Report No 4474-NEP Nepal: Issues and (C)p,tjns in the Energy Sector August 1983 Report of the joint UNDP/World Bank Energy Sector Assessment Program This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSMENT MISSION REPORTS ALREADY ISSUED Country Date No. Indonesia November 1981 3543-IND Mauritius December 1981 3510-MAS Kenya May 1982 3800-KE Sri Lanka May 1982 3794-CE Zimbabwe June 1982 3765-ZIM Haiti June 1982 3672-HA Papua New Guinea June 1982 3882-PNG Burundi June 1982 3778-BU Rwanda June 1982 3779-RW Malawi August 1982 3903-MAL Bangladesh October 1982 3873-BD Zambia January 1983 4110-ZA Turkey February 1983 3877-TU Bolivia April 1983 4213-BO Fiji June 1983 4462-FIJ Solomon Islands June 1983 4404-SOL Senegal July 1983 4182-SE Uganda July 1983 4453-UG Sudan July 1983 4511-SU Nigeria August 1983 4440-UNI For Official Use Only Report No. 4474-NEP N E P A L ISSUES AND OPTIONS IN THE ENERGY SECTOR August 1983 This is one of the series of reports of the Joint UNDP/World Bank Energy Sector Assessment Program. Finance for this work has been provided, in part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. ABSTRACT Nepal's energy problems stem from the chronic imbalance between energy consumption and energy resource endowment. Almost all energy needs are met by fuelwood from Nepal's disappearing forests, while the country's valuable rivers flow unharnessed -- causing havoc in downstream countries. Short-term options are limited. This report offers a medium and long-term strategy for meeting future demand based on the development of large and medium-sized hydro projects that offer scope for export in power, increased afforestation, dissemination of improved cooking stoves, and the development of micro-hydro schemes in the Hills and biogas plants in the Terai. The report also recommends technical assistance for institutional strengthening and training. ABBREVIATIONS ADB Asian Development Bank ADB/N Agricultural Development Bank of Nepal APROSC Agricultural Projects Research BYS Balaju Yantra Shala CFDT Community Forestry Development and Training Project CIDA Canadian International Development Agency CSB Community Scale Biogas Plant DF Department of Forestry DMG Department of Mines and Geology ED Electricity Department FCN Fuelwood Corporation of Nepal FPDB Forest Products Development Board GGKYV Gobar Gas Tatha Krishi Yantra Vikas Co. Pvt. Ltd. HMG/N His Majestyts Government of Nepal ICS Improved Cooking Stoves JICA Japan International Cooperation Agency MOF Ministry of Forests MPPUl's Multi-Purpose Power Units MWR Ministry of Water Resources NEC Nepal Electricity Corporation NOC Nepal Oil Corporation NPC National Planning Commission PF Panchayat Forests PPF Panchayat Protected Forests PPMO Planning, Programming and Monitoring Office RECAST Research Center for Applied Science and Technology SATA Swiss Agency for Technical Assistance SHDB Small Hydel Development Board TC Timber Corporation UMN United Mission of Nepal WEC Water and Energy Commission WECS Water and Energy Commission Secretariat WERDP Water and Energy Resource Development Project This report is based on the findings of an energy assessment mission that visited Nepal in November, 1982. The mission comprised Robert Sadove (Mission Chief), Bill Bailey (Consultant), Huda Kraske, Mathew Mitchell, Bhoja Shetty (Consultant), Ernie Terrado, John Tillman, and Michel Wormser. Eric Cruikshank also contributed to the assessment work. The principal authors of the report were Ms. Kraske and Mr. Tillman; secretarial assistance was provided by Beatrice Moses and Lydia Hancock. CURRENCY EQUIVALENTS 1 Nepalese Rupee (NR) US$0.076 13.2 NRs = US$1.00* 14.3 NRs = US$1.00 (new rate as of December 1982) CONVERSION FACTORS Million Fuel Kcal TOE Liquid Fuels (tonne) Kerosene 10.3 1.01 Motor Spirit 10.5 1.03 Diesel Oil 10.2 1.00 Fuel Oil 9.7 0.95 LPG 10.8 1.06 Fuelwood (tonne) 3.5 0.34 Dried dung 3.4 0.33 Crop wastes " 2.5 0.24 Biogas ('OOOm3) 5.4 0.54 Electricity (GWh)** 860 250 (Input) 86 (Output) Coal (tonne) 6.0 0.58 * All calculations in this report are based on the prevailing exchange rate in November 1982. ** The output conversion factor (86) was used in projecting future electricity demand and supply in TOE. NEPAL ISSUES AND OPTIONS IN THE ENERGY SECTOR Table of Contents Page No. INTRODUCTION AND RECOMMENDAT'IONS ............. i I. OVERVIEW ................................. 1 Energy and Economic Setting ............... 1 Energy Consumption ........................ 2 Energy Costs and Pricing .................. 4 Energy Supply Options ..................... 5 Increasing Fuelwood Resources: Planting and Improved Management .... 6 Conservation: Introduction of Improved Stoves ......... 7 Substitution: Biogas, Kerosene ........ 8 Commercial Energy ...................... 9 Small Hydro for Rural Areas ......... 9 Petroleum and Coal .................. 10 Electricity ......................... 10 Future Power Strategy .................. 11 Future Energy Balance, and Balance of Payments and Investment Implications... 13 Priorities in the Energy Sector ........... 17 Institutions ........... , 18 I'l. CURRENT DEMAND AND FUTURE OIJTLOOK ............ 20 Overview ...... 20 Sectoral Pattern of Energy Consumption.... 21 Households .............................. 21 Industry/Commerce . ................. 23 Transport ................. 24 Agriculture/Irrigation ................. 26 Future Energy Outlook ...................... 26 Summary of Demand Projections ............. 31 III. ENERGY RESOURCES: TRADITIONAL FUELS .......... 33 Forestry Resources ......................... 33 Increasing Fuelwood Resources .......... 34 Improving Management of Existing Natural Forests.... 36 Fuelwood Conservation through Improved Stoves .... 37 Substitution of Wood by Other Fuels .... 40 Biogas ............................. 40 Kerosene ........................... 44 Conclusion ......... 44 - ii - IV. ENERGY RESOURCES, COMMERCIAL AND NON-CONVENTIONAL ENERGY. . . . .. . 49 Electricity ............ 49 Existing System ........................ 49 Future Strategy ........................ 52 Overall Program for the Power Sector ........... 55 Mini/Micro Hydro Development ........... 58 Small Water Turbines for Agro- Processing and Rural Energy .... 58 Hydrocarbons .............. 61 Petroleum ............... 61 Coal . .......... ................ 63 Non-Conventional Energy Sources ........... 63 Solar Energy ........................... 63 W,ind ..... ............................ 63 Agricultural Residues .................. 64 Geothermal Hot Springs ................. 65 Marsh Gas ........ 65 Energy Conservation ....................... 65 V. PRICES, COSTS AND POSSIBILITIES FOR INTERFUEL SUBSTITUTION ....................... 66 Introduction- .............................. 66 Fuelwood .............66 Electricity .......... 67 Petroleum Products ........................ 70 Energy Price Trends ....................... 71 Interfuel Comparisons by End-use Efficiency ................... 72 VI. ENERGY PLANNING AND INSTITUTIONS.......... 76 National Development Planning and Policy Formulation ....... 76 Planning for Water and Energy ............. 76 The Ministry of Water Resources ........ 77 The Water and Energy Commission ........ 77 The Electricity Subsector .............. 79 The Forestry Sector ....................... 80 The Ministry of Forestry ............... 81 The Department of Forestry ............. 81 The Renewable Energy Subsector ............ 83 Other Commercial Energies ................. 85 VII. ENERGY STRATEGY AND INVESTMENT. .86 Introduction ............ .................. 86 Energy Scenarios .......................... 87 Priorities for Investment ................. 92 - ii:i - ANNE XE S I Energy Balance ............................... 93 II Analysis of Household Fuel Consumption In Urban Areas .................. 94 III Prospective Hydro Sites ...................... 99 IV Origin and Extent of Fuelwood Crisis ......... 100 V Possible Forestry Projects ................... 104 VI A. TA for 2-Year Land Survey ................. 113 B. TA for Dissemination of Improved Stoves... 114 C. TA for Community Scale Biogas Monitoring Project ................................ 115 D. TA for Strengthening of RECAST Capabilities ........................... 115 VII Mini Hydro Projects .......................... 117 VIII Energy Costs ................. 118 IX Energy Demand and Supply . ........... 124 X Donor Activities In The Energy Sector ...... 125 XI Proposed Power Sector Studies . ......... 129 XII Projected Electricity Generation, Sales and Exports, 1989/90 - 2009/10 ............ 130 TABLES 1.1 Structure of Final Energy Demand ................ 2 1.2 Projected Total Energy Demand ................... 4 1.3 Energy Demand and Supply, 1981-2010 ............. 14 1.4 Energy Trade Balance ............................ 15 1.5 Energy Investment Summary ....................... 16 2.1 Energy Consumption in Nepal, 1970/71 and 1980/81 ................................. 20 2.2 Estimated Household Energy Consumption, 1980/81 . e22 2.3 Estimated Industrial Fuel Consumption in Nepal ................................. 23 2.4 Projected Household Energy Demand ............... 27 2.5 Projected Industry/Commerce Energy Demand ....... 28 2.6 Projected Transport Energy Demand ............... 29 2.7 Electricity Requirements of Groundwater Irrigation ....... .......................... 30 2.8 Projected Total Energy Demand ................... 32 3.1 Forestry Program ................................ 38 3.2 Improved Stove Program .......................... 41 3.3 Estimated Operating Costs of Family and Community Size Biogas Plants ................ 42 3.4 Biogas Program . ................................ 45 3.5 Forest Areas and Production Under Different Programs .......................... 48 4.1 Comparative Energy Costs - An I]llustration ...... 55 4.2 Cost of Current Expansion Program for the Power Sector to FY 1991 ..................... 56 4.3 Electric Power Programs ......................... 57 4.4 Turbine Program ................................. 62 - iv - 5.1 Operations of the Fuelwood Corporation ...... 68 5.2 Average Cost per KWh ...................... 69 5.3 Retail Prices of Petroleum Products in Kathmandu, 1973-82 ......................... 70 5.4 Indices of Real Prices of Energy ............... . 71 5.5 Cost of Lighting Fuels .. 73 5.6 Cost of Cooking Fuels .......................... . 74 7.1 Energy Demand and Supply, 1981-2010............ 89 7.2 Energy Trade Balance, 1980-2010 ................. 90 7.3 Energy Program: Investment Summary ............. 91 FIGURES 1. Organization of the Energy Sector in Nepal... 132 2. Organization of the Water and Energy Commission Secretariat . .......... 133 MAPS IBRD 16870 - Power Development IBRD 16871 - Petroleum, Coal, and Geothermal IBRD 16872 - Forestry (Fuelwood) INTRODUCTION AND RECOMMENDATIONS Nepal's energy problems stem from the chronic imbalance between energy consumption and energy resource endowment. The bulk of Nepal's energy requirements are met by fuelwood from the country's disappearing forests, while Nepal's immense water resources have been almost untapped. Insufficient and unreliable electricity supplies and the high cost of distributing imported fuels have been major constraints to development. A growing awareness of the urgency of these problems has lead the Nepalese Government to search for an appropriate energy strategy and this assessment report is intended to contribute to those efforts. A reconnaissance mission visited Nepal in the first part of 1982 and was followed by the full assessment mission in November 1982. A draft of the report was discussed with Government officials in Kathmandu in August 1983 and their comments have been incorporated in the final report. Chapter I gives an overview of the energy problem and ways of tackling it. Succeeding chapters examine issues in the fuelwood/forestry sector, the scope for biogas and for privately-owned micro-turbines tied to agro-processing, and issues involved in the development of hydro power. Energy pricing is also discussed, as are institutional issues. The major recommendations of the report are summarized in the next few pages. The report finds that short-term options in the energy sector are limited and medium- to long-term solutions require major invest- ments. The two most important aspects of the energy strategy proposed in the report are that future energy demand should be met through (i) increased afforestation and (ii) the development of large and medium- sized hydro projects, which offer scope for exporting electricity. A major effort in energy sector development will be required; anything less would be insufficient to meet Nepal's future energy needs and could not prevent severe environmental degradation or payments for mineral fuel imports from absorbing an excessive proportion of Nepal's foreign exchange earnings. These findings met with general agreement. The severity of the fuelwood problem requires that Nepal give high priority to forestry programs. Not only must the emphasis of the Forest Department be shifted to stress social forestry but the scale of the required afforestation effort will call for a major change in the mobilization of human, institutional and financial resources assigned to the sector. In the power sector, the medium-term strategy of reducing unit electricity costs and expanding exports through constructing 200-400 MW plants was also accepted. Extensive studies, system planning, and negotiation on exports will be required, however, to make the strategy a reality. - ii - Recommendations for Actio _ byNepal The mission believes that priority should be given to the following policy decisions and investments in order to begin the task of developing Nepal's energy sector. Policy Decisions (i) A strong and continuing commitment by HMG/N to tackle the institutional, manpower, and financial constraints required to increase the tempo of afforestation. Specific decisions include: (a) Arrangements to transfer public forests and lands to the panchayats for planting and protection should be greatly simplified and accelerated (1.15 and 3.07). (b) A 20- to 25-year afforestation plan for all districts should be drawn up within which projects, investments, institutional and manpower requirements can be defined. Proposals to reorient the Forestry Department toward social forestry will also be a critical component of the plan. In anticipation of greatly accelerated planting: - a survey to identify individual plots of land in each district and village available for forestry programs should be carried out immediately (1.16 and 3.09); - the intake of students at the Forestry Institute in Hetauda should be enlarged (1.40 and 6.19); - 40 candidates for forest officers should be sent abroad (1.40 and 6.19); - the planning, programming and monitoring office (PPMO) within the Ministry of Forestry and Watershed Management should be strengthened to build upon the experience obtained from forestry projects such as those financed by IDA (1.40 and 6.16-6.17). (ii) To reduce the consumption of fuelwood more quickly, a decision should be made to accelerate the dissemination of cooking stoves (ICS). Building on experience in existing projects, an intensive pilot project to disseminate 100,000 ICS over five years in the Kathmandu Valley should be undertaken immediately. At the same time, other areas suitable for similar intensive projects should be identified and necessary modifications made irn the ICS design so that the program can be extended to other areas as soon as possible (1.17 and 3.13-3.17). (iii) Recent efforts to rationalize energy prices to foster conservation need to be extended. An increase in electric - iii - power tariffs has already been made. Additional increases are to follow. A decision should be taken to raise the price of fuelwood supplied by FCN to urban areas at least to market levels, thereby assuring that fuelwood users share equally in the high economic cost of using fuelwood (1.11 and 5.03). (iv) Support is needed for a program to resolve problems encountered with community size biogas plants as a prelude to more extensive dissemination. A two-year systematic monitoring program of existing CSB plants and four newly designed ones should be carried out. Family size plants should continue to be disseminated as long as demand exists (1.18 and 3.18- 3.22). A simple subsidy should be set up which in essence refunds the one-third of the equipment cost due to taxes on biogas plant components to encourage their use (1.18, 5.12). (v) In the power sector, the long-run energy strategy envisaged in this report depends on a dramatic reduction in the cost of electricity by making fuller use of all the energy generated by a well-sequenced development, starting with the current generation of run-of-river plants, then developing medium-sized storage schemes, and culminating in the completion of mega projects after the turn of the century. In particular, this strategy calls for: (a) Systematic hydrological studies of major river basins need to be completed to provide the basis for developing Nepal's water potential (1.27 and 4.07). (b) Additional feasibility studies of four-five hydro sites as selected by WEC (1.27 and 4.08). WEC is surveying the most promising sites for early development; this work should receive continued support. A 25- to 30-year prospective investment strategy should be prepared to provide a framework for reviewing individual projects. The strategy would be updated as additional data became available. (c) A substantial increase should be negotiated in the existing 25 MW power trade agreements with India and agreement reached on the price at which power is to be traded. This would permit more optimum sizing of power plants (1.29 and 4.10) and eliminate the need for thermal back-up during the next decade. (d) For small hydro development, consultants are needed to assist in reviewing the current program, site selection, supervision of construction, and training of staff (1.23 and 6.11). (e) A 10 to 15-year program should be formulated for replacing existing traditional water wheels with multi-purpose power - iv - units and cross flow turbines to provide power and mechanical energy to the Hills (1.23 and 4.27). At the same time, the licensing requirement for private entrepreneurs to sell electricity in the Hills should be waived (1.22 and 4.27). (vi) Better management of the energy sector will also require improved efficiency in securing energy supplies. For example, an urgent effort is needed by the Ministry of Commerce and Supplies to expand, regulate and streamline coal imports from India, possibly along the lines of the Nepal Oil Corporation (1.24 and 6.28). Institutional Reform (i) The Nepal Electricity Authority is being formed by merging the Nepal Electricity Corporation and the Electricity Department into one organization, and the facilities at the Butwal Technical Institute are expanding (1.39 and 6.09). The Small Hydel Development Board might be more effectively integrated into the new electricity authority. (ii) The WEC should be provided with more autonomy and well defined intervention points in the energy sector so that it can better function as a commission with overall responsibility for energy planning (1.38 and 6.04). (iii) The renewable energy work of the energy planning directorate of WEC could be strengthened by adding a full-time economist to work on renewables (1.41 and 6.25). (iv) Strengthening the forestry aspect of energy planning by adding a forester to WEC should be considered (1.40 and 6.17). Investment to 1990 (i) Electric power is the largest component of the energy program, amounting to about one billion dollars to FY 1991. Much of this consists of outlays for Marsyangdi, Sapt Gandaki, Kulekhani II and Devighat, transmission, distribution and rural electrification, and a central dispatching station. The mission recommends that a further $20-$30 million be allocated for basin studies to supplement existing ones (1.27 and 4.07) and for feasibility studies of four to five hydro sites selected by WEC (1.27 and 4.08) (Annex XI). (ii) In the forestry sector, investment increases from $2.4 million in 1984/85 to $9.0 million in 1989/90 and $14.2 million by the year 2000 under the moderate scenario. Under the accelerated scenario, investment increases from $3.7 million in 1984/85, to $20 million in 1989/90, and $55 million in the year 2000. The dissemination of improved (smokeless, higher efficiency) -v- cooking stoves (ICS) is the single most important action in the field of energy conservation because it directly addresses the urgent problems of deforestation and domestic fuel scarcity and does not require complex technology or major financial investments. This report recommends an intensive pilot project for the Kathmandu Valley and other areas up to 1990, to be financed under a technical assistance program. Under the accelerated scenario, investment in the stoves program is estimated at US$1 million a year during the 1990s. (iii) Technical Assistance is critical to this whole program. The mission was impressed by the assistance already provided WEC by the Canadian team. To assist the Government in implementing many of the recommendations, the mission strongly recommends that technical assistance be enlarged to carry out the following activities: (a) $0.5 million to draw up a 25 to 30-year power development strategy. (b) $250,000 for a survey to identify individual parcels of land available for forestry programs in each district and village to use in formulating a 20 to 25-year affore- station plan (1.15 and 3.09) (c) $2-2.5 million to carry out an intensive dissemination program for improved cooking stoves in the Kathmandu Valley and other locations (1.17 and 3.13 - 3.15). (d) $75,000 to build four pilot community-size biogas plants and carry out a two-year systematic monitoring program (1.17 and 3.22). (e) $1.2 million to finance two year forestry training for 40 candidates outside Nepal (1.39 and 6.19). (f) $250,000 assistance to RECAST for long and short-term staff training in energy planning and to acquire modern research equipment (1.40 and 6.27). Overall Investment Summary The accelerated energy program calls for a substantial increase in investment expenditures but allowing for a pick up in economic growth, expenditures would be no more than 4.4% of GDP by the year 2000 compared with 2.4% in 1980. The energy sector could be absorbing about 20% of total investments during the 1990s, an appropriate level for a country at Nepal's stage of development. - vi - Investment Summary for Accelerated Energy Program (US$ Million 1981/82) 1979/80 1989/90 1999/00 Forestry, Stoves, Biogas and Turbines 1.3 24.1 60.8 Hydro 54.8 122.0 195.0 Total 56.1 146.1 255.8 Energy Investment as % of GDP 2.4 4.2 4.4 Energy Investment as % of Total Investment 17.4 21.0 18.0 Source: Table 1.5 I. OVERVIEW Energy and Economic Setting 1.01 Despite tremendous changes in the three decades since Nepal emerged from its long self-imposed isolation, the country still faces formidable development challenges which are compounded by its remoteness and land-locked status. During the 1970s, per capita economic growth stagnated and agricultural production failed even to keep pace with population growth; GDP per capita was only US$140 in 1980. This situation is also reflected in a low per capita consumption of energy, which has remained at about 200 KOE. Most of this energy is used for household cooking and heating. In 1980/81, 94% of energy consumption took the form of traditional energy, mainly fuelwood; six percent was in the form of modern commercial fuels (coal, oil and electricity). 1.02 Shortages of energy also have hindered Nepal's economic progress. Rural families rely almost entirely on fuelwood for cooking and heating and, with fuelwood becoming increasingly more time consuming to collect, more and more labor has been diverted from productive activities. Nepal's lack of indigenous commercial energy and the high cost of distributing imported fuels in the Hills have been major constraints to the development of non-agricultural economic activities in rural areas. Insufficient and unreliable electricity supplies also have constrained the growth of the modern industrial/commercial sector. 1.03 These problems reflect the chronic imbalance between energy consumption and energy resource endowment. On the one hand, Nepal's forests have been depleted by 50% since 1963. Accelerating population growth has increased the demand for fuelwood and has led to forest clear- ance to provide land for agriculture. At the present rate of deforestation, the nation's forests will almost disappear within two decades. Besides threatening Nepal's energy supplies, deforestation is causing serious soil erosion that is both depressing agricultural produc- tivity in the Hills and imposing heavy costs on downstream areas through sedimentation and increased flooding. 1.04 On the other hand, the country's immense water resources have remained almost untapped. The annual runoff of Nepal's rivers, about 200,000 million cubic meters, has a theoretical hydroelectric potential of 83,000 MW, of which more than 20,000 MW can be economically exploited. Major impediments to exploiting the water resource have been the very limited domestic demand, lack of adequate information on the resource itself, difficulties in executing water resource projects, and, until recently, a lack of agreement between Nepal and India in those cases requiring international water use agreements. - 2 - Energy Consumption 1.05 Energy consumption was three million TOE in 1980/81, of which households consumed 94% (Table 1.1). 