and billing. • Source: Butwal Power Company Limited (BPCL) (2013). Tariff Proposal. Available at:http://www.doed.gov.np/notices/BPC-Tariff-Proposal-2013.pdf [30/07/2014]

20. III. AHREP’s performance

21. AHREP’s socio-economic performance • Access to irrigation and electricity allowed households and small-businesses to enjoy a wide range of benefits across various fields: • better health • better production quality • higher income • better conditions for education • employment opportunities • more opportunities for local community development

22. Irrigation • Before AHREP: 57 hectares irrigated using natural springs. • After AHREP: 282 hectares irrigated. • After AHREP’s planned upgrade in 2014: expected 599 hectares. • 4,000 people have gained access to irrigation: substantial growth in production and income levels. • Production was increased from two to three crops per year: improvements in food security and household income. • Cropping intensification forced mainly large-scale land and farm owners to hire more labour or leasing out more land in favour of small-scale poorer farmers.

23. Health Impacts • The use of Hydropower resulted in a significant decrease in indoor pollution (in the area of Tangting) through the reduction of household’s dependence on firewood, candles and kerosene Incidence of diseases/health problems by gender after the Micro Hydropower (MHP) plant installation in Tangting

24. Other impacts • Access hydropower improves academic performance: increasing reading hours) in children and adult’s education and other social activities. • Women’s traditional tasks such as weeding, transplanting and harvesting were intensified together with the production intensification occurred by improved irrigation. • Women and children may benefit from the reduction of workload for firewood collection and the increased time availability for productive personal and social activities. Utilization of saved time in various activities after MHP installation in Tangting

25. AHREP brings benefits to low-income small business • AHREP’s most important feature was the "development of appropriate technology and suitable methods and tariffs for rural electrification" in order to bring benefits of rural electrification to low-income farmers in the mid-hills of Nepal. • Business-wise, access to electricity benefited the operation of small businesses, since surplus daylight generation became available for a variety of activities, such as milling, husking, spinning, agro-processing techniques, pump irrigation.

26. AHREP’s Social performance • Accompanied by strong community engagement. • The project team of the scheme was engaged directly with local leaders and population in order to: - identify perceptions and views - explain the purpose and stages of the project - achieve strong collaboration and acceptance. • Creation of electricity users' organizations (UO) encouraged: BPCL deals only with UOs rather than with individual consumers on all matters related to the supply of electricity to communities. • There is evidence that this strategy also encouraged women’s participation in the electrification process, collection of fees and other administrative issues.

27. AHREP’s Environmental performance • Decrease consumption of “dirty” energy (e.g. kerosene, firewood): reduction of indoor pollution. • Little environmental impacts because it has no storage. • Satisfactory level of water quality. • No detected negative impact on river’s biodiversity and pest flora and fauna. (no recorded endangered species in project area). • No sedimentation problem upstream • No erosion problem in the project area • Included a reforestation programme in the project area for erosion control and protection of the environment.

28. Problems Experienced with the Present Tariff Rates • BPCL is experiencing financial losses because of its low tariff rates. • Tariffs have not been increased in the last 16 years. • In 2013 the average billing rate was Rs. 4.52 per kWh and the operational cost per unit was Rs. 9.76 per kWh. • The average billing rate is way below the revenue per unit required of 16% return on investment of (Rs. 11.87). • BPCL experiences a loss in electricity distribution costs of Rs. 5.24 per kWh. • BPCL considers that it is necessary to align its tariff structure with Nepal Electricity Authority ’s tariffs given: • expansion plans to areas where the NEA is providing services • existence of excessive demand for energy services.

29. BPCL’s Proposed Tariff Structure

30. The need for institutional reform • The political turmoil of recent years has provoked discontinued policies, uncertainty and weak implementation of reforms. • Overreliance on foreign aid. • Water policy frameworks fragmented and incoherent: water governance is ineffective. • Despite efforts to reform the Nepalese electricity sector its organisation and structure remains uncertain and unsustainable. • The lack of political commitment to reform along with a poor implementation of required measures have halted the much-needed reforms in the electricity sector.

31. In consequence, the development of hydropower sector is far below the expectation: • Transmission network (i.e. the sector’s pillar) lacks the generation capacity and appropriate planning. • Local disputes on land acquisition and environmental impact related to building transmission lines: major obstacles for the expansion of the electrical network. • High financing costs deter development of even small projects by domestic developers. • Huge paperwork requirements and significant delays in the approval process: slow development of the hydropower sector • Nepal is less attractive to potential foreign investors.

32. Ⅳ. Conclusion

33. Conclusion: successful aspects • AHREP is a successful Hydropower project: generates 5.1 MW used for irrigation activities and local electricity supply. • Access to irrigation and electricity services had a positive impact on: • food security: irrigated land increased to 282 hectares: agricultural production increased • health (reduction of diseases provoked by indoor pollution) • levels of income and employment opportunities (due to higher productivity) • opportunities for local community development. However, there is a risk of financial non-viability due to the current tariff structure and urgent need for institutional reform!

34. Conclusion: need for reform! • Profound institutional reforms in Nepal’s water and in the electricity sectors are required. • The social and political unrest has occasioned an overreliance on foreign aid, discontinued policies, uncertainty and weak implementation of reforms. • Political commitment to institutional reforms along with monitoring and enforcing mechanisms are required to implement the reforms in the electricity sector and to attract and retain adequate investments in the sector.

35. Refer questions to: Prof. Dr. Phoebe Koundouripkoundouri@aueb.gr Koundouri’s Homepage: http://www.aueb.gr/users/koundouri/resees/index.html ICRE8 Homepage: http://www.icre8.eu/