Energy diplomacy

Energy diplomacy


The Middle East and North Africa are on fire. In Tunisia and Egypt, people have already overthrown their long-term dictators. In Libya, Bahrain, Jordan and other Middle Eastern and North African countries, streets are bursting with demonstrators. Political leaders in the rest of the world are working to ensure that their citizens are safe and oil supply uninterrupted in this crisis. But Nepali leaders are engaged in never ending power games, blissfully ignorant about the gathering catastrophe.

This is not the first time, though. Irresponsibly self-centered behavior has been the norm rather than an exception among Nepali leaders at all times. Let us start with Rana rule. The Rana oligarchs pocketed most of the national resources, built huge palaces, kept big harems, and suppressed people rather than helping them to lead a better life. The Shah kings put the country under their boots by pitting one set of politicians against the other, without doing much for the country and people. The Ranas and Shahs paid for their mistakes.

The situation has worsened in the post-1990 era. Leaders from the Nepali Congress, UML and other parties have used their energy and national treasury to stay in power and enrich themselves, ritually paying lip service to people’s concern during elections. The Maoists have been the worst offenders. They have not only been milking the country for parochial gains more than others but also have the blood of thousands of people in their hand and the blemish of destroying the infrastructure, all to capture power. People will exact a heavy price from them as well if they do not wake up before it is too late.

Bureaucrats have been in cahoots with politicians. Unresponsive to people’s needs and aspirations, most of them dance to the tune that keeps their political masters in good humor and allows them to lick the hand with which they harvest the honey of corruption for their bosses. They have let ministries and projects to become ministerial fiefdoms. Nepal’s diplomatic missions have become hospitality franchises for leaders on foreign junkets more than ever before, because there are so many more of them from different parties now.

A frustrated friend told me from Kathmandu that Nepal has become a country ruled by gangsters. Indeed, people are angry. The young have no jobs. There is no drinking water. Houses are dark and factories quiet because there is no electricity much of the day. Inflation has hit the double digit. Insecurity and lawlessness is pervasive because criminals receive political and police protection. The Middle East and North Africa have flared up at such a delicate time for Nepal. Still, why have not the Nepali people revolted?

What is keeping them from revolt is their hope against hope that, somehow, the new constitution will be written by May 28 this year and everything will be fine after that. But the levee of their patience will break if a prolonged conflict in the Middle East and North Africa, which together account for 62 percent of global oil reserves, disrupts oil supply and sends up oil prices by another $20 a barrel that might throw the world economy right back to the deep hole from which it has just emerged and close the door of foreign employment on our youth.

Even if the ongoing turmoil in the oil-rich regions subsides quickly, Nepal will have to confront a major energy security challenge in the next few years. Oil, a finite resource, which absorbs more than one-fourth of the country’s foreign exchange earnings, will be increasingly expensive as the reserves dwindle. Firewood, which constitutes 68 percent of the energy mix, is falling out of favor because of smoke and pollution and availability of cleaner and easier-to-use alternatives, such as kerosene and gas. Solar power and bio-fuel could complement but cannot substitute oil and firewood.

The only thing that can substitute petroleum products and firewood, ensure energy security, and drive the Nepali economy forward is hydropower, a clean and renewable source of energy. However, while the country has 43,000 MW commercially feasible potential, only around 600 MW power has been harnessed.

Even if the ongoing turmoil in the oil-rich regions subsides quickly, Nepal will have to confront a major energy security challenge in the next few years. Oil will be increasingly expensive as the reserves dwindle. Firewood is falling out of favor because of smoke and pollution. The only thing that can substitute petroleum products and firewood, and drive the Nepali economy forward is hydropower.

As a kid, I was taught that green forests were Nepal’s wealth. But the forest coverage has drastically declined enriching a few politicians, bureaucrats and smugglers and leaving the ordinary people in their abject poverty. I am afraid that the promise of the liquid gold – water – could be a passing fantasy as well, at least for my generation, because politicians continue to quibble over power rather than agree on power projects while water continues to flow downstream, unleashing destructive floods and landslides on the way in the monsoon.

Amid this unacceptable inertia, a strange debate has started in Kathmandu between pro-export and anti-export lobbies, following the recently announced new energy policy. The pro-export group, which includes the government, wants to set aside some of the most attractive projects like the Upper Karnali for export. But the opponents argue that it is reprehensible to talk about export while Nepali people live in the dark. Though plausible, both sides miss the point. Actually, the debate should concentrate on how to make markets more conducive to investment, so enough electricity can be produced for home consumption and export.

We all know, the depressed domestic and export markets is the main obstacle to attracting serious investors. At home, successive governments have kept a tight lid on the price of electricity for fear of a political backlash in the election and forced the Nepal Electricity Authority to run a huge loss of 20 billion rupees. Even those who understand the need to increase power tariff are reluctant to press the point because they cannot justify the avoidable cost overrun in construction, 25 percent leakage in distribution, and unrelenting corruption in management, all of which jack up the price.

The export market is equally depressed, because of the monopsonic nature. The West Seti Project has, after 16 years of effort, learned that it is not easy to get a reasonable price from India, despite the Power Trade Agreement signed in 1996. Only increased competition can change this dynamics. Therefore, Nepal needs to open the Chinese and Bangladeshi markets. To be sure, she cannot export without surplus, but surplus will emerge only if markets become competitive and profitable enough to draw in sufficient investment. This is what makes energy diplomacy a matter of urgency for Nepal.

Energy diplomacy ought to focus on four issues. First, it should ensure that Nepal will have continued flow of fossil fuel at the cheapest possible price in the short run. Second, it must open up the Chinese market for Nepal’s electricity, now that Tibet has embarked on the path of rapid modernization. Third, energy diplomacy should be geared to convincing India to let Nepal and Bangladesh build transmission line and pipeline through the chicken neck, so they can sell electricity and gas to each other. Fourth, it should convince donors and investors to invest more in medium and large hydropower projects, which are more cost-effective than smaller projects.

The framework for energy diplomacy is already there. Based on the Bhatta Report, the government has recognized six areas – aid, trade, tourism, labor, investment and hydropower – for economic diplomacy and established the Economic Diplomacy Unit in the Foreign Ministry. New embassies have also been opened as recommended by the Sharma Report. What the government needs to do now is to implement other suggestions contained in these reports and specifically calibrate economic diplomacy to promote the energy sector.

Albert Hirschman should be happy in his grave that his theory of unbalanced growth is finally taking hold across the globe. In many countries, one sector seems to have been pulling the rest of the economy. For instance, manufacturing in China, software in India, financial industry in Britain and technological innovation in the United States have been playing such role. Hydropower could be the lead sector to catapult Nepal to a higher economic plane and deliver prosperity to the Nepali people.

Hydropower projects will generate jobs, trigger the development of roads and other infrastructures, stimulate trade and industry, generate revenue and contribute to accelerated growth. Nepali people will not have to revolt again and leaders will not have to be punished like the Ranas, Shahs, Mubaraks and Ben Alis. And the hospitality franchise will earn some respect if it helps prevent a gathering energy catastrophe for the country through energy diplomacy.

Published on 2011-02-24 01:10:31

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