1/ Households consumed 98% of fuelwood used and, in rural areas fuelwood supplied almost all of house- hold energy requirements. In urban areas, better access to commercial fuels reduced the reliance on fuelwood to 83%, with kerosene accounting for 10%, electricity 7%, and LPG less than 1%. Table 1.1 Structure of Final Energy Demand in Nepal, 1980/81 ('000 TOE) Fuelwood Petroleum End Use & Other Biomass Products Coal Electricity a/ Total Households 2760.1 30.3 - 6.6 2797.0 Transport - 64.5 3.0 - 67.5 Industry/Commerce 45.9 8.2 45.0 6.5 105.6 Agriculture - 4.7 - - 4.7 Other 0.4 0.4 0.8 2,806.0 b/ 107.7 48.4 13.5 2,975.6 a/ Sales bi Includes fuelwood equivalent to 2,723,000 TOE, the rest being animal and crop residues. Source: Annex I 1.06 Commercial energy consumption increased by five percent a year during the seventies; however, per capita consumption was only 11 KOE in 1980/81, compared with 31 KOE in Bangladesh and 151 KOE in India. Oil consumption grew at the same rate and currently accounts for four percent of total energy consumption. The transport sector accounts for 60% of oil demand, households 28%, and industry 7%. All oil is imported, and import payments took up about 32% of merchandise export earnings in 1981/82, (17% of foreign exchange earnings, including remittances and tourism). The industrial sector uses most of the coal, which is imported from India, but because of difficulties in obtaining timely and high quality supplies, consumption has stagnated and industry has been forced to use increasing amounts of fuelwood. 1/ This and other tables in the report are based on data available to the mission in November 1982. In some cases more recent estimates are available, but the differences are small and do not change the substance of the report. - 3 - 1.07 Electricity sales grew by 14% a year during the 1970s, amounting to 129 GWh in 1980/81. Before the commissioning of the 60-MW Kulekhani hydroelectric station in 1982, however, electricity demand in the Central Nepal Power System (CNPS) was suppressed by load shedding and voltage and frequency reductions. The most rapid growth occurred in industry and commerce (19%) which now account for 50% of sales; households account for most of the rest. Transmission and distribution losses are very high, running at about 30 to 35% of power generation. 1.08 Future energy needs will require a substantial program of energy sector investments. But to be realistic, such a program could only be successfully implemented as part of an overall improvement in Nepal's development performance. Energy demand projections have therefore been developed for two economic growth scenarios. The first is an overall economic acceleration, where the Government (HMG/N) gives immediate prio- rity to intensifying development efforts, strengthening public admini- stration and improving the policy environment for productive investment and entrepreneurship. In these circumstances, it should be possible for overall GDP growth to accelerate to an average of about five percent a year over the present 1980 - 2010. The second scenario assumes continued overall economic stagnation, with GDP growing only slightly faster than the 2.6% population growth. 1.09 Projected energy demand through 2010 is shown in Table 1.2. Because of the continued predominance of household fuel needs, overall demand would grow only slightly faster with accelerated economic growth than with continued economic stagnation (2.9% per year as against 2.5% per year). With faster economic growth, the demand for commercial energy would, however, grow by 8.5% a year and dependence on fuelwood would fall to 74% by the year 2010. Per capita consumption of commercial energy would increase to 52 KOE by 2010, close to the 58 KOE currently consumed by low income developing countries (excluding India and China). Electri- city demand would grow by 13% a year, reaching a per capita consumption of 185 kWh by 2010. On the other hand, with continued economic stag- nation, demand for commercial energy would grow by only 5.1% a year; per capita consumption would reach only 23 KOE and electricity consumption 74 kWh by the year 2010. - 4 - Table 1.2 Projected Total Energy Demand ('000 TOE) Average Annual Growth Rate 1980/81 1989/90 2009/10 1980 - 2010 1. Accelerated Economic Growth Fuelwood and Other Biomass 2,806 3,479 5,080 2.1 Commercial 169 367 1,803 8.5 Petroleum /Coal 156 319 1,299 7.6 Electricity 13 48 504 13.4 Total 2,975 3,846 6,883 2.9 II. Economic Stagnation Fuelwood and Other Biomass 2,806 3,475 5,319 2.2 Commercial 169 275 710 5.1 Petroleum/Coal 156 235 522 4.3 Electricity 13 40 188 9.6 Total 22975 3,750 6,029 2.5 Source: Table 2.8 Energy Costs and Pricing 1.10 A key factor in determining the appropriate energy strategy is the economic cost of alternative fuels. Comparisons based on end use efficiency (para 5.11) indicate that fuelwood from planned forestry programs is much cheaper than kerosene or electricity for meeting household cooking and heating needs. From this it becomes apparent that Nepal will continue to depend on fuelwood for meeting household energy needs. Therefore, a major thrust of any future energy strategy has to focus on providing adequate fuelwood supplies to meet projected demand. In the short- to medium-term, the economic cost of fuelwood is much higher because the overexploitation and erosion resulting from forest shrinkage impose very high economic resource costs on fuelwood use. Thus, in the medium-term before forestry programs can be sufficiently expanded, there is justification for introducing other fuels to alleviate the pressure on the forests. - 5 - 1.11 The subsistence nature of much of Nepal's rural economy limits the scope for energy pricing, but in urban areas it can be important in encouraging an efficient pattern of energy consumption. Fuelwood prices in the Kathmandu Valley range from Rs.450 per tonne as supplied by the Fuelwood Corporation (FCN), to Rs.800 per tonne when offered by private suppliers. The mission encourages the FCN to charge market rates so all users share equally in the high economic resource cost of using fuelwood, thereby encouraging a better allocation of resources and more careful fuelwood consumption. This is especially important because of the Government's decision not to provide new forest concessions for private contractors, with the result that FCN will have to supply all urban fuelwood needs. 1.12 Electricity tariffs are highly subsidized; on average they are 50% lower than the level required to obtain a six percent rate of return on assets employed. This, in addition to very high system losses (30- 35%), has put NEC in a difficult financial situation. The mission supports the proposed 130% increase in tariffs within eighteen months, but t:he poorer sections of the population need to be protected by main- taining an appropriate lifeline tariff up to, say, 15 kWh/month. Such a subsidy to low income consumers, who use electricity only for lighting, is also justified because the economic cost of kerosene for lighting is much higher than electricity. The new tariffs also need to reflect seasonal variations in the cost of energy produced and time-of-day consumption, charging less during wet months and off-peak hours. Energy Supply Options 1.13 About three-quarters of the present demand for fuelwood is obtained from the 4.3 million ha of forests remaining in the country, the rest from farm woodlots and private community lands. But forest extrac- tion was 5.8 million tonnes in 1981, far exceeding the annual sustainable supp:Ly of 2.5 million tonnes, and the deficit was met by overexploiting the forest, equivalent to clear cutting more than 100,000 hectares. As demand increases and the forest area declines further, overexploitation will accelerate to the point of nearly exhausting Nepal's forests by the year 2000 if no action is taken. Most households would then have to burn dried dung and agricultural wastes which currently are used as fertilizer, with a resulting loss of agricultural productivity. 1.14 It is clear that a concerted effort in three areas must be made to satisfy future demand for energy in the rural areas: (i) increasing fuelwood resources by planting trees and improving the management of existing forests; (ii) conserving fuelwood through the use of more efficient stoves; and (iii) substituting other energy forms such as biogas for fuelwood. -6- Increasing Fuelwood Resources 1.15 Planting and Improved Management The future demand for fuelwood requires approximately 1.2 million ha of reasonably high yielding forests by the year 2000 and 1.5 million ha by the year 2010. This means the planting rate should reach 50,000 ha by 1990, and average 100,000 ha a year during the nineties, almost twenty times the present planting rate. 1/ The IDA-financed Hill and Terai projects aim at planting about 18,000 ha a year by 1990 which, if achieved, would be a great success. To plant 50,000 ha by 1990 will require more than just building up physical and institutional structures during the next two to three years. Such a jump in plantings will require a major change in the mobilization of human, institutional and financial resources for forestry programs. But both HMG/N and forestry experts in Nepal recognize that the severity of the problem warrants giving high priority to overcoming the constraints to such a change and believe that a continuing, dedicated national effort would make the higher level forestry program feasible. In those countries that have succeeded in establishing an infrastructure and the institutional capability to support large scale fuelwood planting, strong local participation in planning and implementing was vital to the success of the planting program. Establishing nurseries and other facilities, and training foresters or special extension agents in rural aftorestation was a long process. The development of appropriate technical packages for a specific area also took time, requiring extensive local trials and research to identify the proper species and the best combination of planting, fertilizing and pest control techniques. Quick solutions to these problems have often been elusive because national forestry services lacked the expertise for the nontraditional tasks required in social forestry. It is imperative, therefore, that there be a new approach to planning forestry development in Nepal. Some key elements have already been identified by the Bank's recent forestry projects in Nepal. The groundwork is understood and the local emphasis is apparently being laid, bringing in the small farmer, realistically evaluating land availability, establishing nurseries and extension services. The problem is one of timing and scale. The forestry scenarios presented in this report show that if no more than 20,000 ha can be planted by 1990, the negative effects on Nepal's energy and agricultural sectors would be great. The mission therefore recommends that an afforestation master plan focus on developing new approaches that might accelerate the scale of forestry programs and elevate the Government's commitment to it to the level of meeting a national crisis. 1.16 An essential step in accelerating the pace of forestry programs is to involve the people through the transfer of government forests to the village communities (panchayats). Such a transfer (although approved through legislation in 1977) has been extremely slow and should be 1/ These targets are based on current nationwide estimates of forest area, forest yields and fuelwood use and would be modified as more detailed information became available. greatly accelerated. The productivity of existing natural forests must be improved by protecting them against unregulated and excessive felling, lopping and grazing, hopefully in a few years increasing their yield from one to two cubic meters/ha/year to about five cubic meters. A start has been made under IDA's Community Forestry Development and Training Project which includes the establishment of 39,100 ha of panchayat protected forests. Preliminary results indicate that regeneration of degraded forests through prutective management can be much faster than the 15 to 20 years currently thought necessary. If this is confirmed, the mix of planning and protection programs would need to be revised. A survey should be designed to collect basic data on the extent and location of individual plots available for planting, and on soil and climate conditions in each district and village. This information would then provide the foundation for a 20-25 year afforestation plan already included as a component of the Bank's recently appraised Terai Forestry Program. A two-year technical assistance project to cover the cost of this work is required; the estimated cost is $250,000. The Forest Department needs to be strengthened and reoriented to make social forestry its priority task. Conservation 1.17 Introduction of Improved Stoves The widespread introduction of improved cooking stoves (ICS) with significantly higher efficiencies than those of traditional stoves would dramatically reduce fuelwood consumption and help to relieve fuelwood shortages. However, the use of improved stoves in Nepal so far has been negligible. A major difficulty has been adapting and disseminating several proven, affordable models (costing about 80-100 rupees) to meet local traditions and varied conditions of material availability and home design. Even a ten percent ICS acceptance rate among Nepal's households by the year 2000 would reduce fuelwood requirements by 720,000 metric tonnes and would be equivalent to producing about 100,000 ha of plantations. The mission therefore advocates the immediate initiation of a plan to disseminate 100,000 ICS in Kathmandu Valley (all homes covered) over a five-year period, as an experiment that would (i) develop experience in ICS mass production, promotion and distribution in a relatively manageable area, and (ii) create a significant impact on fuelwood consumption in the area. The dissemination plan would cost about US$2-2.5 million. The stoves should be distributed free of charge (except for a 10-15 rupee installation charge) as a means of advertising and encouraging their acceptance. At the same time, other areas suitable for an intensive stove program should be identified and the necessary modifications to the ICS for these areas developed so that intensive stove programs can also be undertaken in other parts of Nepal as soon as possible. The admini- stration of this program, whether by the Stove Improvement Unit of the Community Forestry and Afforestation Division of the Ministry of Forests or a new, separate structure, will have to be determined. An essential part of the program is the establishment of an acceptable delivery system, including technical assistance, promotion, and education about stove use. -8- Substitution 1.18 e Despite difficulties encountered in other countries with promoting and managing biogas programs, this technology offers some promise for providing an alternative energy source in the Terai. Nepal already has a small but well-organized biogas dissemination program with about 1,000 plants already installed (mostly family- sized). The difficulties in securing fuelwood supplies largely explain the success of biogas plants, and private demand for family size units should continue to be encouraged. For the future, however, the focus of Government efforts should be on the larger community-sized biogas (CSB) plants that provide low cost fuel for cooking and lighting and which also could power small agro processing equipment. Although experience with CSB plants in Nepal has revealed some problems, technical as well as social, they are not insurmountable, and the mission recommends that support for CSB plants continue. The mission also recommends establishing a two-year systematic monitoring program of 4-6 pilot CSB installations to identify design and operating problems and to obtain performance data and information on the management and sociological aspects of communal plant operation. This could be carried out by RECAST and/or the Gobar Gas Company at an estimated cost of $75,000. To encourage the use of both types of biogas plants, HMG/N should consider refunding the one-third of the equipment cost that is due to taxes on components. 1.19 The very low income of the Nepalese, particularly in rural areas, has limited the scope for using commercial hydrocarbons as a cooking and heating fuel. Moreover, because the accelerated forestry programs, if implemented, have good prospects of meeting the energy needs of low income families, a subsidy program for kerosene such as India has is not appropriate. However, country-wide estimates tend to obscure the fact that the energy situation is already becoming critical in some districts. There could, therefore, be some merit in using short-term measures to stabilize the energy situation by supplying kerosene in a few areas where fuelwood and erosion problems have become critical. One way of organizing this substitution would be to close off part of a heavily degraded forest and provide kerosene in return for work in planting trees. The cost however, would be substantial; meeting the fuelwood demand of only 50,000 people with kerosene would have an import cost of US$1 million. Such a scheme, even on a very limited scale, would have to be very carefully considered within the framework of the proposed afforestation plan (para 3.09). 1.20 The accelerated forestry, stove and biogas programs would allow the future demand for traditional fuels to be met without resorting to large-scale burning of dried dung. They would not, however, prevent Nepal's total forest area from declining 40% by the year 2000. The resulting environmental degradation would impose further damage on downstream countries i.e. India and Bangladesh. Reversing (or even haltiing) the degradation of the Himalayan 'Watershed involves extremely complex issues well beyond those involved in meeting Nepal's fuelwood - 9 - needs. Donors and downstream countries (India and Bangladesh) 1/ who suffer much of the cost of deforestation in Nepal need to carefully assess the situation and decide how to deal realistically with it. Because of the urgency of the situtation, this problem might be considered within the framework of tlhe Nepal Aid Group Meetings. Commercial Energy 1.21 Small Hydro for Rural Areas While the community biogas program could provide energy for rural agro-processing and other small scale industries in the Terai, micro hydro offers an attractive source of power for such activities in rural Hill areas. Mechanical hydropower in the form of some 25,000 traditional waterwheels has been used for milling and grinding for many centuries, and only slight improvements are needed to make them powerful enough to operate other simple machinery such as a rice huller or a saw. During the Sixth Plan Period (1980/81 - 1984/85) the Agricultural Development Bank of Nepal (ADB/N) plans to finance the improvement of 250 units. Sites with a somewhat greater water flow are suitable for installing cross-flow turbines which can operate more sub- stantial agro-processing machinery. Sixty such units were in place in 1980 and ADB/N is financing the installation of another 150 units. 1.22 Both types of micro hydro installations (the improved water wheel, 1-5 kw capacity, and cross-flow turbine, 10-20 kw capacity) are being built in Nepal and cost less than US$1000 per KW of installed capacity. Agro-processing facilities powered by cross-flow units have proved to be financially very attractive. Nevertheless, average utiliza- tion rates are frequently less than 50%. The excess mechanical energy could be converted into electricity for sale to neighboring villagers for lighting or to provide energy for cottage industries. To encourage this, the mission recommends that the cumbersome and time-consuming process required to obtain a license to distribute such power be waived for small privately-owned facilities. The potential for micro hydro generating capacity linked to agro processing is likely to be 50 MW, which would be sufficient to process most of the food grain produced in the Hills and supply lighting to nearby households equivalent to about 80 million liters of kerosene a year. A systematic plan to exploit this potential should therefore be formulated. A first requirement would be an expanded loan program, possibly through ADB/N; additional measures might be needed to encourage entrepreneurs initially to invest in these highly profitable ventures. Finance could also be provided through the Nepal Industrial Corporation to assist manufacturers increase production of the units. 1.23 The performance of publicly-sponsored mini-hydro schemes has been disappointing. Technical difficulties have been numerous and pro- ject preparation has rarely been adequate. Of the 47 projects ranging in 1/ Flood damage within the Indo-Gangetic States of India is estimated to be more than $700 million a year (1979 prices). - 10 - size from 45 KW to 1000 KW targeted for the 6th Plan Period, 4 are in operation, 15 are under construction and 28 are in the planning stage. The mission recommends that specialists in this field be hired to assist in reviewing the current small hydel development program, including the selection of sites, implementation of projects and training of staff. Emphasis in the future may also be given to assist village cooperatives in constructing and operating micro schemes (up to 50 KW) which require only rudimentary civil works. Together with low tension distribution, these plants can be installed for less than US$1000 per KW (para. 4.22). Possible institutional reforms should be considered, such as integrating SHDB with the Nepal Electricity Authority 1/ to strengthen the capabilities of SHDB. 1.24 Petroleum and Coal There are some indications that Nepal has geological structures which might have trapped oil and gas, and oil seepages have been noted in various places in the mountains. In June, 1982, the World Bank financed a petroleum exploration project encom- passing a seismic survey which cost about $11 million. But even if hydrocarbons are found, and the prospects are fair in several places, it will take time to develop the resource and for most of the next decade Nepal will have to continue to rely fully on imports to meet domestic consumption. Although current per capita consumption of petroleum products is one of the lowest in the world (7 KOE vs. 90 KOE in Sri Lanka and 155 KOE in India), the mission expects annual demand to be around 200,000 tonnes of petroleum products by 1990, costing more than (1980/81) US$100 million at the Nepalese border. Coal, however, has a cost advan- tage, and substitution is possible in some industries, e.g. cement and brick manufacturing. The mission urges the Ministry of Commerce and Supplies to investigate ways to increase coal imports, and assess the institutional requirements for such a policy. One way might be to assign this role to the Nepal Oil Corporation which will handle coal imports along the same lines as oil imports. 1.25 Electricity At the end of 1982, Nepal's installed generating capacity was 138 MW, of which 11 MW was privately owned; the rest was government-developed hydro with a modest amount of thermal. Public supply from the interconnected system is concentrated in the Central Region which consumes over 70% of total power supplies. Supply is avail- able only in urban areas containing 4.7% of Nepal's population. To back up and supplement domestic supplies, Nepal receives power from India at 15 border points in accordance with a 1971 inter-governmental agree- ment. At 55 GWh, imports in 1981/82 accounted for 20% of total available electricity supplies and 90% of supplies in the eastern and far western regions. Despite obtaining power from India, Nepal's electricity supply generally has not been adequate in terms of quantity and quality. 1/ To be formed by merging the Electricity Department and the Nepal Electricity Corporation. - 11 - 1.26 The current expansion program as perceived by HMG/N is designed to meet the domestic needs of the 1980s and early 1990s. The program includes: Devighat (14 MW) - 1984; Kulekhani II (30 MW) - 1985; Marsyangdi (78 MW) - 1987; and Sapt Gandaki (200 MW) - 1992, all run-of- river plants located in the Gandak Basin in the central part of Nepal. If the best use of power is to be made by industrial and commercial users, substantial improvements are needed in the quality (voltage and frequency) and reliability (reduction in outages) of Nepal's electricity supply. This involves strengthening the operations of the Central Nepal Power System before interconnection between the center and other regions is completed. A central load dispatching facility which already has been advocated in earlier sector reviews 1/ is indispensable to such an effort. Greatly improved maintenance scheduling (particularly preventive maintenance) is also needed. Also, because of the long delays in obtaining major electrical components from overseas suppliers, adequate inventories of key items are needed. The rapidly growing system also calls for increased operation and maintenance personnel, who are already in short supply. Training programs therefore will need to be initiated and accelerated. In view of the urgent need to improve service, foreign specialists may have to be hired to supervise and even manage the techni- cal operation and maintenance of the system until Nepalese can be trained. 1.27 The satisfactory future expansion of the system is conditioned on three requirements. First, with the possible exception of the Gandak Basin, no systematic studies have been completed of Nepal's major river basins designed to provide alternatives for sequenced power develop- merit. Associated with this is the need to prepare feasibility studies on foulr to five hydro sites as selected by WEC within the development sequence. Suitable basin and project studies are urgently needed. Second a more systematic approach is needed to estimate load forecasts related to the potential for introducing industrial, irrigation pumping and other productive, energy-using activities. Third, the dichotomy between generation for export and domestic use should be drawn less sharply to permit more planning flexibility so as to realize economic plant sizes for each new power development. This would not, however, preclude the possibility of developing certain plants specifically for export and others dedicated to specific regions in the country. There is an immediate need for a long-term (25-30 year) power expansion program which takes into account all of the above. Future Power Strategy 1.28 Nepal's long-term objective is to develop its enormous hydropower resources for domestic use and for export. Associated with this is the urgent need to substantially reduce the cost of power produced in Nepal. Hydropower development in the past has focused on meeting domestic requirements with relatively small 2/ and high-cost run- 1/ For example, the ADB Power Sector Review, 1982. 2/ However, in the context of Nepal's present development, Kulekhani 60 MW and Marsyangdi 78 MW cannot be considered small projects. - 12 - of-river projects, and Nepal has yet to achieve even moderate cost levels for electricity (current energy costs are as high as US$0.14-0.17 per kWh). The policy of limiting power development to the domestic market has ruled out medium-size projects of 300 - 500 MW or higher because the small size of the domestic market could not absorb all of the power pro- duced during the initial years of the project's life. The key to elimi- nating these constraints is to expand the present power exchange agree- ment with India so that Nepal can export power in excess of domestic needs. The potential for such an export strategy is particularly good in view of India's load growth which requires an additional capacity of more than 2,000 MW each year. 1.29 As the least-cost advantages can be realized from economies of scale, the strategy for the power sector should add to the current approach of run-of-river plants, medium-sized storage plants and, ultimately, mega projects such as Chisapani at 3,500 MW and Pancheswar at 2,000 MW. 1/ Because of their size, the mega projects during the first quarter of the next century may aim primarily at satisfying demand in India. Agreement between Nepal and India for their development has been very slow; however, a committee on Karnali and the Karnali (Chisapani) Multipurpose Project already has been formed to seek agreement on terms of reference for carrying out an integrated study of the Karnali basin. The study is to be financed by the World Bank under a technical assistance credit to Nepal. But project preparation is likely to be lengthy and it may be close to 30 years before Nepal receives any benefits. The Government therefore will need to ensure that preparations do not preempt Nepal's scarce financial, technical and administrative resources in such a way to hinder planning for more immediate needs. For the interim period, several medium-sized storage projects (300 - 500 MW) offer good prospects for substantially reducing the domestic cost of electricity. But while such a combined storage project cum export strategy for developing Nepal's energy resources appears attractive, any long-term power system expansion will require extensive system planning to provide a framework for analyzing individual projects. 1.30 The mediumr- and long-term strategy outlined in this report might make it possible not only to size the Sapt Gandaki hydroelectric project at 300 MW but, by continuing the development in the same basin, say at Burhi Gandaki, lower energy costs might be obtained without the need to solve complicated riparian water rights issues. Development sequences could be chosen so that projects would be complementary. Chapter IV (para. 4.14 - 4.17) illustrates the potential benefits from such complementarities for Sapt Gandaki and Burhi Gandaki which reduce the cost of useable energy from US134/kWh to US5-64/kWh. 2/ Very preliminary calculations indicate that, under the accelerated power program involving 1/ Chisapani would cost US$3.2 billion to build and Pancheswar US$1.8 billion (1982 prices). 2/ These illustrative calculations are shown in detail in Annex VIII. - 13 - additions of some 400 MW every four to five years and the gradual expansion of the export-import base, the exportable surplus of electri- city could reach 2,336 GWh by the year 2000 within a policy of satisfying the domestic market, even before the large potential exports are attained with mega projects. Future Energy Balance 1.31 The future energy supply and demand situation is summarized in Table 1.3 for an accelerated scenario and a moderate scenario. The latter is introduced merely to illustrate that a moderate expansion in energy programs would not be able to meet Nepal's future energy requirements, thus emphasizing the need for Nepal to give high priority to a major expansion in energy sector investments during the next 20 years. The accelerated energy scenario is an ambitious approach to meeting Nepal's energy needs during the next 25 years and would require a large commitment from HMG/N, far in excess of what has been done in the past, to implement it. Shortly after the year 2000, the ambitious forestry programs and conservation resulting from the introduction of improved stoves would be sufficient to meet fuelwood demand. By the year 2000, the biogas and turbine programs could meet five percent of commer- cial energy demand, while the power program could lead to substantial exports of electricity. Such an ambitious energy program could help bring real and substantial growth to Nepal's economy by increasing export earnings, reducing the cost of fuelwood, and stimulating industry through more abundant and cheaper energy, 1.32 With faster economic growth, mineral fuel imports are projected to grow by 7.5% a year, increasing from 156,000 TOE in 1981 to 612,000 TOE by the year 2000 (Table 1.4). However, since Nepal's export earnings are also projected to grow by seven percent a year during this period, the future burden of fuel imports will be determined by the expected increase in the real price of mineral fuels, and by the composition of mineral fuel imports because coal is substantially cheaper than oil. If coal can maintain its share of mineral fuel imports at 25%, the cost of energy imports would not increase to more than one-third of projected export earnings from goods and nonfactor services by the year 2000. Moreover, exports of electricity would offset part of this, and by the year 2000 the value of power exports could be 13% of export earnings. At this level net energy imports would represent 19% of exports of goods and nonfactor services, only slightly higher than their 17% level in 1980/81. Table 1.3 Energy Demand and Supply 1981-2010 ('000 TOE) Accelerated Program Moderate Program Fuelwood a/ Coal/ Electricity Fuelwood a/ Coal/ Electricity Petro.b/ Petro.b/ 1980/81 Demand 2,806 156 13 2,806 156 13 Supply 1,697 - 10 1,697 - 10 Surplus/Deficit -1,109 -156 -3 -1,109 -156 -3 1989/90 Demand (net) 3,415 319 48 3,449 235 40 Supply 1,724 11 103 1,671 10 40 Surplus/Deficit -1,691 -308 +55 -1,778 -225 - 1999/00 Demarnd (net) 3,948 647 183 4,252 352 81 Supply 3,174 35 384 2,101 22 81 Surplus/Deficit -774 -612 +201 -2,151 -330 - 2009/10 Demand (net) 4,115 1,299 504 5,076 522 188 Supply 4,115 83 911 2,694 30 188 Surplus/Deficit - -1,216 +407 -2,382 c/ -492 - a/ Net demand is after savings from ICS. Supply includes biogas used for cooking. Fuelwood deficit is being met by reduction of forests. b/ Supply includes biogas used in economic activities plus kerosene saved by domestic lighting from agro-processing turbines. c/ Not met from fuelwood, as remaining unprotected forests would have disappeared by about 2005. Source: Mission calculations. Details in Annex IX. - 15 - Table 1.4 Energy Trade Balance Accelerated Program Moderate Program Imports of Exports of Net Imports of Mineral Fuels Electricity Imports Mineral Fuels a/ 1980/81 % of Exports of GNFS 17 - 17 17 1989/90 % of Exports of GNFS b/ 26-34 8 18-26 25-31 1999/00 % of Exports of GNFS b/ 32-39 13 19-26 31-39 a/ Equal net imports, as exports of electricity would be almost zero. b/ Range depends on whether imports are 75% petroleum, 25% coal; or 100% petroleum. 1.33 The accelerated energy scenario calls for a substantial increase in investment expenditures, the bulk of which would be for hydro and forestry programs. Annual energy sector expenditures would rise from US$56 million in 1980 (1982 prices), to $146 million in 1990, and to $256 million in the year 2000 (Table 1.5). However, because economic growth is also assumed to pick up, expenditures would be no more than 4.4% of GDP by the year 2000, compared with 2.4% in 1980. Ongoing and planned power sector investments would, in any event, raise the ratio almost to this level by 1985. The accelerated program would therefore maintain the current tempo of total energy sector investments although the share going to forestry and related programs would be higher than currently planned. - 16 - Table 1.5 Energy Investment SummarY (US$ Million 1981/82) 1979/80 1984/85 1989/90 1999/00 I. Accelerated Program Forestry and Stoves - a/ 3.9 22.1 56.5 Biogas and Turbines 1.3 1.3 2.0 4.3 Hydro 54.8 113.3 122.0 195.0 Total 56.1 118.5 146.1 255.8 Energy Investment as % of GDP 2.4 b/ 4.2 4.2 4.4 Energy Investment as % of Total Investment 17.4 b/ 25.6 21.0 18.0 II. Moderate Program Forestry and Stoves - a/ 2.5 9.2 14.6 Biogas and Turbines 1.3 1.1 1.3 1.6 Hydro 54.8 113.3 100.0 130.0 Total 56.1 116.9 110.5 146.2 Energy Investment as % of GDP 2.4 b/ 4.3 3.6 3.7 Energy Investment as % of Total Investment 17.4 b/ 28.6 24.0 25.0 a/ Expenditures on planting and conservation were almost nil in 1979/80; other forest department expenditures were about Rs.12 million. b/ 1979/80 energy expenditures have been converted to 1981/82 prices by an inflation factor of 1.2. - 17 - 1.34 The moderate scenario illustrates the effect of a more modest expansion of energy sector programs. Annual forestry planting targets would still be large relative to current levels, reaching 20,000 ha by 1990 and 50,000 ha by 2010, yielding a total of 750,000 ha of planted area by 2010. A continuation of the policy of sizing hydroelectric plants strictly to meet domestic requirements could probably be achieved in the lower growth scenario by adding only a 200 MW Sapt Gandaki plant by 1992, an additional 100 MW at the same plant by 1995, an upstream storage scheme perhaps at Burhi Gandaki (400 MW) for the early 2000s, and maybe another 400 MW plant around 2010. However, even the moderate scenario would allow a substantial increase over existing levels of activity, although in relation to Nepal's future energy needs, all of those actions in the moderate scenario would be woefully inadequate. Fuelwood supplies would meet only 53% of projected demand by 2010 (Table 1.3). Mineral fuel imports would grow more slowly with lower economic growth, but still reach 330,000 TOE by 2000. Furthermore, with slower growth in total export earnings and little if any surplus electric power to export, the burden of net fuel imports would be between 31-39% of export earnings by the year 2000 (Table 1.4). Priorities in the Energy Sector 1.35 If Nepal's overall development performance does not improve substantially, it would be difficult to implement an energy program to fully meet future needs. The first priority should be to improve insti- tutional performance in forestry and related programs to ensure adequate supplies of energy for household cooking and heating needs. Indeed, failure to do so would threaten the viability of Nepal's rural economy, as the remaining accessible natural forests would disappear during the 1990s. The cost of the accelerated forestry and stoves programs could be contained within feasible investment levels even under slower economic growth and would only raise energy sector expenditures to 4.8% of GDP by the year 2000. Simply put, with fast or slow economic growth, investment in forestry and stoves is crucial. Institutional issues and implementa- tion constraints are the bottlenecks. Donors can play a key role in providing technical and management assistance to expand existing forestry programs and overcome institutional barriers. 1.36 Beyond meeting the basic needs, real improvements are needed in the standard of living of the Nepalese people. The biogas and turbine programs can address this directly by providing cheap energy for rural agro-processing and cottage industries. Few resources are required and, as much of the costs are borne by the private sector, accelerated lending by ADB/N can certainly be justified to support this program. However, the most critical issue is to expand electricity supplies, and strong donor support is needed if Nepal is to generate cheap power. A 25 to 30- year power sector investment plan to finance the long-term expansion program (para. 1.26) should be prepared for HMG/N and donors to assess the resources needed for the whole sequence rather than consider power development on a project by project basis. - 18 - Institutions 1.37 At a broad planning level, Nepal is receiving assistance from the Canadian Government in the form of a twelve person advisory team which is helping institutionalize water and energy planning and in policy formulation. At a project level, many bilateral and multilateral donors are involved in helping to augment the supply of and conserve different traditional and commercial energies. Notwithstanding the value of these efforts, there are serious impediments preventing the country from getting out of its current difficulties. The rapidly expanding public administration needs policy guidance, experience, and a solid management apparatus to promote sound national economic management. The Nepalese institutions through which donors have tried to implement projects (with the aim of longer-term institution-building) have been slow in implementing these projects. Several donors have made proposals to provide advisory assistance to HMG/N in various ministries such as Finance, Agriculture, Industry. Such assistance has been sought by HMG/N and is gradually being provided (for example, IDA - financed assistance is being provided in the Ministry of Finance). The mission supports these measures; in particular, the mission stresses the urgent need to strengthen the National Planning Commission. 1.38 The Water and Energy Commission (WEC) attached to the Ministry of Water Resources has been closely monitoring operational problems in the power sector. The Electricity Department's capability has been strengthened over the past three to four years, and the WEC should now devote more time to sectoral and strategic planning matters. The mission feels that the role of WEC as an overall energy planning institution should be emphasized, and greater autonomy from the Ministry of Water Resources would give it more acceptance and credibility among all energy consuming and producing subsectors. WEC needs a well-defined set of intervention points where it is required to act before line ministries and agencies can proceed with energy sector activities. The institutional arrangements needed for this, including WEC's future relationship with NPC, will require careful consideration. 1.39 The mission is also encouraged by recent moves to consolidate the Nepal Electricity Corporation (NEC) and the Electricity Department (ED) into one organization, the Nepal Electricity Authority (NEA). This will allow better coordination among various functions and more efficient operation of the power sector at a time when considerable expansion is taking place. The mission recommends expanding the capacity of the Butwal Technical Institute, opening new and special programs at Tribhuwan University as well as seeking technical assistance for highly selective training programs in India and abroad. The Small Hydel Development Board needs to be strengthened if it is to efficiently carry out its assigned role, perhaps through closer integration with the new Electricity Autho- rity. In the meantime, consultants should be hired to review its current program, carry out site selection, train staff and supervise construc- tion. - 19 - 1.40 In the forestry sector, the mission supports recent suggestions to strengthen the Planning, Programming and Monitoring Office (PPMO) within the Ministry of Forests and Soil Conservation to carry out subsector planning for the accelerated forestry program. The mission also suggests attaching a forester to the WEC to assist in overall national energy planning activities. Once the results of the organiza- tional study proposed under the Bank's Terai Forestry Project have been defined, donors should consider providing technical assistance to imple- ment the recommendations as quickly as possible. Meanwhile, the annual intake in forestry training should be increased from the current 30 for the diploma course and 80 for the certificate course at the Hetauda Forestry Institute to 40 and 200, respectively. The mission also recom- mends that technical assistance of $1.2 million be made available to train about 40 candidates as forest officers abroad, not only in India, but also in Australia, Pakistan or Burma. 1.41 Renewable energy does not fall under one ministry or depart- ment. Planning activities are implicity the responsibility of the Water and Energy Commission and, in a more general way, the Planning Commission through inclusion in the five-year plans. The mission supports proposals to include an additional full-time assessment economist at WEC to deal with renewables. The energy planning directorate within WEC should be further revitalized by adding two or three technical and economic people. Implementing the accelerated stoves program could be handled within the existing Stove Improvement Unit within the Forestry Department. However, the need may arise for creating a special task force within the Department to handle the logistics of the proposed Kathmandu dissemination project (para. 3.15). RECAST (and/or the Gobar Gas Company) could carry out the two-year monitoring of community-size biogas plants. Assistance should also be given to RECAST, the research center at Tribhuvan University that has designed the proposed improved stove and which conducts research on biogas and other renewables. The mission therefore recommends that technical assistance be provided to RECAST to carry out new recruitment and personnel training and to acquire more modern research equipment for renewable energy work. The mission however, does not recommend the creation of a line ministry or department with overall responsibility for implementing programs in this subsector. - 20 - II. CURRENT ENERGY DEMAND AND FUTURE OUTLOOK Overview 2.01 Energy consumption in 1980/81 was estimated at 3.0 million tonnes of oil equivalent (TOE), of which 2.8 million TOE (94%) was mainly fuelwood (Table 2.1). Per capita consumption remained almost unchanged during the 1970s, at about 200 kilograms of oil equivalent (KOE). Per capita consumption of commercial fuel increased only from 9 KOE to 11 KOE between 1970-80, and remains well below the levels of 33 KOE in Bangladesh and 142 KOE in India. Overall energy consumption is heavily oriented toward the basic cooking and heating needs of households, and the household share of total energy consumption was 94% in 1980/81. Households accounted for 98% of fuelwood consumption and 22% of commer- cial fuel demand. The very low share of total energy going for trans- port, industry and agriculture reflects the traditional nature of Nepal's economy; their consumption of energy may increase substantially if economic growth picks up. 2.02 Energy consumption trends have generally reflected economic growth (Table 2.1). With per capita incomes stagnating during 1970/71- 1980/81, fuelwood consumption grew at the same annual rate as both population and GDP, i.e. 2.6%. On the other hand, the 5.2% growth of commercial fuels reflects, at least in part, the 6.3% growth rate in non- agricultural GDP. Fuelwood consumption was 7.7 million tonnes in 1980/81; the largest part, 7.4 million tonnes, was consumed in rural areas and only 0.3 million tonnes in urban areas. In geographic terms, 5.3 million tonnes were consumed in the Hills and mountains, and 2.4 million tonnes in the Terai. Table 2.1 Energy Consumption in Nepal, 1970/71 and 1980/81 ('000 TOE) Average Annual 1970/71 1980/81 Growth Rate (%) Non-Commercial 2,165.0 2,806.0 a/ 2.6 Commercial 102.3 169.2 5.2 Petroleum 62.0 107.7 5.7 Coal 37.0 48.0 2.6 Electricity 3.3 13.5 15.1 Total 2,275.1 2,975.2 2.7 a/ Includes iuelwood equivalent to 2,723,000 TOE and 83,000 TOE of animal and crop residues. - 21 - 2.03 Commercial energy consumption grew by five percent a year during 1970/71 - 1980/81 and increased its share of total energy from four to six percent. Although electricity load growth was hampered by inadequate and unreliable supplies and the absence of an interconnected grid system, total sales grew at an annual rate of 18.2% between FY71 and FY78, and 8.9% during the last five years. From FY77 onward, load shedding was introduced, and growth rates are therefore distorted. Households consume about 50% of electricity sales; the other 50% is consumed by industry. Consumption of petroleum fuels has grown at an average annual rate of 5.7% during 1970/71 - 1980/81 and, of the 108,000 TOE consumed in 1980/81, households took up 28% (mainly kerosene for lighting), transport 60%, industry and commerce 7% and, agriculture 5%. While petroleum products accounted for 4% of total energy consumed, they absorbed 32% of merchandise export earnings and 17% of all foreign exchange earnings (including tourism and remittances). The 1980/81 consumption of refined products and the rate of growth of consumption over the past six years is as follows (in '000 TOE): motor spirits 8.7 (3%), high speed diesel 47.1 (9%), kerosene 29.5 (3%), light diesel oil 5.2 (2.2%), furnace oil 3.0 (13%), jet fuel ATF 13.4 (10%) and LPG 0.8 (21%). Coal consumption, which has traditionally been very important for industry, increased at 2.6%, from 37,000 TOE to 48,000 TOE during the seventies. The erratic and unreliable supplies and quality of coal from India have discouraged greater use of coal in industry, and in recent years has even resulted in some substitution of fuelwood. Of the total energy consumed, only five percent was imported (all petroleum products and coal plus 55 GWh of electricity imports from India). The remaining energy, primarily fuelwood, was produced domestically. Annex I presents the detailed energy balance for 1980/81. Sectoral Pattern of Energy Consumption Households 2.04 The pattern of energy consumption in households differs significantly between the Hills and Terai and between urban and rural areas. Individuals in the Hills consume two-thirds more energy than those in the Terai because of their greater need for heating (636 kg of fuelwood vs 383 kg of fuelwood per capita). Most energy in rural areas is obtained from fuelwood and other biomass, while urban households obtain 17% of their energy from commercial fuels, partly because of greater availability of commercial fuels in urban areas and partly because urban households have the cash with which to purchase such fuels. As a result, urban fuelwood consumption is only 248 kg per capita compared with the national average of 510 kg. (Table 2.2). - 22 - Table 2.2: Estimated Household Energy Consumption, 1980/81 ('000 TOE) Fuel Urban Rural Total Fuelwood/Other Biomass 83.5 2,676.6 2,760.1 Kerosene 9.8 19.7 29.5 Electricity 6.6 - 6.6 LPG 0.8 0.8 Total 100.7 2,696.3 2,797.0 Population (millions) Urban - 1.0 Rural - 14.0 Source: Based on estimates of fuelwood consumption by APROSC, petroleum products consumption by NOC, electricity sales by NEC, and LPG sales by Nepal Gas Company. 2.05 Two surveys have provided information about the pattern of energy consumption in urban areas. The first was carried out in 1973 - 1975 by Nepal Rastra Bank and the second by the Agricultural Projects Services Center (APROSC) in 1982. A detailed analysis of the findings of both surveys appears in Annex II. The first survey reveals that in Kathmandu, kerosene stoves are owned by 88% of high income families, 76% of middle income families and 54% of low income families, which indicates that the infrastructure for potential growth in kerosene consumption exists. Upper income families also had a substantial number of electric appliances, for example, 70% had electric heaters and 35% had electric stoves. The second survey which correlates income with energy consumption reveals that with increased incomes, per capita consumption of kerosene and electricity increase dramatically, i.e. from 3 KOE to 12 KOE for kerosene and from 5 KOE to 18 KOE for electricity. It also shows that, despite the increased consumption of electricity and kerosene, the consumption of fuelwood also increases as household incomes rise. High income families dominate consumption levels; those 35% of families with incomes above Rs.25,000 consume 56% of all energy, 60% of kerosene and 65% of electricity. But the APROSC survey also shows that, although high income families dominate total consumption, lower income groups tend to spend a higher portion of their income on energy (up to 15%, vs. 5-6% spent by higher income groups). - 23 - Industry and Commerce 2.06 Energy consumption in the industrial sector grew at a rate of 7.4% between 1972 and 1981, from 39,000 TOE in 1972/73 to about 69,000 TOE in 1980/81, or slightly faster than the growth of industrial value added. (Table 2.3) The early state of industrial development is indicated by the fact that 70% of industrial output involves agro- processing while textiles, apparel and leather account for 14% and forest products 8%. Total industrial output accounts for only 5% of GDP. Recent surveys of energy consumption in industry (Donovan 1980) indicate that fuelwood is becoming more expensive and difficult to obtain, and that the scarcity and high price of energy has been a serious constraint to industrial development. Table 2.3 Estimated Industrial Fuel Oxsumption in Nepal Original Units Tonnes of Oil Equivalent % Share (TOE) Fuel 72/73 76/77 80/81 72/73 76/77 80/81 72/73 76/77 80/81 Fuelwood (tomes) 30,494 66,000 98,600 10,368 22,440 33,524 26.8 43.7 48.6 Coal (tannes) 40,147 33,000 39,000 23,687 19,470 23,010 61.3 37.9 33.4 Electric Power (GWh) 15.0 39.0 50.0 1,264 3,288 4,216 3.3 6.4 6.1 Petroleum Products (tonnes) 3,310 6,000 8,200 3,310 6,200 8,200 8.6 12.0 11.9 38,629 51,398 68,950 100.0 100.0 100.0 Source: NEC, NFC and Mission estimates based on various surveys. 2.07 Nepal's major industrial consumer of fuelwood is the brick and tile industry (64%), followed by sugar refineries (12%). Fuelwood demand in industry more than tripled during the decade i.e. it grew at an average annual rate of 16%. Coal consumption remained about constant; its share of total energy consumed in industry declined, however, from 61% to 33%, while that of fuelwood rose from 27% to 49%. These trends stem from dissatisfaction with the quality and timeliness of imported coal from India which has led the major industrial consumers to switch to the other fuels, mainly fuelwood. If coal imports were organized so as to assure acceptable levels of quantity, quality and reliability, coal - 24 - consumption by industry would certainly increase because coal remains the cheapest industrial fuel (RS.0.56 per 100 kcal for coal vs. Rs.1.6 for fuelwood in Kathmandu, Rs.0.07 in the Terai, and RS.1.7 for diesel). Industrial consumption of petroleum generally has been confined to the use of diesel oil in larger rice mills and fuel oil in industrial boilers for steam processes which amounted to 8,200 TOE in 1980/81. 2.08 Industrial demand for electricity increased at an extremely rapid pace during the 1970s, from 8.7 GWh in 1970/71 to 50.2 GWh in 1980/81, i.e. at an average annual growth rate of 19%, and doubled its share of industrial energy demand from 3% to 6%. In the eastern region around the Biratnagar area, significant agro-industrial activity is already taking place and this accounts for industrial electricity sales comprising 62% of total sales in that region, compared with only 31% nationwide. Nevertheless, the industrial use of electricity has been severely hampered both by a lack of supply and by low voltage and frequency levels. The prevelance of sudden surges in voltage to as high as 400 volts and above on a 220 volt system has been an added problem from time to time, so much so that almost all higher cost equipment must be protected by voltage stabilizers. This general inadequacy in the electricity sector has caused widespread frustration and pessimism among all categories of consumers and is retarding the growth and development of new electricity using activities - both consumer and producer activities. 2.09 Self-generation of electricity by industry amounts to about 7-8% of Nepal's total electricity capacity. It is, however, expensive and would not be a viable alternative to supplies from a well-run grid system. A few self-generating facilities are significant e.g. Biratnagar Jute Mill (2250 KW), Birgunj Sugar Mill (2672 KW) and Mahendra Sugar Mill (770 KW). In fact, in 78/79, 3000 TOE of coal were used in captive power generation. About 10.5 GWh was generated from captive plants in 1981/82. 2.10 Energy consumption in the commercial sector takes place mostly in establishments such as hotels, restaurants, pastry shops, laundries, and is estimated to be 36,238 TOE in 1980/81, of which coal comprises 60%, electricity 6% and fuelwood 34%. The large amount of fuelwood consumed in the commercial sector again reflects not only the early stage of development in Nepal, but also the lack of reliable supplies of alternative energy. Transport 2.11 Fuel consumption in the transport sector, which has grown by about 14% a year since the mid-seventies, was 67,500 TOE in 1980/81, accounting for more than half of total commercial energy demand. High speed diesel fuel accounted for 63%, aviation turbine fuel 20%, motor spirit 13%, and coal 4%. About three-quarters of the demand for trans- port fuel (diesel oil and motor spirit) is used in road transport of -- 25 - goods and passengers. Of the 36,247 registered vehicles in 1981, 1/ jeeps and cars accounted for 51%, trucks 40% and buses 9%. Total vehicle registration grew at an average annual rate of 14% between 1976 and 1981, with the truck fleet growing at double the rate of the passenger car fleet, i.e. 20% vs. 10%. During the same period, the demand for diesel oil, used mainly by trucks for the transport of goods, increased at 13% a year. Motor spirit demand declined by 1.6% a year over the decade because of retail price increases; the price now is nearly double the international price and 58% above the retail price of diesel oil. 2.12 The development of air transport in Nepal has received considerable attention because of the country's isolation, the lack of an extensive road network in the Hills, and the importance of tourism to the economy. As a result, the consumption of aviation turbine fuel grew at an average rate of 20% a year during the 1970s. In contrast, railways experienced a continuous decline over the seventies and almost all of Nepal's imports are now being transported by trucks, which offer more flexible scheduling and reliable service. Railways consume about 3,000 TOE of steam coal a year, but periodic shortages of coal have hindered operations. 2.13 Electricity consumption in the transport sector is still insignificant. A trolley bus system operates between Kathmandu and Bakhtapur, a distance of 13 km, and consumes about one GWh per year. Lack of spare parts, poor maintenance of equipment and large financial losses have been major problems, and of 32 buses available, only 13 were operating in November 1982. The bi-cable ropeway between Hetauda and Kathmandu which has a capacity of 25 tonnes of freight per hr. has been plagued with problems, and indeed only reopened in early 1983 after being closed for two years. Theoretically, the ropeway has a time and cost advantage over trucks as the distance between Hetauda and Kathmandu is only 42 km by ropeway which can be covered in four hours, versus the 10- 12 hours required for trucks to cover the 132 km distance by road. The freight rate is Rs.115/tonne for ropeways vs. an average truck tariff of Rs.260/tonne. However, the absence of a direct link between ropeway and railway operations has added to handling costs, pilferage and damage losses. In addition, the lack of cargo carriers and maintenance has caused the ropeway to operate at very low load factors. Chronic power shortages have caused interruptions in ropeway traffic, and the back-up diesel was removed in 1978. The preference of shippers for privately- operated truck transport despite the ropeway's possible cost advantages suggests that under Nepalese conditions, ropeways have difficulties competing with roads over the same route. Before committing any further investments on the Kathmandu - Hetaunda ropeway, the problems causing the inefficiencies need to be resolved. In general, the traffic for which the ropeway could effectively compete with the highway needs to be identified. However, ropeways may be a viable alternative to building roads in certain Hill areas. The UNDP/ESCAP study of October 1980 1/ Cummulative registration, and does not allow for vehicle retirement. - 26 - identified a number of such sites, and the mission supports further investigation of these possibilities. Agriculture/ Irrigation 2.14 Growth in Nepal's food grain production, which constitutes 90% of total agriculture, fell short of the 2.6% population growth rate during the seventies due to a multiplicity of constraints, among which lack of irrigation figures prominently. An estimated 1.3 million ha of arable land is suitable for gravity irrigation, while tubewell irrigation potentially could cover an additional 0.4 million hectares. At present there are some scattered diesel pumps in operation which, along with tractors and farm machinery, consume about 4,700 TOE of diesel oil a year. 2.15 Stage I of the 1976 IDA-assisted Bhairawa-Lumbini Groundwater Project was the first relatively large size groundwater scheme in Nepal, costing $14 million. The project installed 64 electrified tubewells, each capable of irrigating an average of 120 ha, serving 50-70 farmers; the total command area was about 7,500 ha. The Second Stage has been designed mainly to assure the operation and maintenance of the wells installed under Stage I, but also includes 15 additional wells. The Stage I wells have a 69 KW installed capacity, but technical improvements have reduced the requirement to 29.5 KW for each of the Stage II wells. The Stage I and II projects would require about 5 MW of power at the well head, assuming that water levels did not decline below a depth of 15 m. Considerably less power would be required in the early years. Until recently, the extent and amount of power supplies to energize the tube- wells have been severely restricted. However, HMG/N has now instructed NEC to operate the 33 KV transmission line from the Gandak West Hydro Power Station to the 33/11 KV substation in the project area as a dedicated feeder. Future Energy Outlook 2.16 Energy demand projections have been developed for two assumptions about future economic growth: (1) Accelerated economic growth which assumes an annual 3% growth in agriculture, 6-7% growth in the non- agricultural sector, and an overall GDP growth averaging 5%; (2) Con- tinued economic stagnation where agriculture grows by 1.5% per year, the non-agricultural sector by 4%, giving a GDP growth rate of 2.9%. Such growth would only be slightly in excess of population growth, and would be almost equivalent to economic stagnation in terms of per capita GDP (para. 7.03). The energy projections should, however, only be viewed as indicative of the broad trends that the energy programs proposed in Chapters III and IV must address. 2.17 Household energy requirements will continue to rely heavily on traditional fuels, but the trend toward greater urbanization can be expected to increase household use of commercial fuels. The urban population grew by 7% a year during the 1970s and by the year 2010, about 20% of the population could be living in urban areas, compared with only 7% in 1981. The greater number of households purchasing commercial fuels - 27 - will raise the scope for influencing the pattern of energy demand through pricing policies. 2.18 The future household demand for energy also will depend upon the indiLvidual household response to changing per capita incomes. Based on the data in Annex II, energy income elasticities for urban households were estimated to be zero for fuelwood, 1.0 for kerosene, and 0.7 for electricity; in the absence of any information on fuel use by different income groups in rural areas, these estimates were also used to project demand of rural households. With faster economic growth, commercial energy demand is projected to grow by an average of seven percent a year and will equal five percent of total household energy demand in the year 2010. This compares to a one percent growth rate at present. With continued economic stagnation, commercial energy demand will equal only two percent of total household energy, as shown in Table 2.4. Table 2.4 Projected Househnld Energy DEmand ('000 TDE) Percentage Average Actual Projected Distribution Annxal Groath 1980/81 1989/90 1999/00 2009/10 1980/81 20o9/10 1980/81-20o9/10 I. Accelerated Econamic Grawth Traditional Fuels 2,760 3,415 4,170 4,982 99 95 2.1 Pelroleum Products 30 49 92 189 1 4 6.5 Electricity 7 14 30 66 - 1 8.0 Total 2,797 3,478 4,292 5,237 100 100 2.2 II. Econanic Stagnation Traditional Fuels 2,760 3,415 4,278 5,254 99 98 2.2 Petroleum Products 30 38 51 68 1 [ 2.9 Electricity 7 14 19 26 - [2 4.6 Total 2,797 3,461 4,340 5,337 100 100 2.3 Source: Staff estimates 2.19 In the industrial/commerciLal sector, the 6-7% annual growth in the non-agricultural sector projected under the accelerated scenario would lead to a continued rapid growth in energy requirements for that sector. The sector's overall demand is therefore projected to continue growing by seven percent a year during the period 1980/81-2009/10 (Table 2.5). The distribution of this demand among petroleum, coal and elect- ricity will depend on interfuel pricing policies, as well as on govern- - 28 - ment policies for influencing the types of activities to be encouraged. Plans already are being made to set up large industrial plants such as cement and paper. With the possibility of more plentiful supplies of electricity, many new plants are likely to use electricity as a major source of their energy requirements. Indeed, HMG/N's analysis of elect- ricity use in prospective industries and commercial establishments predicts the load growth will average 20% a year during the 1980s and realize a similar growth during the 1990s. By the year 2010, about one- third of the sector's energy requirements could be met by electricity, compared with only seven percent at present. However, some increase in the requirement for hydrocarbon fuels is unavoidable; this demand is assumed to grow as fast as non-agricultural GDP (6 - 7%). The split between coal and oil imports will depend to a large extent on Nepal's ability to obtain increased coal imports from India. The stagnation scenario would generate only a five percent annual increase in energy needs, however, as the construction of hydroelectric plants will con- tinue. Even under these circumstances, electricity is expected.to pro- vide about one-third of the sector's energy requirements by the year 2010. Table 2.5 Projected Industry/Commerce Energy Demand ('000 TOE) Average Actual Projected Annual Growth 1980/81 1989/90 1999/00 2009/10 1980/81-2009/10 I. Accelerated Economic Growth Fuelwood 46 64 100 97 2.6 Petroleum and Coal 53 95 227 477 7.8 Electricity 7 32 129 383 14.8 Total 106 191 456 957 7.9 II. Economic Stagnation Fuelwood 46 60 80 65 1.2 Petroleum and Coal 53 85 140 215 4.9 Electricity 7 25 55 145 11.0 Total 106 170 275 425 4.9 Source: Staff estimates 2.20 With accelerated economic growth, energy demand is likely to continue growing rapidly in the transport sector because larger development outlays will require increased trucking of construction materials. In addition, completion of the East-West Highway linking the isolated Far Western parts of Nepal with the rest of the country will lead to increased road traffic. Good prospects for future growth in - 29 - tourism also will result in continued growth in aviation fuel require- ments. Energy demand in the transport sector is therefore projected to grow at an average rate of 11% a year through 1990 (Table 2.6). Subsequent growth could be lower, about seven percent a year, because future road programs are likely to focus on construction of feeder roads rather than on new highways. These roads will generate some increase in traffic, but much of this will be buffalo and ox carts. The increased availability of electricity in the 1990s will make it advantageous in certain instances to build electrically-powered ropeways from the Terai into the Hills instead of additional roads. Routes with a total power capacity of 20-30 MW have been identified, and by the year 2010 ropeway routes with as much as 50 MW requirements could be in operation. Table 2.6 Projected Transport Energy Demand ('000 TOE) Average Annual Growth 1980/81 1989/90 1999/00 2009/10 1980/81-2009/10 I. Accelerated Economic Growth Petroleum Products 65 166 322 627 8.1 Diesel Fuel (40) (120) (236) (464) (8.8) Aviation Fuel (13) (30) (59) (116) (7.8) Otber Petroleum (12) (16) (27) (47) (4.8) (Cal 3 3 - - Electricity _ - 14 28 - Total 68 169 336 655 8.1 II. Econxmic Stagnation Petroleum Products 65 103 154 231 4.5 Diesel Fuel (40) (64) (95) (140) (4.4) Aviation Fuel (13) (24) (39) (64) (5.7) Other Petroleum (12) (15) (20) (27) (7.8) Coal 3 3 - - Electricity - - 2 10 Total 68 106 156 241 4.5 Source: Staff estimates 2.21 For agriculture to sustain a three percent growth rate under the accelerated program, Nepal's irrigation potential would have to be fully developed, including the 400,000 ha of groundwater irrigation. The government plans to develop groundwater irrigation through a program of - 30 - electrically powered deep tubewells. Installation of these facilities is expected to cover about 12,000 ha by 1984/85 and, although implementation has been slow so far, some acceleration should be possible as more exper- ience is gained. An ambitious but feasible target may be to increase the groundwater command areas to 35,000 ha by 1990, 150,000 ha by 2000, and 400,000 ha by 2010. This would require 20 MW of electricity generating capacity by 2000 and 50 MW by 2010, equivalent to a final energy demand of 27,000 TOE (Table 2.7). On the other hand, as the publicly-operated groundwater program builds up momentum, the installation of private shallow tubewells is likely to slacken. Therefore, diesel demand is assumed to grow only at the same rate as agricultural GDP through 1990 and remain at that level thereafter. The prospects for other uses of petroleum fuels in agriculture are limited as animal power will continue to be more efficient than tractors for some time to come, although there is a lot of potential for agricultural processing. Under the stagnation scenario, the installation of deep tubewells will proceed at a reduced pace and cover no more than 100,000 ha by 2010, requiring an installed capacity of only 13 MW, equivalent to final demand of 7,000 TOE. But with slower growth in public schemes, private installations of diesel- powered wells will continue, and diesel fuel demand in agriculture is assumed to grow at the same rate as agricultural output i.e. 1.5%. Table 2.7 Electricity Requirements of Groundwater Irrigation 1984/85 1989/90 1990/00 2009/10 Accelerated Economic Growth d/ Area ('000 ha) a/ 12 35 150 400 Power Capacity (MW) b/ 2 4 19 50 Energy GWh 10 28 118 315 ('000 TOE) c/ (1) (2) (10) (27) Economic Stagnation Area ('000 ha) dl 12 20 50 100 Power Capacity (MW) b/ 2 3 6 13 Energy GWh 10 16 39 79 ('000 TOE) c/ (1) (1) (3) (7) a/ 5,000 ha irrigated per year '84-89, 11,000 ha per year '90-99 and 28,000 ha per year 2000-09. b/ 0.3 KW capacity per ha, and assumes a coincidence factor between running the installed pumping of 35% and transmission requirements of 20%. c/ Assuming a load factor of 30%. d/ 2,000 ha irrigated per year '84-89, 3,000 ha per year '90/99, and 5,000 per year 2000-09. - 31 - Summary of Demand Projections 2.22 Aggregating the sectoral demands, it is clear that a sustained improvement in economic performance will lead to major changes in the pattern of energy requirements (Table 2.8). Overall energy demand will increase by 2.9% a year, but fuelwood demand will increase by only 2.1%, while the demand for commercial energy will grow by 8.5%. 1/ As a re- su:lt, dependence on fuelwood consumption would fall to only 74% of total requirements by the year 2010, compared with 94% in 1981. Per capita commercial energy use will increase from 11 KOE to 61 KOE by the year 2010, close to the 58 KOE presently consumed by low income developing countries (excluding India and China). Electricity consumption would rise even more rapidly, at 13% a year, increasing from a current per capita consumption of 10 kWh to 198 kWh by 2010. These developments reflect not only the rapid growth in energy requirements of the economic sectors, but also the seven percent growth in household commercial energy consumption. With continued economic stagnation, total energy require- ments would grow by 2.5% per year and commercial energy by only five per- cent; the latter's share of total energy would be only 12% by the year 2010. In 2010, per capita consumption of commercial energy would be 22 KO]E and that of electricity 69 kWh. 1/ Although this implies that commercial energy has an elasticity of 1.7 with respect to overall GDP growth, it is only 1.3 in relation to non-agricultural GDP. Thble 2.8 Projected Total Energy Demand ('000 TOE) Per Capita (koe per Distribution Average Annual Growth Rates head) COxnsunmtion 1980/81 1989/90 1990/00 2009/10 1980/81 2009/10 1980/89 1990/99 2000-09 1980-2009 1980/81 1999/00 2009/10 I. Accelerated Economic Growth Fielwood and Other Biomass 2,806 3,479 4,270 5,080 94 74 2.4 2.1 1.8 2.1 187 180 172 Commercial 169 367 830 1,803 6 26 9.0 8.5 8.1 8.5 11 35 61 Petroleum/Cogl 156 319 647 1,299 5 19 8.3 7.3 7.2 7.6 10 27 44 Electricity 13 48 183 504 1 7 15.6 14.3 10.7 13.4 1(10) 8(90) 17(198) Total 2,975 3,846 5,100 6,883 100 100 2.9 2.8 3.0 2.9 198 215 233 II. Economic Stagation Fuelwood and Other Biomass 2,806 3,475 4,358 5,319 94 88 2.4 2.3 2.0 2.2 187 179 168 Comiercial 169 275 433 710 6 12 5.6 4.6 5.1 5.1 11 17 22 Petroleum/Coal 156 235 352 522 5 9 4.7 4.1 4.0 4.3 -o 14 16 Electricity 13 40 81 188 1 3 13.3 7.3 8.8 9.6 1(10) 3(39) 6(69) Total 2,975 3,750 4,791 6,029 100 100 2.6 2.5 2.3 2.5 198 1% 190 Note: Figures in brackets are kWh/per capita Source: Mission Estimates - 33 - III. ENERGY RESOURCES: TRADITIONAL FUELS 3.01 Nepal's reliance on fuelwood as the main source of energy has placed too much pressure on the country's forests. The forests have shrunk considerably in the past two decades and are expected for the most part to disappear by the end of the century, given continued overexploi- tation of fuelwood coupled with increasing population pressure and inadequate reforestation programs. Some experimentation and a limited application of improved stoves and biogas plants have been successful in conserving fuelwood; however, these measures will have only a limited impact in the next 10-15 years. This chapter will review progress in the traditional fuels sector and present an accelerated energy scenario designed to meet Nepal's needs to 2010. A more modest increase in energy investments is also presented and is shown to be inadequate for meeting Nepal's energy needs. Forestry Resources 3.02 Nepal's forests have shrunk from 6.4 million hectares in 1963/64 to an estimated 4.3 million ha in 1980. 1/ (Details on the history and extent of Nepal's fuelwood crisis appear in Annex IV.) The current volume of growing stock is 186 million cubic meters versus 400 million cu. m. in 1963/64. Overexploitation of the forests is estimated to be the equivalent of clear-cutting more than 100,000 ha a year. Loss in agricultural productivity, increased erosion, river siltation and down stream flooding have been caused by the disappearance of the forest. 3.03 The most important measure undertaken by HMG/N to correct the damage was the Panchayat Forest Legislation in 1977. It was designed to involve local communities in planting new areas (panchayat forests) and in protecting and managing existing forests (panchayat protected forests). The IDA-financed Community Forestry Development and Training (CFDT) Project in the hills which came into operation in 1980 applied this new legislation by targeting 11,750 ha of panchayat forest plantations and 39,100 ha of panchayat protected forest to be brought under improved management, and by distributing 0.9 million seedlings for planting in private lands, all over a five-year period. Achievements up to mid 1982 reveal a keen public demand for seedlings and, so far, about 0.7 million seedlings have been distributed, indicating the desire of people to grow their own fuelwood and fodder resources. Due to delays in the preparation of management plans for the panchayat protected forests, progress on this component of the project has been slow. 3.04 Other forestry projects under implementation include the Nepal- Australia Forestry Project, the Sagarnath Forestry Development Project 1/ The IDA Terai Forestry project appraisal report estimates the forest area to be 3.8 million ha. - 34 - (ADB) and the Resource Conservation and Utilization Project (USAID). The proposed new IDA Terai Forestry Project which has just been appraised aims at the establishment of community and farm woodlots over 7,000 ha, conversion of 5,900 ha of degraded forests to plantations of fast growing varieties, distribution of 32 million seedlings, free distribution and installation of 35,000 improved stoves, and improving the training facilities. The location, objectives and achievements of these projects are shown in Map IBRD 16872 at the end of this report. 3.05 Obviously, the situation calls for implementing measures far in excess of what has and is being done. While the search for hydrocarbons continues (paras 4.29 - 4.30), and while hydro-electricity is being developed, fuelwood demand in the future can only be met by a combination of efforts focussing on three major areas: (i) increasing fuelwood resources by widespread tree planting, and improving the management of the existing forests; (ii) conserving fuelwood through more efficient utilization and reduction in waste; (iii) substitution by other fuels. Increasing Fuelwood Resources 3.06 Current estimates of the demand for fuelwood from forests, which supply an estimated 76% of demand (versus 24% from private woodlots), reach 9.1 million tonnes and 11.4 million tonnes (equivalent to 12.6 and 16 million cubic meters) by the years 2000 and 2010. There is unanimous agreement by forestry specialists that Nepal's fuelwood needs could be met from about 1.2 million hectares of high yielding forest areas. Because the total forest area in the Terai is only about 0.4 million ha, of the 1.2 million ha targeted area, almost one million ha would have to be in the Hills. This would require a planting rate of 50,000 ha by 1990, and an average of 100,000 ha during the nineties, if the problems were to be under reasonable control by 2000. The targets, which are based on the data available in late 1982, are likely to be modified as information on the forest sector improves and the mix between forest planting and protection programs (para. 3.11) is likely to change. What is clear is that a major jump in forestry programs is required way beyond what is presently being planned. The IDA-financed Hill and Terai projects aim at planting about 18,000 ha a year by 1990 which would be quite an achievement. To reach the 50,000 ha level by 1990 and 100,000 ha average plantings during the nineties will require more than just building up physical and institutional structures during the next 2-3 years. Major changes in the mobilization of human, institutional and financial resources are called for. But both HMG/N and forestry experts in Nepal recognize that the seriousness of the problem warrants high priority attention to achieving these changes and that, with a dedicated national effort, the higher level forestry program is feasible. 3.07 Strong local participation in planning and implementing has been vital to the success of planting programs in countries which have succeeded in establishing an infrastructure and the institutional capability to support large-scale fuelwood planting. Establishing nurseries and other facilities, and training foresters or special extension agents in rural afforestation still was a long process. The - 35 - development of appropriate technical packages for a specific area also took time, requiring extensive local trials and research to identify the proper species and provenances and the best combination of planting, fertilizing or pest control techniques. Quick responses to these problems have often been made difficult because the national forestry services lack the expertise for the nontraditional tasks required in social forestry. It is imperative, therefore, that there be a new approach to planning forestry development in Nepal. Some of the key elements have already been started within the focus of the Bank's recent forestry projects in Nepal. The groundwork is understood and is apparently being laid, e.g. the local emphasis, bringing in the small farmer, realistically evaluating land availability, establishing nurseries and extension services. The problem is one of timing and scale. The afforestation master plan to be prepared within the next two years should focus on developing new approaches that might rapidly increase the scale of planting and elevate the Government's commitment to it to the level of meeting a national crisis. The experience of the past few years suggests that the most effective means of carrying out such a program is to involve the local villagers in the process of planting and protection because the Forestry Department cannot carry out such activity on its own. Therefore, the procedures for handing over forest areas to the panchayats should also be simplified and greatly expedited. 3.08 Besides planting on government forest lands, some of which have been handed over to the panchayats, for the bulk of the accelerated forestry program there should be a major and sustained drive for planting on farm lands, other private lands, homesteads, village common lands, road sides, canal banks and all available unutilized sites. Each farmer should be self sufficient to the extent possible with regard to fuelwood, fodder and small timber requirements. Experience of the Bank's CFDT Project shows that there is keen demand by the people for seedlings, and these should be made freely available to anyone who wants to plant trees on his land. In the Terai, where no such program yet has been started, nurseries have been established by some farmers to meet their requirements as well as for sale. The Forestry Department should be ready to distribute free seedlings and provide advice wherever demand for them exists. A comprehensive extension program to educate the people about the problem should be launched by the Ministry of Forestry and Soil Conservation and Watershed Management. By developing private woodlots, pressure on forests for fuelwood and fodder can be reduced significantly. 3.09 Although widespread afforestation will help relieve Nepal's energy crisis, it also will act as a vehicle to solve other problems such as fodder, timber, organic manure, plus function in minimizing soil erosion and regulating water flow. An adequate tree cover is essential to maintaining ecological stability and preventing further degradation of the environment. Therefore a 20-25 year comprehensive afforestation plan which addresses the problems of fuelwood and fodder should be devel- oped. However, basic data on the extent of land available for planting, climatic conditions and suitable varieties necessary to prepare such a plan are not available. The mission strongly recommends that a survey to identify available land for forestry programs be carried out in the next - 36 - two years (details appear in Annex VI A). The total area of denuded forest land, other unutilized government and community land available in every district should be assessed. The survey could also collect data on soil and climate which would help in the choice of species. A survey of this kind could be completed in two years by creating four survey divisions (each headed by a Divisional Forest Officer) exclusively for this purpose, at a cost of about $250,000. Details for such a project are found in Annex V B. The Terai Forestry Project being appraised by the Bank (para. 3.04) includes a large technical assistance component equivalent to 25 man-years of expatriate technical assistance and 12 man- years of local consultancy services, among which the preparation of a National Forestry Plan figures prominently. This would include: (i) determination of present patterns of wood consumption and sources of supply to make a projection of future wood demand; (ii) assessment of the requirements for developing the wood industry and identification of the need for further in-depth studies; (iii) review of the forestry sector's institutional structure and preparation of a report with recommendations for improvement; (iv) making use of current data, preparation of an estimate of the country's accessible natural forest resources; (v) preparation of a long-term program of plantation establishment which would also indicate the future support expected from aid agencies currently engaged in projects with a forestry component; and (vi) preparation of a long-term program of management for the natural forests. 3.10 The mission also has identified possible projects which are suggested for implementation in the interim period. The projects are based on the mission's discussions with officials of the Departments of Forestry and Soil Conservation and Watershed Management, and the Forest Development Board and field visits. A detailed description of each project appears in Annex V. The projects include planting in the Hills and Terai and on forest lands leased to private persons or industries, and a charcoal project in the Terai utilizing stumps from cleared degraded forests. However, they should be considered as tentative pro- posals requiring more detailed investigation and appraisal. A worthwhile proposal that should be fully investigated is that made by APROSC to supply six urban areas (including 3 towns in the Kathmandu Valley, Pokhara, Biratnagar and Nepalgunj) with fuelwood. APROSC proposes that four areas in the Terai be selected for establishing fuelwood plantations with fast growing species. The plan aims at gradually clear-felling depleted old stock for supplying urban needs for the first ten years, and systematically replacing them with plantations which would yield fuelwood for the following ten years. The total area would be about 50,000 ha at an estimated cost of Rs. 2,837 (US$218) per hectare. Improving the Management of Existing Natural Forests 3.11 The productivity of the natural forests can be improved by protecting them against unregulated and excessive felling, lopping and grazing. Existing forests should be managed in accordance with the requirements of the local population. Estimates of yield from managed natural forests vary from 2 to 5 cubic meters/ha/yr., compared with 1 cubic meter/ha/yr. from the present degraded forest. A beginning has been made under the CFDT Project for the establishment of 39,100 ha of -- 37 - panchayat protected forests. Better management of natural forests is important in the long run, but protection programs can have little impact on increasing fuelwood supplies in the medium term because 15-20 years are thought to be needed for yields to recover. 1/ However, by making a start now on protecting the one million ha of natural forest expected to be still standing in 2005 when production from the planting program is sufficient to eliminate the net fuelwood deficit, Nepal could have a smaller planting program after 2000. It would therefore be necessary to increase the annual addition to protected areas to about 100,000 ha per year by 2000, compared with the 15,000 ha per year target of ongoing programs. In addition, the existing criteria which stipulate that the District Forest Officer manage the panchayat protected forests and that HMG/N receive the earnings should be changed so that the panchayat enjoys all the financial benefits from their efforts. Again, the transfer of forests to the panchayats for protection should take place as soon as possible because the longer the forests remain government property, the faster they are likely to disappear. 3.12 Table 3.1 summarizes the forestry programs under the proposed accelerated and moderate scenarios. Under the accelerated program, the tempo of planting accelerates gradually from 10,000 ha per year in the mid eighties, to 50,000 ha by 1990, averaging 100,000 ha during the nineties. The cost of this program rises rapidly during the 1990s to an annual amount of US$55 million in 2000 (versus US$14 million under the moderate scenario), but declines after the turn of the century because by then, forests would be sufficient to provide the required fuelwood. This is, of course, an aggregate approach based on the required afforestation needs. To be at all realistic, the location of priority areas will have to be determined within the context of the National Forestry Plan (para. 3.09). Under the moderate scenario, the rate of planting would increase more slowly, reaching only 20,000 ha per year by 1990 and 30,000 ha per year by 2000. Fuelwood Conservation through Improved Stoves 3.13 The dissemination of improved (smokeless, higher efficiency) cooking stoves (ICS) is the single most important action that could be taken in Nepal in the field of energy conservation because it directly addresses the urgent problems of deforestation and domestic fuel scarcity and does not require complex technology or substantial financial investments. At the moment, an improved stove dissemination program with a target of 15,000 units by 1985 is being carried out by the Ministry of Forests and the research center at Tribhuvan University (RECAST) as a component of the IDA-supported CFDT Project. The recently appraised IDA- financed Terai forestry project also includes a component to disseminate 35,000 ICS over a six-year period in the Terai. Some important achievements have been made under the CFDT Project. A number of stove designs using ceramic (clay) materials and equipped with chimney pipes have been developed by RECAST with a tested efficiency about twice that 1/ Recent information, however, suggests that regeneration could be much faster, and, if confirmed, the mix of planting and protection pro- grams would need to be revised. - 38 - Table 3.1 Forestry Program 1984/85 1989/90 1999/00 20C9/10 I. ACCLERATED PDXRAM a/ .lsative planted area ('000 ha) 20 200 1,200 1,500 Annual planting ('000 ha) 10 50 120 30 Cost per year (US$ million) b/ 3.7 18.6 44.5 11.1 Panchayat Protected Forest Area to be managed ('000 ha) 30 200 935 1,000 Annaal cost c/ 0.5 2.3 10.8 11.5 Total cost per year 3.7 20.9 55.3 22.6 (US$ milion) II. MODERATE PF)GRAM a/ Qzmilative planted area (1000 ha) 15 100 350 750 Annual planting ('000 ha) 5 20 30 50 Cost per year (US$ million) b/ 1.9 7.4 11.1 18.6 Panchayat Protected Forest Area to be managed 20 100 350 440 Annual cost c/ 0.2 1.2 4.0 8.6 Total cost per year (US$ million) 2.4 9.0 14.2 24.8 a/ Accelerated program phases in planting needed to reach the target for the year 2000 of 1.2 million ha of plantations and 0.94 million ha of protected forest. Moderate programs allow for successful implementation of existing forestry programs plus their phased expansion during the 1990s. b/ Per ha planting costs of US$371. c/ US$11.5 per ha per year. of traditional stoves. Some 2500 improved stoves have been disseminated, mostly in the Kathmandu Valley, and surveys have indicated positive user acceptance. At the demonstration level, UNICEF is also distributing a slightly different stove from the RECAST design; 450 stoves have been installed so far, and user reactions have likewise been positive. These results could provide the basis for seriously considering a major dissemination program in regions where favorable field data have been monitored. - 39 - 3.]L4 An expanded ICS dissemination activity focussed initially at Kathmandu Valley (but to be extended to other areas as soon as possible; para 3.16), could achieve the following objectives: (i) effect a significant, measurable impact on fuelwood consumption in the short term. Kathmandu Valley has approximately 800,000 people or about 100,000 households. An improved stove with twice the efficiency of the traditional stove placed in each of these households could save up to 99,200 tonnes/yr of fuelwood (valued at US$6.1 million at current prices of wood). 1/ This is equivalent to the annual yield from 13,680 hectares of forest, 2/ (ii) provide a demonstration project of sufficient "critical mass" to stimulate a rapid nationwide shift to ICS. The area- intensity of the project distinguishes its potential impact from that of the CFDT stove component activities which have covered a much larger area with less total units; (iii) improve public health. The incidence of chronic bronchitis in Nepal is among the highest in the world and has been correlated with domestic smoke pollution caused by the use of chimney-less traditional chulos and agenus in homes. 3.15 The implementation of the proposed Kathmandu Valley project would have to be closely coordinated with ongoing efforts of the Stove Improvement Unit of the Community Forestry and Afforestation Division, but a separate project or task force unit (under supervision by the Forestry Department) focusing solely on the Kathmandu dissemination work may have to be formed. Except for an installation charge of Rs.10-15, the mission recommends that the improved stoves initially be distributed free; replacement stoves could be provided with a decreasing subsidy or on a commercial basis. The project cost, including necessary promotional work, is estimated to be about $2.5 million (Annex VI B); the potential savings in equivalent reforestation cost, however, is more than twice this amount. 3.16 Due to the diversity in traditional stove use in various parts of Nepal, work should continue on developing more appropriate ICS, defining user characteristics and determining acceptance in each region. The CFDT and Terai Forestry Project stove activities will be extremely useful in helping gauge applicability in the Terai and other areas beyond Kathmandu Valley. In parallel with the Kathmandu Valley project, surveys should be conducted to identify other areas with good logistics where similar large-scale intensive dissemination can begin as soon as possible. 1/ Based on an estimate of 248 kg/capita/yr fuelwood consumption for urban areas. The actual savings could be about 20% lower because about half of the households also have agenus (central heating places), the use of which will probably continue along with the improved stove. 2/ Based on an average forest yield at 10 years of about 10 m3/ha and 0.725 tonnes per cubic meter. The cost of reforesting 13,680 (at the rate of approximately $400/ha assumed for forestry projects in this report) is $5.5 million. - 40 - 3.17 Table 3.2 presents two ICS dissemination scenarios on a country- wide basis. The accelerated program scenario targets three million stoves to be installed by the year 2010 to approximately 70% of households. This requires the annual ICS installation rate to reach 100,000 by the year 2000, and 280,000 by 2010. However, the relatively slow buildup of even this accelerated program means that it can do little to alleviate overuse of the forest until the mid-1990s. The moderate scenario, on the other hand, would cover only 10% of the households by the year 2000 and 18% by the year 2010. Even with assumed fuelwood savings of only 25%, the cost of disseminating stoves is only about a third of what it would cost to establish plantations that could produce the wood equivalent to the projected ICS savings. Substitution of Wood by Other Fuels Biogas 3.18 Biogas has the potential to become a significant and economical substitute for fuelwood, primarily in the Terai where the warmer climate favors digester operation. Conditions essential to the technology certainly exist in the country: (1) the cattle population 1/ is large (about 16 million in 1982) and dispersed to almost all parts of Nepal; (2) there is traditional familiarity with dung as a material for cooking and for fertilizing the fields; and (3) dung is increasingly being used as a substitute for fuelwood, a practice which destroys nitrogen needed for agriculture. In 1977, a private corporation - the Gobar Gas Tatha Krishi Yantra Vikas Co. Pvt. Ltd. (GGKYV) - was established to undertake a nationwide program to construct biogas plants. The three principal shareholders are the ADB/N, the Fuel Corporation (FCN), and the United Mission to Nepal (UMN). 2/ In 1981, after GGKYV had built about 500 plants, mostly in the Terai, ADB/N received a US$2.5 million credit from the Asian Development Bank for the construction of a further 2,100 plants. 3.19 Four standard sizes of digestors are offered: 100, 200, 350 and 500 cf/day. All are based on the Indian floating drum design, with some minor modifications (e.g. replacement of the exposed flexible hose gas take-off with internal piping). Recently, the company also started 1/ Only cattle and buffalo dung are considered in the present discussion. Pig and human wastes are not "acceptable" feedstock in Nepal. Poultry wastes are insignificant. There is little technological experience with sheep wastes and vegetable biomass as digester feedstock. 2/ The UMN is an organization promoted by 33 churches from 26 countries. It has pioneered biogas activity in Nepal. -41 - Table 3.2: Inproved Stove Program 1980 1984/85 1989/90 1999/00 2009/10 Population 15.8 16.6 18.9 23.7 29.5 No. of households (m) a/ 2.3 2.4 2.7 3.4 4.2 I. Accelerated Program (i) Installation of Stoves Ctlative nunber of stoves installed ('000) 1 13 200 1,000 3,000 (% of housebolds) - (1) (7) (29) (71) Annual installment rate ('000) 1 8 50 100 280 Annual Cost ($m, 1982 prices) b/ - 2 1.2 1.2 3.4 (ii) Fuelwood Savings Savings of wood ('000 mt) c/ - 9 144 719 2,157 Equivalent to yield from plantation area ('000 ha) d/ - 1 20 99 298 Cost of establishing plantations (million $) - - 7 37 110 Cost of installing stoves (million $) - 5 15 39 II. Mderate Program GIuLative number of stoves installed ('000) 1 8 80 330 755 (% of households) - (0) (3) (10) (18) Annul installation rate ('000) 1 4 15 30 50 Amual cost ($m, 1982 prices) b/ - 0.1 0.2 0.4 0.6 a/ Assumes 7 persons per household. b/ Cost per stove is $23.5 during start-up phase, but drops to $12.0 beginning in 1990. c/ Total per household use of fuelwood and other biomass is estimated to be 2,760.1/0/34/15.02 x 7 = 3.783 mt. At a conservative 25% fuelwood savings, this saves 0.946 mt but only 76% or 0.719 mt comes from the forest. d/ I ha of plantations yields 10 m3 or 7.25 mt per year. bui.Lding Chinese fixed-dome digesters in the range of 100-350 cf/d and now feels that this is a better system because of lower capital costs (about 30-40% less) and lower maintenance requirements. The 500 cf/d size, considered a community-scale plant because it can serve 4-5 families, is more difficult to build in the Chinese way. About 1,000 plants are already installed (almost all family size). The 1982 target is 500 family-size and 20 community-scale biogas (CSB) units. It is felt that 1,000 units/year would be an implementation limit, even counting expansion plans for the next few years. Under the ADB/N biogas loan program, the cost of the plant is financed at 11% interest (until the - 42 - last quarter of 1982 the rate was 6%) payable over a seven-year period. The required collateral is in the form of land and/or building. The gobar gas company offers a full guarantee (materials and labor) of the plant over the loan period. 3.20 The biogas loan program is probably one of the better organized biogas dissemination activities in the world. Despite the absence of a direct subsidy (as in India where about 20-50% of the cost is borne by the Government), there appears to be adequate demand, reflecting public awareness of the increasing cost of fuelwood and the potential fuel/fertilizer benefits of biogas operation. One indication of the relative effectiveness of the program is the finding of a limited survey of 25 family-size plants in the Chitwan District which showed that only three plants were not in operating condition at the time of the survey. Similar surveys elsewhere in the world have shown figures of 50% or more for inoperable or abandoned digesters. Table 3.3 summarizes the estimated operating costs of family and community-sized plants and clearly shows the cost advantage of the community-size biogas plant over the smaller family size plant. Table 3.3: Estinuted Operating Costs of Family and Canmnity Size Biogas Plants a/ Annual Ann3al b/ (bst of Fstifrated Biogas cost of Biogas Size Nominal Capital Cost Production Gas Produced for Codcirg (cf/d) (Rs) (m3) (Rs/m3) (Rs/103 Kcal) Family (100) 12,500 620-1,025 4.3-2.6 1.3-0.8 Camunity (500) 37,515 3,280-5,380 2.45-1.49 0.76-0.46 a/ Assumptions: Indian design; system life, 30 yrs; Gasholder 35% of cost; pipelines, etc. 30%; Gasholder replaced every 10 yrs; Pipelines, etc. replaced at 15th year; 0 & M 5% of capital cost/yr; discount rate 11%; dilution ratio 1:1; maximum loading equal to actual digester size; calorific value 5,400 kcal/cu.m; biogas burner efficiency 60%. b/ The range shown corresponds with "low" and "high assumed values for specific gas yield from cow dung (30 - 50 litres gas per kg fresh dung). 3.21 The competitiveness between biogas and wood as a cooking fuel depends on the price of wood at the particular locality and whether traditional or improved cooking stoves are used. This comparison, as well as comparisons with kerosene and electricity, is made in later sections (para 5.09 - 5.12, Table 5.6). What may be useful to coampare at this point are the attainable fuelwood-saving benefits of national programs for diffusing biogas digesters and ICS. If the present - 43 - installation capacity of GGKYV is expanded to 1,000 family-size units a year, some 6,000 units could be in place by 1988 (including the 1,000 units already built). These plants would, if operating at their design capacity, displace 49 million kg/yr of fuelwood. At a more realistic, 75% actual gas production level, the displacement would be 37 million kg/yr. But the introduction of only 100,000 improved stoves would save 99 million kg of fuelwood per year. 1/ A biogas dissemination program based on family-sized plants therefore has only a limited national potential for conserving fuelwood, and nondomestic applications, such as the operation of engines for communal purposes or village industries, could be a more beneficial program objective. Nevertheless, because of the high resource cost of fuelwood in the medium term and because private rather than public resources are used in the purchase of family-sized plants, the present dissemination program should continue as long as demand exists. 3.22 Clearly, however, the emphasis of future government programs should be oriented towards the more economic, larger scale CSB plants. At tlhe moment, experience in Nepal and elsewhere with CSB plants is limited, and problems have been encountered with the design, dung collection, maintenance and gas distribution. These problems should not be underestimated; however, they are by no means insurmountable. The mission therefore recommends that a two-year systematic monitoring program of CSB plants be formulated which aims at identifying design and operating problems and developing appropriate solutions. The first step would be to make a thorough assessment of known problems encountered by existing CSB plants and develop improved designs and operating procedures. Based on these designs, CSB pilot plants should then be built for controlled performance and monitored under various conditions of location, ethnic group, family size, type of use and plant scale. Dung production, gas yield, hours of use and temperature should be quantified and monitored. Qualitative monitoring would also be made on the management and sociological aspects of communal plant operation. A parallel monitoring program should also be carried out on some existing CSB plants. A two-year monitoring activity of this sort will cost $75,000, which will cover the establishment of four pilot installations (perhaps one with diesel engine auxiliaries), local personnel cost, monitoring equipment and expert assistance (Annex VI C). The information obtained from this intensive study hopefully would yield practical solutions to the problems of CSB plant operation; if not, it would be a useful basis for subsequent policy and investment decisions regarding biogas use in Nepal. 3.23 For the national dissemination of biogas digesters, Table 3.4 presents the outcome of biogas activities under the accelerated and moderate scenarios. In both cases, an installation rate of 6,000 m3/yr 1/ Computed using average Kathmandu consumption of 248 kg/capita/yr. If the composite national consumption of 508 kg/capita/yr is used, fuelwood savings are 203 million kg/yr. - 44 - (roughly equivalent to 1,000 family size units) up to 1987 is considered. From 1988 onwards, the accelerated scenario assumes a growth rate of 10%, and the moderate scenario 5%. It is expected that the present institutional arrangements for biogas dissemination, whereby ADB/N administers the loan program and Gobar Gas Co. carries out production, marketing and after-sales service, would continue up to the 1990s under either scenario. At some point during that period, however, RECAST should be geared up to provide full assistance on the research and training aspects of the program. Beyond the 1990s, the huge production requirements of the accelerated program may be too much for even a greatly expanded Gobar Gas Co. to handle, and the entry of additional private biogas companies may be required. The accelerated program goals may look somewhat ambitious, but even if realized they would allow only about four percent of Terai households to replace fuelwood with biogas for cooking by 2010. The savings would be equivalent to the yield from about 90,000 ha of forest. The moderate scenario, on the other hand, which assumes a five percent growth from 1988 onwards, would result in less than half the fuelwood savings from the accelerated program by 2010. Assuming that present problems with CSB plants are resolved, there should be a gradual increase in the percentage of CSB plants out of the total cubic meters;of digestors installed, rising from about 25% by 1992 to over 50% after 2000. Efforts also should be-made in the program to divert a growing portion of the gas production from purely domestic consumption toward energy for small rural industries. Kerosene 3.24 The very low income of the Nepalese, particularly in rural areas, has limited the scope for using hydrocarbons as a fuel for cooking and heating. Moreover, because the forestry programs, if implemented, have good prospects of meeting the largest part of the energy needs of low income families, a subsidy program for kerosene such as India's is not appropriate. However, countrywide estimates tend to obscure the fact that the energy situation is already becoming critical in some districts. There could, therefore, be some merit in seeking short-term measures for stabilizing the energy situation by supplying kerosene in a few crisis areas where fuelwood and erosion problems have become critical. One way of organizing such a substitution would be to close off part of a heavily degraded forest and provide kerosene in return for work in planting trees. The cost, however, is substantial; meeting the fuelwood demand of only 50,000 people with kerosene would have an import cost of US$1 million. Such a scheme, even on a very limited scale, would have to be very carefully considered within the proposed afforestation plans (para 3.09). Conclusion 3.25 The overall impact of the various programs proposed in this chapter are compared in Table 3.5. With no programs, overexploitation of the forests increases under the impact of growing demand and shrinking - 45 - Table 3.4 Biogas Progran 1980 1984/85 1989/90 1999/00 20f,/10 I. Acelerated Prcgram a/ (i) Installation of Plants Capacity to be installed peryear ('000m3) 6 6 7 17 45 Installed capacity ('000 m3) - 24 55 200 560 Cost per year (US$m) b/ 0.5 0.5 0.6 1.4 3.8 Gas produced per year (106 m3) - 3.0 6.9 25.0 70.0 ('000 TOE) c/ (-) (1.6) (3.7) (13.2) (37.0) (ii) Fuelwod Savings d/ Savings of wwod ('000 mt) - 27.8 63.7 231.2 648.5 Equivalent to yield from plantations ('000 ha) - 3.8 8.8 31.9 89.5 Cost of establishing plantations (US$ m) - 1.4 3.3 11.9 33.2 Cost of installing biogas (US$ m) - 2.0 4.5 16.5 46.1 II. Mderate Prcgran e/ Capacity to be installed per year ('000 m3) 6 6 7 10 16 Installed Capacity ('000 m3) - 24 55 127 256 Cost per year (US$ m) b/ 0.5 0.5 0.6 0.8 1.3 Gas produced per year (106 m3) - 3.0 6.9 15.9 32.0 ('000 TOE) c/ (-) (1.6) (3.6) (8.4) (16.9) a/ Installation capacity increases by 107 per year after 1988. b/ Cost par m3 is U$82.4 (1982 prices) Ibsed on ccunnity-sized biogas digestors with capacity of 34.5 m3. c/ One m3 of installed capacity produces 125 m3 of gas per year; 1,000 m3 of biogas are equivalent to 0.54 TOE. d/ Gas produced each year fram 1,000 m3 installed capacity is equivalent to 1,158 mt of wood per year or yield fran 160 ha of plantations (assuming biogas has 6CIT end-ise efficiency and stoves 1C%). Savirgs iu,ld be half of these figures if only 5t2 of gas is used for cooking. e/ Installation capacity increases by 5% a year after 1988. - 46 - forest resources, and Nepal's forests would largely disappear shortly after the year 2000 (Case 1). The accelerated planting scenario is de- signed to be sufficient to meet projected fuelwood demand by 2010 (Case 2). But overexploitation of the natural forest would still continue in the interim period, rising from the equivalent of clear cutting 105,000 ha per year as at present, to 148,000 ha by 1990. Overexploitation would continue, though at a declining rate, until about 2005. Nepal's total forest area (natural forest plus new plantings) would be reduced from its present 4.3 million ha to 3.3 million ha in 1990 and to 2.2 million ha in 2010. 3.26 Conservation measures, particularly the introduction of improved stoves, could help reduce the rate of forest shrinkage. But the relatively slow buildup of even the accelerated program for installing stoves means that it can do little to alleviate overuse of the forest until the mid-1990s. Similarly, biogas has only limited potential for substituting for traditional fuels. The total forest area therefore would still decline to 2.5 million ha in 2010 (Case 3). Better manage- ment of natural forests will be vitally important in the long run, and making a start now on protecting the one million ha of natural forest that might possibly remain in 2005 would permit a somewhat lower planting program after the year 2000. Protection programs will, however, have little impact on increasing fuelwood supplies in the medium term and the total forest area will still decline (Case 4). 3.27 The expansion of forestry and conservation programs under the moderate scenario would by themselves still represent a very substantial expansion compared with existing levels of activity; even to achieve this would reauire a vast improvement over past efforts by the Government. But in relation to Nepal's needs, they are woefully inadequate. Fuelwood supplies from forestry programs will not meet the growing demand. The overexploitation of forests would increase, and all unprotected natural forest would disappear shortly after the year 2000. By 2010, fuelwood supplies from the forest program would amount to only 4.4 million metric tonnes and meet only 40% of projected demand (Case 5, Table 3.5). This would force the massive burning of dried dung as a fuel instead of its present use as fertilizer, thereby threatening the land's already precarious agricultural productivity. 3.28 The accelerated scenario would, if successfully implemented, be a major achievement for Nepal and would enable the future demand for traditional fuels to be met. However, it would do little to reverse the ongoing degradation of the Himalayan watershed as Nepal's forest area is likely in any case to decline by a further 40% by 2010. The resulting environmental damage would impose high costs not only on Nepal but also on downstream areas in India and Bangladesh through increased river siltation and flooding. (Annual flood damage in the Gangetic plains of India is estimated to be more than $700 million a year in 1979 prices). Reversing the degradation involves issues well beyond simply meeting Nepal's fuelwood needs, and many types of programs would be needed to deal with the problem. Nevertheless, energy programs are likely to be an - 47 - important element in tackling the problem, because an important factor contributing to the degradation is the fuelwood demand which currently exceeds the sustainable yield of Nepal's forests. This will continue not only because of the time needed to expand forestry programs but also because of the 10 years required for trees to mature. An ideal solution would be to plant an additional 100,000 - 150,000 ha a year to offset the effects of overexploitation and embark on massive dissemination of cooking stoves. However, the accelerated program itself is at the limits of feasible acceleration, and anything beyond this can be ruled out for the next 10-15 years. The only option (other than doing nothing) may therefore be to reduce excess demand for fuelwood by substituting commercial fuels. Large-scale use of electricity for cooking and heating is hardly practical before the late 1990s, and substitution would have to be by kerosene or coal. Fuelwood demand in excess of the sustainable yield even under the accelerated program would still amount to 3.5-4.5 million tons of wood a year until the late 1990s. Importing sufficient fuels to cover this gap would, after allowing for different efficiencies, require about 450,000 tonnes of kerosene or 800,000 tonnes of coal per year. The logistical and financial requirements of a mineral import program on such a scale are overwhelming. Donors and down stream countries (India and Bangladesh) that suffer much of the costs of deforestation in Nepal would have to carefully examine whether such a fuel import program is a feasible component of an urgently needed program to rehabilitate the Himalayan watershed. - 48 - Table 3.5 Forest Areas and Production Under Different Programs a/ Forest Area (million ha) Eselwood Supply and Demand (million mt) Total Sipply Natural Plant- Forest Sustain- Overexploi- Forest irgs Area able c/ tation Denand Deficit 1. No Progran 1981 4.3 - 4.3 2.5 3.3(105) 5.8 - 1990 3.2 _ 3.2 1.9 5.4(170) 7.3 - 2000 1.1 - 1.1 0.6 8.5(270) 9.1 - 2010 - - - - - 11.4 11.4 2. Acoalerated Plantirg 1990 3.1 0.2 3.3 2.7 4.6(148) 7.3 - 2000 1.3 1.2 2.5 6.3 2.8 (90) 9.1 - 2010 0.7 1.5 2.2 13.2 - ( - ) 11.4 &irplus 3. Accelerated Planting and Ti roved Stoves 1990 3.1 0.2 3.3 2.7 4.5(145) 7.2 - 2000 1.4 1.2 2.6 6.4 2.2 (70) 8.6 - 2010 1.0 1.5 2.5 13.4 - ( - ) 9.6 9irplus 4. Accelerated Planting, Protection and Stoves 1990 3.1(0.2) b/ 0.2 3.3 2.7 4.5(145) 7.2 - 2000 1.3(0.9) b/ 1.2 2.5 6.6 2.0 (63) 8.6 - 2010 1.0(1.0) b/ 1.5 2.5 14.1 - ( - ) 9.6 airplus 5. Mkderate Planting, Protection and Stoves 1990 3.0(0.1) b/ 0.1 3.2 2.5 3.5(159) 7.2 - 2000 1.2(0.3) b/ 0.3 1.5 3.2 6.0(191) 9.2 - 2010 0.4(0.4) bI 0.8 1.2 4.4 - ( - ) 11.7 7.3 a/ Annual planting, protection ard stove targets are given in Tables 3.1 and 3.2. h/ Figures in brackets are protected forest. c/ "Sustainable" includes both sustainable supply fran the natural forest aid production due to planting programs (including clear cutting prior to planting). d/ Figures in brackets are area ('000 ha) cut fran natural forest through overuse in order to meet demand. Souroe: YMission calolations. - 49 - IV. ENERGY RESOURCES: COMNERCIAL AND NON-CONVENTIONAL ENERGY Electricity 4.01 Nepal's major indigenous energy resource, hydropower, is almost untapped. The annual runoff is some 200,000 million cubic meters of water. Its theoretical hydropower, however, has been calculated at some 83,00)0 MW, 1/ with exploitable power generating potential conservatively estimated at 20,000 MW and probably considerably higher (Annex III). In contrast, the country so far has commissioned just over 110 MW of hydropower generating capacity. Existing System 4.02 Electricity in Nepal is supplied by public utilities and by private companies that generate electricity for their own use. The total installed capacity operated by the utilities as of end 1982 was 138 MW comprising 114 MW (82%) of hydro capacity and 25 MW (18%) of diesel capacity. Plant capacity operated by private companies is estimated at 12 MW comprising about 7 MW diesel and 5 MWT steam, the latter operating on coal imported from India. In addition, Nepal can import power from India at fifteen transfer points along the India-Nepal border (Map IBRD 16870) in accordance with an agreement between the two governments reached in October 1971. In 1981/82, the 55 GWh of imported electricity from India accounted for about 21% of total available electricity supplies. In the Eastern and Far Western Regions, imports accounted for 90% of total supply. Overall growth in demand from public and private utilities in the last decade has been over 15% p.a. However, the installation of newly commissioned plant during the same period did not keep pace with growing demand, resulting in load restrictions through voltage reductions and frequent outages. Thus, a more realistic estimate of the growth rate during 1971-81 would be about 20%. This is still not too high a growth rate considering that Nepal's power system is still in its infancy (total installed capacity has progressed from 6 MW in the mid sixties to 42 MW in 1972 and 138 MW at present). 4.03 The Nepal Electricity Corporation (NEC), which so far is the largest electric undertaking in Nepal, is responsible for supplying power to the Central, Eastern and Western Regions where about 80% of Nepal's population is living. Mid and Far Western Regions are under the charge of the Electricity Department. In FY82, the total energy generated in Nepal was 229 GWh, of which 208 GWh was from hydro, 10 GWh from diesel and 11 GWh from captive plants. About 98% of hydro and 76% of diesel 1/ Capacity on the four main rivers is: Sapta Kosi 22,000 MW; Sapta Gandaki 21,000 MW; Karnali and Mahakali 36,000 MW; and 4,000 MW divided among other rivers such as Kankai, Mai, Kamla, Bagmati and Babai. - 50 - energy was generated in the Central Region. Energy sales within Nepal were 186 GWh and exports to India were 5 GWh. Of domestic sales most of the energy was sold in the Central Region (71%), followed by the Eastern (18%) and Western Region (7%), Mid and Far Western Region (4%). The grid system in the Central and Western Regions has been beset with systematic load shedding since FY77. During the winter of 1981 when the load shedding was at its worst, about 14 MW and 2 MW of load was shed during peak time in the Central and Western Regions. The unserved energy demand in FY82 is estimated to have been 15 GWh, or 10% of the combined energy sold in the Central and Western Regions. 4.04 Applications for new connections have been accumulating since load shedding was introduced. At present, about 14,000 applications are pending, out of which 10,000 are from the Central Region alone. Except about 200 applications, all are for new domestic connections. There are plans to give about 7000 new domestic connections every year. At the end of FY82, the total number of consumers was 121,906, out of which 118,708 were domestic. Assuming a total population of 15 million and six persons per domestic connection, only 4.7% of the population has access to electricity. Per capita production of electricity is about 18 KWh; this compares to 170 KWh in India, 29 KWh in Bangladesh and 36 KWh in Burma. 4.05 The Nepal power system is interconnected in the Central Region by a double circuit 66-KV transmission line in the corridor running south from Kathmandu to Hetauda and Birgunj on the Indian border. A single circuit 132-KV line also links the Gandak (Sarajpur) hydropower station to the system at Hetauda via Bharatpur, and another 132-KV single line links the Central Region and Western Region from Bharatpur to Pokhara. Another 132-KV line under construction between Hetauda and Biratnagar will interconnect the Central and Eastern Regions by 1985/86. Discussions also are underway for the financing of a transmission line that will connect Nepalgunj in the Far Western Region with Bharatpur via Butwal in 1987/88, by which time the main regions of the country will have been interconnected in a national integrated grid system. The mission strongly supports proposals for establishing a central load dispatching facility in the central power system before interconnection between the center, east and west is complete. This is an indispensable requirement to strengthening the operations of the system and improving the quality and reliability of electricity supply. As for distribution, the only significant project underway besides various ADB credits aimed at strengthening the distribution system is the Kathmandu Valley Distribution Network Project by JICA. This project aims at upgrading 11 KV substations to 66 KV and 33 KV, restringing and extending the 11 KV network as well as restringing and extending much of the 400/230 V lines, which seems adequate for the Kathmandu Valley up to the early 1990s. 4.06 Electricity losses have, on average, been around 30-35% of generation and 50% of total sales (of which technical losses are estimated at 10%) and have contributed to the financial difficulties of NEC. Some improvement is urgently needed. The mission supports recent efforts to establish a Loss Elimination Unit in the Department of Electricity to deal with this problem. The aim of the Unit would be to - 51 - reduce losses to 22.5% by 1986 and 18% by 1991. Also, substantial improvements have been made in the Kathmandu distribution system during 1982 under a Japanese grant of 1500 million yen a year. Distribution facilities also are being strengthened in other areas under credits from ADB. 4.07 In addition to problems associated with quality and reliability already referred to (para. 4.03) and institutional and manpower weaknesses (paras 6.09 - 6.12), Nepal's power system seems to suffer from a variety of factors. To start with, there is lack of information: so far, there have been no detailed systematic studies of Nepal's major river basins designed to provide alternatives for sequenced power development. Of the four main river basins in Nepal, only the Gandak Basin has been investigated in detail by the Snowy Mountains Corporation of Australia, and this study was only completed in 1979. A Kosi River Basin Study by JICA is presently under way. CIDA offered to study the potential for multipurpose development of the West Rapti River Basin subject to prior agreement with India on terms of reference; however, so far no agreement has been reached. The mission therefore stresses the urgent need for a proper review of existing river basin studies and supplementary studies to carry out a sound water development program. 1/ 4.08 Associated with this is the lack of completed studies of a number of selected hydro sites envisioned for future hydro power generation. The planned generation expansion program currently under way includes only run-of-river plants in the Gandak Basin in Central Nepal: (i) Devighat (14 MW to be commissioned in 1984) (ii) Kulekhani II (30 MW - 1985); (iii) Marsyangdi (78 MW - 1987); and (iv) Sapt Gandaki (100 MW - 1991 and 100 MW - 1993). Generation projects to meet demand beyond the early 1990s have not been selected yet. Although thirty to forty potential project concepts across the country have been examined and compared by the Water and Energy Commission (WEC), no new feasibility studies have been undertaken beyond those upon which the current program for the 1980s is based. The WEC is in the process of narrowing down its list of candidates, and the mission recommends that feasibility studies on four or five sites, including storage projects, be conducted simultaneously, so that sufficient options for hydro development are made available. 4.09 In planning its hydropower development, Nepal has relied on load forecasts prepared by the Electricity Department which are based on historical growth (at present only 4.7% of the population has access to electricity). Overall stagnation in most energy consuming sectors of the economy has led to a conservative load forecast for which small and relatively expensive plants have been planned and constructed. Moreover, Nepal has not actively sought to export surplus power (in contrast to the 1/ The proposed IDA-finaced Karnali Technical Assistance Credit is expected to finance study of the Karnali Basin, in addition to studying the technical feasibility of specific sites on the river. - 52 - difficulties of reaching agreement on water-sharing issues). This has led to the country's dependence on run-of-river plants designed to satisfy the small domestic market. The framework for a flexible approach to power imports and exports is already contained in the existing agreement for the exchange of up to 25 MW. It is urgent that the current agreement for the exchange of 25 MW be expanded to 50 MW or 75 MW; this will offer Nepal the chance to adequately back up its system with imports, avoid unusually large seasonal surpluses and begin to plan more quickly for "cheaper energy", in addition to satisfying some of the demand in North Indian states. Future Strategy 4.10 Nepal's long-term objective is to develop its enormous hydropower resources for domestic use and for export, thereby increasing its export earnings to finance overall economic development programs. Associated with this is the urgent need to substantially reduce the cost of power produced in Nepal: for the domestic market, so that a greater shift to electricity by households, industry and agriculture can take place; for the export market, so that Nepal can entice the Indians to buy. For Nepal to achieve cheap energy, it would have to take advantage of economies of scale by building larger plants, some of which would have to be storage-type, to firm up other run-of-river plants. 4.11 Hydropower development to date, however, has focussed on meeting short term domestic requirements with relatively small and high-cost run- of-river projects. As a result, Nepal has yet to achieve even moderate cost levels for electricity (current energy costs are as high as US$0.14 - 0.17 per kWh). The policy of limiting power development to only the domestic market has ruled out medium-size projects of 300-500 MW because the small size of the market could not absorb all the power produced in the initial years of the project's life. In addition, little use could be made of the secondary energy produced by run-of-river plants, as their peak supply is in May-November while peak domestic demand is from November-April. Focusing on the small domestic market also delays the timely sequenced development of projects to exploit the complementarity of different sites on the same river, in which upstream storage can firm up downstream run-of-river plants, thereby reducing the costs of firm energy. The key to alleviating these constraints is to expand the present power exchange agreement with India so that Nepal could export power in excess of domestic needs. Not only could excess firm energy be sold, but Nepal's secondary energy would also be of value for India since it is firm for 6-7 months. The potential for such an export strategy is particularly good in view of India's load growth which requires an addition of more than 2,000 MW capacity each year. 4.12 The least-cost advantages can be realized from economies of scale, and therefore the optimum strategy for the power sector should aim to develop Nepal's mega projects e.g., Chisapani at 3,500 MW, costing US$3.2 billion, and Pancheswar at 2,000 MW, costing US$1.8 billion, both in 1982 prices. However, because of their size and Nepal's limited domestic demand, these projects would aim primarily at satisfying demand - 53 - in India. Agreement between India and Nepal on the development of Nepal's mega projects has been very slow. The development of mega projects offers Nepal the opportunity to increase export earnings from the sale of power, and to increase surface irrigation, thereby accelerating agricultural development. For India, it offers not only electricity but also to lessen the disastrous effects of flood damage that afflicts its northern states each year. However, until political considerations can be surmounted, the untapped waters of Nepal will waste away, causing havoc in the Gangetic plains and deltas. The responsi- bility lies with both countries, and the international community can assist only if there is a genuine will to undertake the task. A joint committee of representatives of the two countries has already been formed to seek agreement on terms of reference for carrying out an integrated study of the Karnali basin. The study is to be financed by the World Bank under a technical assistance credit to Nepal, expected to be approved in mid-1983. Agreement has been reached on the technical aspects to be studied, including a review of previous reports; additional site investigation, if necessary; integrated studies of Chisapani and projects upstream from Chisapani for optimizing the Chisapani Dam height; confirmation of design for the Chisapani project; and preparation of the upstream project to the feasibility stage. Agreement will need to be reached on the methodology for evaluating and allocating costs and ben,efits between the two countries, which will be studied later. 4.13 There is no doubt that a mega project such as Chisapani will provide one of the world's largest sources of cheap hydropower (at an installed capacity cost in 1981 prices estimated at $900 per kW, versus projects currently constructed in Nepal at around $3,000/kW), in addition to other benefits of irrigation and flood control. However, project preparation and construction may take 15-20 years to complete. Thus, even if agreement to go ahead were reached soon, the project could not be completed before the turn of the century. The Government will need to make sure the preparations for such projects do not preempt Nepal's scarce financial, technical and administrative resources, thereby hindering planning for more immediate needs. For this interim period, medium-sized projects in the range of 300-500 MW offer good prospects for substantially relieving the domestic cost of electricity. But while an export strategy for developing Nepal's energy resources appears attractive, a long-term power system expansion plan is urgently required to provide a framework for analyzing individual projects. 4.14 Before deciding on the specific projects for producing cheap power in Nepal during the 1990s and early 2000s, a detailed investigation of various development sequences and accurate cost figures are needed. To illustrate the potential of such a strategy for reducing costs, a sequence is presented in Table 4.1 based on preliminary data obtained by the WEC in 1982 for the run-of-river plant at Sapt Gandaki and for an upstream storage plant at Burhi Gandaki. The domestic option for a 200 MW Sapt Gandaki to be used only for the domestic market gives a cost of U413/kWh, but using all the firm energy immediately (i.e., selling the surplus to India) reduces the cost to US49.9/kWh. Moreover, if the secondary energy can be sold to India for US42.5/kWh, the cost of firm - 54 - energy declines to USJ7.6/kWh. Increasing the size to 300 MW reduces the cost of power further to US47.3/kWh. 4.15 Building a storage plant at Burhi Gandaki would produce firm energy at US46.9/kWh, and if this plant is treated as a sunk cost, adding a 300 MW plant downstream at Sapt Gandaki will provide power at only US+4.7/kWh. But for planning purposes, the storage and run-of-river plants must be taken together and energy costs for the combined system would be US+6.1/kWh. Closer integration of the Nepalese and Indian power systems would provide thermal back up for the secondary power which could then be regarded as firm power, reducing total firm energy costs to US45.3/kWh. With closer integration, outlays on maintenance and equipment would be drastically reduced, further lowering energy costs. If such integration is envisaged, a systems study of Nepal and North India would have to be carried out to obtain a clearer view of the quantitative benefits,which are likely to be substantial. 4.16 The price at which power can be sold to India will depend, at least in part, on power generation costs in Northern India. The Northern Indian system relies heavily on thermal plants, and the cost of power depends on the economic price of coal. India's perception of financial coal prices gives an electricity price of about US+3/kWh, whereas adjusting the minehead price of coal to border prices (after allowing for transport costs) gives a long-run marginal cost of US¢4-5/kWh in 1983 prices. For coal that can be used only at the minehead, the costs would be somewhat lower. Very preliminary calculations indicate that the value of power exports over 1987/2005 discounted at 12% would be in the range of $350-$600 million, depending on whether power is valued at US43/kWh or US45/kWh. One advantage to India from importing such excess power would be a reduced capital investment to obtain the power, plus the fact that Nepal would increase its export earnings and therefore bolster its own economy (any improvement in Nepal's economy is a benefit to the entire subcontinent). For Nepal, the greatest benefit would be to reduce the cost of power generation by more than half, thereby providing cheaper electricity supplies to its productive sectors; it would also increase export earnings. The exact price of power sales would have to be determined by both parties after considering the costs/benefits of such transactions. 4.17 The above example shows how the cost of electricity can be dramatically reduced if full use can be made of all the energy generated by a well-sequenced development of medium-sized plants. Clearly, further investigation of possible sites to reduce capital costs and improve plant hydrology should be given high priority so that the cost of energy generated can be further reduced to match the cost of power generation in North India. The Government could also investigate ways of reducing construction costs which are high in Nepal partly because of the unfamiliarity of international contractors working in such a difficult and remote environment. In addition, it is essential that HMG/N actively search for and promote the introduction of productive activities that can be undertaken within Nepal to exploit the advantages of cheap energy. - 55 - Table 4.1 Comparative Energy Costs - An Illustration a/ (US¢/kWh) Cost Using Cost of Firm Energy after Firm Energy Only Sale of Secondary Energy I. Run-of River Plant (SG) For Domestic Market Only b/ (i) 200 MW 13.0 (ii) 300 MW 14.9 - With Exports c/ (i) 200 MW 9.9 7.6 (ii) 300 MW 10.9 7.3 II. Storage Plant (BG) c/ 400 MW 6.9 - III. Run-of-River Plant (SG) c/ Treating Storage as Sunk Cost (i) 200 MW 6.0 4.9 (ii) 300 MW 6.8 4.7 IV. Storage and Run-of-River c/ (i) SG 200 + BG 400 6.6 6.2 (ii) SG 300 + BG 400 6.9 6.1 V. Thermal back up to firm up all energy c/ (i) SG 200 + BG 400 5.7 (ii) SG 300 + BG 400 5.3 a/ Present worth calculated using 12% discount rate. b/ Domestic demand only builds up to use all firm energy after 7 years. c/ All firm energy used immediately (domestic and export) Source: Annex VIII. Overall Program for the Power Sector 4.18 Table 4.2 presents a summary of investment outlays for the power sector that have been planned through FY1991. A large part of the - 56 - Table 4.2 Cost of Cuirrent Expmsion Program for the Poer Sector to FY 1991 (End 1982 US$ million) Foreign local Taxes Total Generation DLvighat (14 MW) 55.67 - Exmpt. 55.67 Tiekhani II (30 Me) 52.17 11.74 4.0 67.94 Marsyargdi (78 M 251.80 64.5 16.7 333.0 Sapt Gandaki (200 M) 284.10 52.80 20.2 357.11 Total 643.74 129.04 40.94 813.72 9nll Hydro 16.74 6.03 1.38 24.15 TranEsmssion & Substatiors 59.56 17.67 4.39 81.61 Distribution & Rural Electrification 67.74 15.70 3.70 87.14 Total 787.78 168.44 50.40 1006.62 Force: Staff Estimates expansion program already is underway or construction is planned to start shortly and for these projects foreign assistance of US$334 million has been committed by a number of donors. These projects would increase power sector expenditures from about US$40 million in 1982/83 to a maxi- mum of US$150 million in 1985/86; expenditures would decline sharply thereafter since most projects are scheduled for completion by 1987/88. Projects still in the planning stage are Sapt Gandaki, 378 km of transmission line costing US$30 million, and distribution facilities costing US$21 million. If implemented on schedule these projects would keep the momentum of the power program going through 1989/90. Further projects would be needed beginning in 1990/91; therefore continued planning efforts are needed to maintain the project pipeline. 4.19 Table 4.3 presents the electric power program for 1990 and beyond, both under the accelerated and moderate programs. The accelerated program envisages building power projects at more optimum sizes, starting with an assumed Sapt Gandaki at 300 MW, and progressing to 400-600 MW plants during the following two decades. However, if Karnali were to come on stream by about 2005, there would be no need to construct additional 400-600 MW plants after 2000. Investment accelerates - 57 - Table 4.3 Electric Power Programs 1989/90 1999/00 2009/10 Accelerated Program Proposed Installed Capacity (MW) 260 960 2,260 Annual Investment Cost (US$ million) a/ 122 195 297 Net Available Capacity (MW) 230 860 2,040 Net Available Electricity for Sale (GWh) 1,175 4,395 10,424 Plus Electricity Supply from Agro- processing from Turbines (GWh) 22 69 156 Less Electricity Sales in Nepal (GWh) 558 2,128 5,860 Equals Electricity Available for Export (GWh) 639 2,336 4,720 Export Value (US$million) b/ 32 117 236 Moderate Program Electricity Sales in Nepal (GWh) 465 942 2,188 Total Capacity Requirement (MW) 170 346 805 Annual Capacity Increment Required (MW) 12 30 71 Annual Cost (US$ million) a/ 24 59 138 a/ Cost $1,500 per installed KW for 1989/90 and thereafter; raised by 1.3 to allow for transmission and distribution costs. For acceler- ated program, expenditures are moving average to indicate overall size of investment but to avoid one year dips or peaks due to over- lap of projects. b/ Average of firm and secondary energy valued at USd5/kWh. Source: Annex XII. - 58 - from an average of $122 million a year in the early 1990s to about $300 million by 2010 (1982 prices). This contrasts with the moderate scenario where the construction program would need to do no more than plants already planned for the eighties, a 200 MW Sapt Gandaki by 1991, an additional 100 MW by 1995, a plant, say, Burhi Gandaki at 400 MW for the early 2000s, and another 400 MW plant by about 2009. The policy of sizing for domestic requirements would mean that there is little if any electricity available for accelerated growth or export until Karnali or other mega projects come on stream. Mini/Micro Hydro Development 4.20 The Small Hydel Development Board (SHDB) has a program of 47 projects ranging in size from 45 kW to 1000 kW for construction during the Sixth Plan Period (Annex VII). Of these, four have recently been completed and are in operating condition; fifteen are under construction, and the remaining twenty-eight are in the planning stage. But to date, progress has been far from satisfactory due to inexperience in construc- ting in unstable geological areas and a lack of expert guidance and supervision. This has resulted in poor site location, poor design, overstaffing -- but with an inadequate number of trained staff, maintenance difficulties and poor administration. With careful site selection and design, small hydro projects in Nepal can be economic, and costs can be held down to US$2500-3000 per KW installed. 4.21 The SHDB plan is quite ambitious, and it is unlikely that all 47 schemes can be completed by 1985/86. The mission recommends that the Board carefully examine its policies and take immediate action to deal with the problems hampering efficient execution and operation of its projects. Experienced consultants are urgently needed to carry out site investigations, design work, supervise construction, and train SHDB staff. The consultants should investigate all sites in the program, eliminating those which are not suitable for immediate development or which are likely to give rise to problems. Only after these steps are taken should SHDB continue with its program and begin locating other sites for expanding the program after 1985. 4.22 Micro schemes (up to 50 KW) require only rudimentary civil works and, with the help of local manufacturers of cross flow turbines who also have the capacity for design and construction, such schemes built with low tension distribution can be installed for less than US$1000 per KW. But with the small revenue potential of each scheme, micro projects cannot support large overhead costs, e.g. those that will be incurred by a government department or public enterprise. These schemes are, however, simple to operate and maintain, and the mission strongly recommends that SHDB assist in the construction and operation of such schemes by village cooperatives and provide the necessary training, materials and standards. Small Water Turbines for Agro Processing and Rural Energy 4.23 Water wheels have traditionally provided a limited amount of power for agricultural processing in the Hills, especially for grinding wheat. There are about 25,000 water wheels now operating in Nepal; - 59 - however, they have seldom been adapted to provide energy for other economic activities. One reason is that, although simple to construct, they are not very efficient and produce only about 1 HP. Relatively small improvements in the design, such as replacing the wooden paddles with a bucket turbine and using an enclosed penstock instead of an open water chute can, however, increase their output to 2-5 HP and even to 10 HP if the height of the water head is sufficient. With these improvements, grinding is much faster and a power offtake can be added to operate other simple agro-processing machinery such as a rice huller, an oil expeller, or even a circular saw or electric generator. These units, known as Multi-Purpose Power Units (MPPU's), are now being produced in Nepal, and during the Sixth Plan ADB/N plans to finance the installation of 250. 4.24 Sites with a somewhat larger flow and water head are suitable for installing cross flow turbines with a capacity of 15-20 HP. Having a higher power capacity than a MPPU, turbine driven mills usually contain a flour grinder, a rice huller and an oil expeller and may frequently process 35 tons of crops a month. Turbine mills are being manufactured and installed by five Nepalese firms; about 60 already had been installed by 1980. (Another 150 are being financed under a three-year program supported by the Asian Development Bank). 4.25 Modern water-powered agro-processing has proved profitable, and turbine mills have been able to recover costs within three years. Substantial processing time is saved over traditional manual methods which require nearly one-third of a man-year to process the annual needs for a typical family. Yields of mustard oil obtained by using an oil expeller can be as much as 30% higher than by manual processing. However, the utilization rate of equipment has been estimated to average only 5.5 hours a day. Grain processing is a very seasonal activity: during the peak season, utilization may be as high as 15-20 hours a day, whereas during the slack season milling may last for only a few hours each day. Moreover, processing is at its peak during the dry season when the water available to the mill is at a minimum. The seasonal and daily schedule of agro-processing leaves much of the energy potential of the facilities unused and available to provide energy for other purposes. Some mill owners have diversified into other activities, such as operating sawmilling equipment directly from the MPPU or turbine. An alternative is to convert the surplus power to electricity and sell it to neighboring villagers for use as lighting or to provide the energy for power looms, paper making, pottery kilns, or wool dyeing. The potential financial benefits from using the surplus power are substantial. For example, a 20 HP turbine (generating about 12 KW) supplying power for four hours of electrical lighting every evening could earn Rs.1800 a month, or nearly 50% of the monthly earnings from agro-processing. The - 60 - economic cost of kerosene for an equivalent amount of lighting using wick lamps would be Rs.8000. 1/ 4.26 Just as biogas offers the possibility of increasing energy resources in the Terai, small turbines linked to agro-processing offer a very attractive way of providing power in the Hills. They are a cheap source of energy, less than $1000 per installed KW. This is because the facilities are small and require only minor and unsophisticated civil works; the canal can be dug by hand and is mud-lined, while the forebay and penstock can be constructed by a skilled artisan. The turbines are made locally, and their construction provides a backward linkage to domestic engineering workshops. Another major advantage of initially linking the turbines to agro-processing facilities is that the latter covers the cost of the project. Financial viability therefore does not depend upon the immediate use of the electricity by the villagers, and the project's viability is not threatened if rural communities respond only gradually to the opportunities for electrification. The mill owner's financial involvement should be sufficient to ensure that the turbine is repaired promptly, thus avoiding the problem with government projects in remote areas where the lack of spare parts frequently idles equipment for months at a time. 4.27 The main hurdle that would prevent MPPUs and turbines from providing electricity for rural communities is institutional in nature. The distribution of electricity from private mills requires a license from the Ministry of Water Resources which is both difficult and time consuming to obtain. The mission therefore recommends that the requirement for this license be waived for power distribution schemes of up to 20 KW capacity to encourage private entrepreneurs to provide power to nearby communities. A 15-20 year program designed to disseminate MPPUs and cross-flow turbines in the Hills should be formulated soon in view of their potential contribution to industrial development and rural electrification. A program linked to agro-processing would require only limited government involvement, primarily a loan program coupled with a promotional effort to introduce cottage industries in the immediate location of the mills. If the turbine program were initially tied to agro-processing, the 1.4 million ton annual foodgrain production in the Hills would give scope for 1000 cross-flow turbines and about 14,000 MPPU's (a 20 HP turbine can process about 400 tons of foodgrain per year and a 3.5 HP MPPU about 70 tons). But as other uses for the power are developed, as many as 20,000 of the traditional water wheels could be improved. The cost of installing 1,000 turbines and 20,000 MPPUs yielding a generating capacity of 50 MW is roughly estimated at (1980) US$40 million. 1/ Assuming 12 KW generator can supply 120 households and each household pays Rs.15/month for 12 kWh/month for 2 X 50 watt bulbs burning 4 hrs/night (120 X 15 = Rs.1800). Kerosene cost estimated at Rs.5.5/liter required for a wick lamp in the Hills replacing 1 kWh electricity (i.e. 5.5 X 12 X 120 = Rs.8000). - 61 - 4.28 Table 4.4 presents the results of a turbine program under both the accelerated and the moderate programs. The accelerated program would aim to install about 7.5 MW of generating capacity by 1990, 23.5 MW by 2000 and 53.5 MW by 2010. The amount of energy they would provide for agro--processing and other purposes appears small, only 14,000 TOE in 2010, but this would be sufficient to process most of the foodgrain produced in the Hills. In addition, about one-third of the power produced under the assumption of an average load factor of 50% (i.e., 12 hours use per day), could supply lighting to nearby households, replacing kerosene that would otherwise be used. As wick lamps use one liter of kerosene to generate the equivalent amount of lighting from one hour of a 1000 watt electric lamp, this substitution would save 34 million liters of kerosene in the year 2000 and 78 million liters in 2010, equivalent to 28,000 TOE and 64,000 TOE or 28% and 31% of household demand for commercial energy, respectively. The cost of the accelerated program is estimated to reach a maximum of about US$3 million a year by the year 2000 (versus about a million under the BAU scenario). Hydrocarbons Petroleum 4.29 Petroleum exploration in Nepal before 1980 was limited to a few reconnaissance surveys of the surface geology. In 1980, an airborne magnetometer survey of the Terai was made by an international contractor for the Department of Mines and Geo:Logy (DMG), financed by part of an IDA technical assistance credit. This survey indicated the presence of a deep geological trough underlying the Terai, presumably filled with sedimentary rocks which were as much as 6,000 meters thick in places. This survey also showed evidence of geological structures which might be suitable for trapping oil and gas. A geological study of the petroleum prospects of Nepal, which was made after the airborne survey, concluded that older sedimentary rocks exposed in the mountains might have acted as petroleum source rocks and might be present beneath the Siwalik series. Positive indications that oil and gas have been formed at some points in the geological history of Nepal is provided by the existence of seepages of cil and gas in the mountains in the Dailekh area. In June 1982, IDA agreed to finance a petroleum exploration project with several components: a seismic survey of about 800 line km in the Terai basin (IBRD Map 16871), geochemical and geological studies, design of a suitable petroleum legislation, exploration promotion, and training in the legal and geophysical aspects of the petroleum industry. The seismic survey is currently being carried out and is expected to be completed in the Fall of 1983. In the meantime, a legal consultant has been appointed and is in the final stage of drafting the petroleum law and model agreement. Promotional reports are expected to be prepared thereafter, and negotiations with oil companies interested in doing further exploration work in Nepal would start as a result of a promotional campaign. The total cost of the project, which is being implemented by DMG, is estimated at $10.9 million, including $9.2 million in foreign exchange. - 62 - Table 4.4 Turbine Program 1981/82 1984/85 1989/90 1999/00 2009/10 I. Accelerated Program Cross Flow Turbines Total Number Installed - 300 500 1,000 1,000 No. Installed Per Year 50 50 50 50 - Improved Water Wheels Total Number Installed - 250 750 5,750 20,750 No. Installed Per Year 50 100 500 1,500 1,500 Cost (US$ million) Cross Flow Turbines a/ 0.5 0.5 0.6 0.6 - Improved Water Wheels b/ 0.1 0.2 0.8 2.3 2.3 Total 0.6 0.8 1.4 2.9 2.3 Installed Generating Capacity (kw) - 4,100 7,500 23,500 53,500 Cross-Flow Turbines (12 kw per unit) - 3,600 6,000 12,000 12,000 Imporved Water Wheels (2 kw per unit) - 500 1,500 11,500 41,500 Power Produced (GWh) c/ - 18 33 103 234 ('000 TOE) - 1.5 2.8 8.9 20.2 II. Moderate Program Cross Flow Turbines: as in accelerated program Improved Water Wheels Total Number Installed - 250 500 1,250 2,750 No. Installed Per Year 50 50 75 150 300 Cost (US$ million) Improved Water Wheels 0.1 0.1 0.1 0.2 0.4 Total 0.6 0.6 0.7 0.8 0.4 Installed Generating Capacity (kw) - 4,100 7,000 14,500 17,500 Cross-Flow Turbines - 3,600 6,000 12,000 12,000 Improved Water Wheels - 500 1,000 2,500 5,500 Power Produced (GWh) c/ - 18 31 64 77 ('000 TOE) - 1.5 2.6 5.5 6.6 a/ $10,000 per unit (1980 prices). b/ $1,500 per unit (1980 prices). c/ Assumes a 50% load factor. - 63 - 4.30 If successful, this project could provide Nepal with foreign exchange earnings and an indigenous petroleum supply in the late 1980s or 1990S. In the short- and medium-term, Nepal will have to continue to rely fully on imports to serve its domestic consumption. The Nepal Oil Corporation (NOC) is responsible for purchasing and distributing oil products in the country. The Corporation purchases light crude oil from Saudi Arabia and Iraq, as well as refined products (mainly high speed diesel) from the USSR. These products are delivered to India which, in turn, supplies Nepal with the required mix of distilled products at border points according to an agreed pricing formula. Nepal compensates India for transportation and refinery costs. These arrangements worked satisfactorily in the past except for FY1980, when NOC faced supply constraints due to the Iran-Iraq war. Since 1978, NOC has had a policy of constructing storage facilities for petroleum products sufficient to provide, in case of an interruption in supply, two months of consumption for all regions of the Kingdom. OE a planned total storage capacity of 31 million litres, about 18 million have already been constructed, mainly in the central and eastern parts of Nepal. Coal 4.31 Several scattered occurrences of coal have been identified in Nepal, the most prominent of which are mainly in Western Nepal (Dang District, Sallyana and Tosh area), in Kathmandu Valley (mainly lignite used for brick kilns) and in Eastern Nepal. Some coal formations are believed to have occurred in areas in contact with and immediately north of the Main Boundary Fault (Map IBRD 16871). As most of this part of the country is still geologically unmapped, it is obvious that many potential coal bearing areas have not been investigated. The mission therefore recommends that regional geological mapping be done throughout the areas where these formations exist, and that this be included as part of DMG's ongoing geological exploration program for FY84. Non-Conventional Energy Sources 4.32 As discussed earlier, small hydro turbines, improved cooking stoves, and biogas are the non-conventional energy technologies expected to play significant roles in relieving the pressure on fuelwood supplies for domestic energy needs and in providing small, decentralized energy sources for village industries. Other renewable energy sources such as solar, wind, agricultural biomass, geothermal hot springs and marsh gas also are found in Nepal and are discussed below; however, they will have limited scope in the short-to medium-terms. Solar Energy 4.33 RECAST and some aid agencies and private firms have conducted projects dealing with direct solar energy technologies (solar water heating, distillation, crop drying, cooking, photovoltaics, etc.). With the exception of solar water heating, most of them have been experimental or demonstration activities with very limited potential for widespread use. Since the first locally-made solar water heater was installed in - 64 - Kathmandu in 1974, some 500 thermosyphon units 1/ with a 120-200 liter capacity have been sold by Balaju Yantra Shala (BYS), which is the major manufacturer and distributor of solar water heaters in Nepal. Most installations are in hotels and institutions, and in high income households. Installed costs are Rs.8,000-Rs.12,000 -- clearly major investments even for the affluent household or a commercial establishment. At present, there is no government subsidy to BYS or financial incentives for solar water users. However, despite their high capital cost (about 2-4 times that of electric water heaters of the same size), the present state of commercialization of solar water heaters in Nepal indicates that they are competitive with heaters which use elec- tricity or other conventional fuels. 4.34 Solar water heaters do not address critical energy utilization issues in Nepal (i.e. fuelwood use in cooking and heating), but continued dissemination must be encouraged because they are economic and they, in effect, free higher-value fuels used in heating, such as electricity, kerosene and wood, for productive purposes. No market study for solar water heaters has been done for the country, but it is clear that at present costs the potential for domestic installations is very limited. BYS and other manufacturers should focus their attention on commercial and industrial establishments that require hot water in their operations. Because of the high front-end cost, converting these establishments to solar water heating will be a very slow process and must be encouraged by the Government through suitable financing schemes and tax incentives. No direct subsidies, however, are recommended in view of the need to apply limited government resources to other, higher priority activities (e.g. dissemination of improved cooking stoves). Wind 4.35 Although a comprehensive wind survey has yet to be done for Nepal, current assessments indicate that there are very few populated sites in the country with wind speeds consistently high enough to warrant a program on wind energy utilization. A wind mapping effort would be the first step in evaluating the potential of windmills for Nepal. Due to its limited potential, however, this activity probably does not warrant equal priority with other efforts to tap more significant renewable energy resources. Agricultural Residues 4.36 Nepal does not have agricultural and wood processing industries large enough to generate substantial amounts of biomass wastes in 1/ Each unit has 1 or 2 flat-plate collectors made of galvanized iron pipes on aluminum sheet and single glazing, an insulated storage tank with 1.5 or 2.0 KW booster and thermostat, connecting pipes and stands. - 65 - concentrated sites. Agricultural residues as a whole are not ins[gnificant but are dispersed; they are apparently used entirely as fodder or, like dried dung, as materials to augment fuelwood needs for cooking. The potential therefore for gasification and other larger scale biomass energy conversion schemes appears to be limited. Geothermal Hot Springs 4.37 Nepal is endowed with geothermal activity of tectonic origin. About one hundred geothermal spings have been localized in ten major areas, mainly close to and south of the main central thrust and also south of the main boundary fault in the Siwaliks (Map IBRD 16871). Surface temperatures of these springs range from 25 to 75 degrees centigrade. While power generation is not envisaged, these sources could be used for agriculture (early germination, greenhouses, etc.) and domestic heating purposes. The important factors, on which little information is presently available, are the thermal useability of the hot springs and their accessibility to farms and population centers. Along this line the mission supports DMG's plan over 1980-1984 to: (i) prepare an inventory of geothermal activities; (ii) study the physical and geochemical parameters of these manifestations; (iii) study the feasibility of using these hot springs for selected applications. If the results are promising, DMG could then introduce regulation to encourage private sector use of the resource. Marsh Gas 4.38 Deposits of about 42 million cu.m. of marsh gas (mainly methane) have been identified in the Kathmandu Valley (675 Btu/cu ft). Gas showings were observed at water wells in Kathmandu and Patan. A test well drilled 200 meters deep produced 200 cu.m. of gas per day. Plans are to drill two more test wells this fiscal year and use the gas collected for distribution to hospitals and government offices on an experimental basis. The program is being financed by JICA. Energy Conservation 4.39 In addition to conserving energy through the use of improved stoves, there is considerable scope for conserving petroleum through increasing the efficiency of road transport vehicles. About 48% of petroleum products were used in this sector in 1980/81, with a substantial portion used by trucks and buses travelling between the Terai and Kathmandu. No studies of operating efficiency are available, but casual observation suggests that measures to encourage improved maintenance such as improving the availability of spare parts, providing vehicle emission tests and driver education campaigns could have a substantial effect on vehicle operation. A 10% increase in fuel efficiency would have saved 5% of Nepal's petroleum product imports in 1980/81. The mission therefore recommends that HMG/N develop a program to encourage greater fuel efficiency in trucks and buses. - 66 - V. ENERGY PRICES, COSTS AND INTERFUEL SUBSTITUTION Introduction 5.01 In the next ten to fifteen years, energy pricing will be important in encouraging an efficient pattern of energy consumption, particularly in urban areas. The analyses and recommendations of the mission are based on several important pricing principles. First, energy prices should reflect long run marginal costs. Second, the revenues flowing to the energy supply organizations should be sufficient to make them financially self-supporting, covering operating costs and contri- buting significantly to capital expenditures. Third, relative energy prices should be set so that eventually the use of potentially abundant resources (e.g. electricity) is promoted over the use of fuelwood and hydrocarbons, especially for non-household purposes. Fourth, energy prices or taxes should reflect part of the costs of supplying energy-use related facilities (e.g. highways). Fifth, the pricing strategy should not only focus on the needs of the next few years but also the transition to long-run low cost electricity. Fuelwood 5.02 In rural areas, households gather a large part of their fuelwood supplies from nearby forests. In theory, they are required to pay royal- ties, but in practice individuals taking head loads are not charged. 1/ The implicit price of fuelwood, therefore, is only the time taken to collect and carry it. However, with the overuse of the forests, the time has increased so it now takes an average of about one man-day to obtain a head load of 35 kg. 2/ Although the wood is "free", valuing it on the basis of the wage for unskilled labor of Rs.12 per day gives an 'opportunity price" for fuelwood in rural areas of Rs.343 per ton. 3/ In contrast, its economic cost in the short-to-medium term would be much higher if it were to reflect the costs of flooding, soil erosion and the decline in agricultural production. In the long run, with improved forest management and many new plantings, economic costs are expected to decline since they will include only planting, harvesting, and transport costs. 1/ The royalty for a head load is Rs.0.50 in the Terai and Rs.0.25 in the Hills. 2/ At this rate of collection, it takes 11 man-days to collect the monthly fuelwood needs of a family in the Hills, and 7 days for a family in the Terai where less wood is used (para 2.02). 3) The economic wage would be lower because opportunities for work at the financial wage would occur for only part of the year such as at planting and harvesting time. Adjusting for this gives an economic wage rate of Rs.8 per day, and at this wage the cost of fuelwood would be Rs.229 per ton. - 67 - 5.03 Urban areas are supplied with fuelwood on a commercial basis by private contractors and bv the Government-owned Fuelwood Corporation of Nepal (FCN). Most of these supplies are obtained from Government timber operations and from areas being cleared for resettlements. In addition, head loads of fuelwood brought from nearby forests also are sold in urban areas. Supplies from FCN increased sharply in 1977 (Table 5.1) although the Corporation currently appears to be supplying not much more than half of total urban demand, or about 240,000 tonnes in 1981. In the Kathmandu Valley, FCN is supplying only about one-third of total demand. FCN policy has been to set prices so as to cover production costs, but in recent years prices have lagged behind rising operating costs. Also, the growing shortages and difficulties of obtaining fuelwood have raised the price of private supplies to about Rs.750-800/tonne, i.e. 70% higher than FCN's price. HMG/N has recently decided not to provide new forest concessions for private contractors and intends for FCN to supply all urban fuelwood needs. This decision makes it all the more urgent that FCN not only cover its operating costs but also end the implicit subsidy on fuelwood sales in urban areas (currently $0.6 million a year) and raise its selling price to the prevailing market price to reflect the current high economic costs of fuelwood. Already the price of a ton of fuelwood sold by FCN in Kathmandu increased from Rs.134 in 1975, to Rs,270 in 1980, and Rs.450 in 1982, while in the Terai it increased from Rs.120 in 1980, to Rs.200 in 1982, (Table 5.1). Although this is a step in the right direction, more still should be done. For rural communities, however, there is little scope for the Government to intervene directly to raise prices, as evidenced by the lack of royalty collection on individual forest extraction. This suggests that the only policy available for rural areas would be to direct efforts for increasing fuel efficiency through improved stove use and better community forestry management and plantation programs. Electricity 5.04 Ever since Nepal reduced its electricity tariffs by 43% in 1971 to compensate for difficulties in obtaining kerosene supplies from India, electricity tariffs have provided substantial subsidies to consumers, being on average 50% lower than the level required to obtain a 6% rate of return on assets employed. This, in addition to the high system losses, (30% of electricity generated and 50% of electricity sold, of which only 10% are technical losses) has placed the Nepal Electricity Corporation (NEC) in a very difficult financial position. Average tariffs have increased only from Rs.0.35 to Rs.0.51 between 1970/71 and 1980/81. Con- sidering the financial needs of the contemplated expansion program (para 4.18), further immediate tariff increases are required. Given typical load factors and the coincidence of peaks associated with each of the major categories of consumers, Table 5.2 compares existing tariffs with the tariffs associated with the long run marginal costs calculated in a recent study for the government. The seasonal variation in energy availability results in dry season costs being 2-4 times the wet season costs, suggesting the need for a seasonal variation in tariffs. The costs of the daily peak also indicate that consideration should be given to introducing a time-of-day tariff, for example, for large industry and irrigation. - 68 - Table 5.1 Operations of the Fuelwood Corporation 1965 1970 1975 1977 1978 1979 1980 1981 A. Fuelwood Sales ('000 tonnes) Domestic supplies 17 16 55 195 160 215 107 139 of which Kathmandu received (14) (10) (30) (39) (29) (35) (19) (26) Exports a/ - - - - - 21 132 184 Total 17 16 55 195 160 236 239 323 1965 1970 1975 1980 1982 B. Cost and Price of Fuelwood Sales in Kathmandu Valley (Rs./tonne) Cost Royalty 6 6 6 33 40 Felling, Cutting and Distribution Costs 8 8 10 13 95 Transport 81 107 140 284 354 b/ Total 95 121 156 330 489 Selling Price 133 133 134 270 450 c/ (Selling Price in Central Terai) d/ (66] (66) (120) (120) (200) a! Exports are from forest areas in Far West being cleared for resettlement programs. As there is no road access from there to the main centers of fuelwood demand, FCN exports it to India. b/ Increase in transport costs over 1980 reflects higher price of diesel fuel. c/ This compares with Rs.750-800 charges by private suppliers in Kathmandu Valley and Rs.343 implicit price in rural Hill areas (paras 5.02 - 5.03). d/ Transport costs are much lower because forest areas are closer. Source: Fuelwood Corporation - 69 - Table 5.2 Average Cost Per kWh (Rs./kWh) Tariff Based Ratio of Dry to Present on LRMC (Average Wet Season LRMC Tariffs Wet & Dry Seasons) Tariffs Domestic 25 kWh/month 0.25 2.9 1.9 100 kWh/month 0.36 2.3 2.2 300 kWh/month 0.49 2.0 2.5 Cbmmercial =400 V 0.55 1.99 2.6 11 kV 0.52 1.50 3.3 Industrial 400 V 0.42 1.6 3.2 11 kV 0.42 1.26 4.4 Large Industrial On-peak 0.39 1.37 3.5 Off-peak 0.39 0.91 6.3 Irrigation On-peak 0.32 1.89 1.2 Off-peak 0.32 0.39 2.5 Source: Preliminary Analysis of Marginal Costs of Providing Electricity in Nepal, Water and Energy Commission, 1981. 5.05 There recently has been discussion between HMG/N and the World Bank about revising electricity tariffs upward to reflect the incremental cost of power generation. 1/ However, consideration still will have to be given to protecting the poorer segments of the population. Tariff increases for households (where 50% of electricity is consumed) will have to consider the ability of consumers to pay, given that about 30% of household consumers now using less than 10-15 kWh per month (only for lighting) already spend about 10-15% of their income on energy (Annex II). This level is probably close to the maximum possible, and charging LRMC tariffs would impose real hardships. The present tariff structure 1/ The Marsyangdi appraisal mission recommends a 130% increase in tariffs to realize a six percent rate of return on assets employed. Of this increase, 65% is required before negotiations and 65% with in 18 months thereafter. An electricity tariff increase of 58% already has been announced which took effect in April, 1983. - 70 - provides a "lifeline" tariff of a flat Rs.6.25 a month for up to 25 kWh a month. While this is equivalent to Rs.0.25/kWh for those using all 25 kWh, it is at least Rs.0.63/kWh for those households using no more than 10 kWh/month. One possibility would be to restrict the lifeline block to 15 kWh/month, and make only a modest tariff adjustmenr for this category. On the other hand, the 10-15% of household customers who consume more than 100 kWh/month spend less than five percent of their income on energy so tariff increases toward the LRMC for them are possible. Also, this category of consumers accounts for 52% of all household electricity consumption. Petroleum Products 5.06 The import and distribution of petroleum products is controlled by the state-owned Nepal Oil Corporation (NOC); retail sales are handled by licensed dealers. Until 1973, oil was imported exclusively from India, but since then Nepal has been buying crude oil and petroleum products on international markets, delivering them to an Indian port and receiving an equivalent amount of refined products from Indian refineries located close to the Nepalese border. Refinery charges are based on international refinery costs, and a transport fee is charged as though the products had been shipped from Calcutta to the Nepalese border, with border prices averaging around $400 a tonne at the very high price of nearly $55 per bbl. Table 5.3 shows the development of retail prices of petroleum products between 1973 and 1982. Table 5.3 Retail Prices of Petroleum products in Kathmandu, 1973-82 (in Rs. per liter) High Speed Gasoline Diesel Oil Kerosene August 1973 2.88 1.94 1.19 July 1974 5.75 2.00 2.00 July 1979 7.00 3.40 3.10 July 1981 9.30 5.65 5.15 November 1982 9.30 5.65 4.90 Price in North India (April 1982) 8.98 4.51 2.76 NOTE: April 1983 average border prices for petroleum are about Rs .4.57/liter. Source: Nepal Oil Corporation. - 71 - 5.07 Nepal's petroleum pricing policy has been to adjust domestic prices to reflect rising international prices. Petroleum products have been a major source of government revenues, with substantial taxes being imposed on gasoline and, to a lesser extent, on diesel fuel; taxes and duties currently amount to 91% and 28% of pre-tax costs, respectively. Kerosene has been more lightly taxed -- currently at 12% of pre-tax costs, compared to 112% for gasolLne and 30% for diesel. This contrasts sharply with India which has kept kerosene prices low in order to sub- sidize energy costs of low income families, particularly in urban areas; however, kerosene is tightly rationed there. Energy Price Trends 5.08 Energy prices in Kathmandu have risen quite substantially in real terms since 1972/73 (Table 5.4) and with real income stagnating during this period, the share of income spent on energy by low income families has risen from about 10% in 1973/74 to almost 15% in 1981/82. Fuelwood prices charged by FCN have risen at about the same rate charged by FCN as gasoline and faster than diesel, while kerosene prices have risen most sharply in real terms. Indeed, assuming that private market prices for fuelwood were equal to FCN's prices in 1972/73, market prices have increased by 13% a year between 1972/73 and 1981/82, even faster than kerosene prices -- the increase in part reflecting the growing scarcity of fuelwood. In contrast, electricity prices have increased much less; in real terms, electricity currently is much cheaper than in 1969/70 when the index was 233 because prices have never recovered from the 1971 price cut (para. 5.04). With higher income groups spending a smaller share of their income on electricity than lower income groups, the slower increase in electricity prices relative to other fuels since 1972/73 has had the effect of an income transfer from poor to rich. Table 5.4 Indices of Real Prices of Energy a/ Indices (1972 - 73 = 100) Average Annual 1974/75 1979/80 1981/82 Growth Rate (%) 1972/73 - 1981/82 Fuelwood (FCN) Kathmandu 86 134 179 7 Central Terai 156 121 161 5.4 Fuelwood (private) n.a. b/ -n.a. b/ 298 13 Electricity 102 136 132 3 Kerosene 145 238 219 c/ 9 Gasoline n.a. n.a. 172 6 Diesel Oil n.a. n.a. 156 5 1/ Current prices deflated by the Urban Consumer Price Index 2/ Not available 3/ November 1982 - 72 - Interfuel Comparisons by End-use Efficiency 5.09 While the relatively faster rise of kerosene and fuelwood prices compared with electricity tariffs has encouraged electricity use, the pattern of consumption also reflects end-use efficiency. Separate comparisons of prevailing prices and of medium-term and long-term economic costs are made for energy use for lighting and for cooking. At present prices, electricity is much cheaper than kerosene for lighting and remains so even when higher economic prices of electricity are considered (Table 5.5). In rural areas in the Terai, kerosene has an advantage over biogas produced from family-sized plants, but deducting the one-third of the biogas cost that is due to tax to obtain the economic cost makes community size biogas competitive with kerosene. 5.10 For cooking there are a number of different circumstances to consider: urban or rural, Kathmandu or Terai towns, as well as the effect of improved fuelwood stoves. Table 5.6 compares the present price of alternative cooking fuels with their medium and long-term economic costs. The economic costs of fuelwood in the medium-term are not known precisely although they are believed to be extremely high from overuse of the forest and the resulting erosion; in the long-term the costs only will encompass planting, harvesting and transportation. In urban areas, electricity at current prices is much cheaper than kerosene for cooking even after the proposed electricity tariff increases are effected. However, this advantage disappears when economic costs are considered in the medium-term. only if we assume a sequenced development of about 400 MW projects by the 1990s (described in paras 4.11-4.17) will electricity be economically competitive with kerosene for cooking. 5.11 For urban areas electricity at the current, subsidized rates is cheaper than wood purchased in the open market, but for those who can obtain subsidized supplies from the FCN, improved stoves give wood a price advantage. In the long-term, when improved stoves are in use and fuelwood demand is being met from incremental yields, fuelwood has a clear economic advantage as a cooking fuel. In rural areas, wood is cheaper than kerosene and again in the long run has a clear economic advantage. Community-size biogas, however, is competitive with wood for cooking. - 73 - Table 5.5 Cost of Lighting Fuels (Rs. per 10 hours of 167 candle power light, 1981/82 Rs.) a/ Present Economic Cost Price Medium Term Long Term Electricity Existing Tariff c/ .25 2.9 1.5 b/ Proposed Tariff c/ .48 Kerosene d/ Pressure Lamp 6.1 5.6 5.6 Wick Lamp 4.9 4.4 4.4 Biogas (Rural Terai) e/ Family 8.7 5.8 5.8 Community 4.3 2.9 2.9 a/ 167 candle power is equivalent to the light from a 100w electric bulb. b/ Economic cost declines by half if a larger, firmed-up Sapt Gandaki is included in the system (Table 4.1). c/ For up to 25 kWh/month. d/ Pressure lamp (equivalent to a 100w bulb) and wick lamp (equivalent to a 20w bulb) burn 125 ml/h and 20 ml/hour respectively; thus, one kWh equivalent of lighting requires 1.25 ltr and 1.00 ltr of kerosene and costs Rs.6.1 and Rs.4.9, respectively. Excluding duties and taxes reduces the cost per liter by Rs.0.5. 5/ Biogas mantle has 100 candle power and burns 0.13 cu.m. per hour; cost of biogas is Rs.4/cu.m. for family size and Rs.2/cu.m. for community size. - 74 - Table 5.6 Costs of Cooking Fuels* (Rs. per useful 1,000 kcal) Present Economic Costs Price Medium Term Long Term Urban Fuelwood a/ Kathmandu (i) Fuelwood Corp. (Rs.450/tonne) 1.3/0.6 a/ 1.6/0.8 (ii) Private Suppliers (Rs.750/800/tonne) 2.1/1.1 a/ 1.6/0.8 Terai town (Rs.200/tonne) 0.6/0.3 a! 0.9/0.5 Kerosene (Rs.4.9/ltr) 1.9 1.7 1.7 Electricity (up to 100 kWh/month) b/ 0.7 3.8 1.9 Rural Fuelwood a/ (Rs.343/tonne) 1.0/0.5 c/ a/ 0.6/0.3 Kerosene d/ (Rs.4.9/5.9/ltr) 1.9/2.3 T.7/2.1 1.7/2.1 Biogas (Rural Terai) Family 1.0 0.7 0.7 Community 0.6 0.4 0.4 a/ The medium-term economic costs of fuelwood include the tremendous degradation of the Hills and associated damage which is very high but which has not been quantified. The long-term economic costs only include plantation, management and harvesting and transport costs since woodfuel would be met from incremental yields. The pairs of figures are for regular and improved cooking stoves. b/ Price per useful 1,000 kcal is based on tariffs, while economic costs are based on average cost/kWh using LRMC. It is assumed that elec- tricity costs will decline during the nineties if a larger (300 MW), firmed-up Sapt Gandaki is built. c/ Actual collection is free; however price shown is based on time taken to collect wood valued at prevailing wage rate (para 5.02). d/ The pairs of figures are for Terai and Hills since in Hill rural areas, additional transport costs are about Rs.1 per litre. The tax of Rs.0.5 per litre is deducted in computing economic costs. * Calorific content and end use efficiencies of various fuels are as follows: End-Use Net Heat Value Efficiency Useful Energy Fuel Unit (Kcal) (%) (kcal) Fuelwood kg 3,500 10 350 Kerosene litre 8,700 30 2,610 Electricity kWh 860 70 602 Biogas m3 5,400 60 3,240 - 75 - 5.12 A number of policy recommendations follow from the analysis of relative costs: (i) since electricity is the most efficient fuel for lighting but not for cooking, continued subsidization of the "lifeline" electricity tariff is justified to encourage low income urban households to use electric rather than kerosene lighting. Large, well-off household users of electricity who are using it for cooking should be charged much higher tariffs; (ii) improved cooking stoves should be vigorously promoted and the costs of initial stove installation borne by HMG/N (para 3.15); (iii) the Fuelwood Corporation should raise the price of its fuelwood supplies to market levels; and (iv) the introduction of community biogas plants should be encouraged by establishing a subsidy scheme that in effect refunds import duties paid on CSB plant compo- nents. In view of the high medium-term economic cost of fuelwood, there is also a case for extending the duty refund to FSB plant components. - 76 - VI. ENERGY PLANNING AND INSTITUTIONS National Development Planning and Policy Formulation 6.01 The public sector in Nepal has expanded rapidly in cecent years, largely with the help of foreign aid; however, this growth has occurred with little or no coordination. While statements of broad developmental goals and policy principles have been articulated in a number of HMG/N documents, 1/ they have not been translated into specific actions or guidelines for planning activities in the country. Consequently, line ministries and agencies tend to base projects on their own assessments of what can and should be done in their sectors with little guidance from the higher levels of government as to how national priorities should be translated into sectoral priorities. Moreover, with the exception of water and energy planning which has to be undertaken over a long time period, most national and sectoral planning is done only for a five-year (non-rolling) planning period. The lack of an integrated planning perspective in the National Planning Commission (NPC) and in other sections of government tends to obscure many of the essential inter- sectoral linkages that are needed to rationalize energy plans. Investment plans made in other sectors tend to reflect the view that progress in their sectors is constrained by insufficient electricity and water supplies, while the water and energy planners can justify only modest and high-cost projects on the basis of these sectoral investment plans instead of larger projects that could result in substantial economies of scale. Thus improved, longer-run policy and planning guidance and coordination is a precondition for accelerating energy-based economic development. Planning For Water and Energy 6.02 One aspect of the planning problem for water and. energy is the need to strengthen the technical base at NPC. The other aspect is the geopolitical situation of Nepal vis-a-vis India. There is considerable uncertainty associated with several broader policy issues such as whether Nepal should adopt a bilateral or multilateral approach to international cooperation in water resource development, whether it should adopt a project-by-project approach or seek broader agreement on principles of water sharing and water use (e.g. an umbrella treaty), whether or to what extent Nepal should link broad policies such as transit, trade and access to sea, to water resource agreements, and what principles should guide Nepal's position on international water resource issues such as water use and equitable shares. The inability to resolve these issues has not only delayed major projects but has caused many decisions on power (and irrigation) projects to be made on the basis of what is considered strategically "best" for protecting the country's rights in making claims 1/ Including the "Sixth Plan" and "Water, The Key to Nepal's Develop- ment". - 77 - on a resource over which international law is not uniformly accepted by all., A better approach would be at least to begin generating as much technical information as possible for all parties who need to agree on the development of the water resources. In this context, a technical assistance project for studying the feasibility of the Chisapani project and the Karnali River Basin is being prepared. 6.03 Figure 1 (page 135) provides an overview of the main energy sector institutions in Nepal. The NPC has broad interest in the energy consequences of plans and projects submitted by the line ministries for inclusion in the five-year plan. The Ministry of Finance takes an interest in the financial implications of energy-related investments. Project identification and formulation of non-water energy projects, however, still takes place mostly in the ministries and agencies with primaary responsibility for each energy source. Biomass and biogas plants are handled by the Ministry of Food and Agriculture and by the Agricultural Development Bank of Nepal (ADB/N). Forest management, con- servation and improved wood stoves are primarily handled by the Ministry of Forestry, but research on stoves is undertaken by the Research Center for Applied Science and Technology (RECAST) in Tribhuwan University. Exploration for hydrocarbon deposits falls under the Department of Mines and Geology of the Ministry of Industry and Commerce, while distribution of petroleum fuels is the responsiLbility of the Nepal Oil Corporation. Planning for power falls under the Electricity Department, while the distribution of electricity supply is mainly the responsibility of the Nepal Electricity Corporation. The Ministry of Water Resources 6.04 As the ministry responsible for all public sector activities related to water resources, the authority of the Ministry of Water Resources spans hydroelectric power generation and distribution (Electri- city Department-ED and Nepal Electricity Corporation-NEC); irrigation, hydrology and meteorology (Department of Irrigation Hydrology and Meteor- ology-IDHM) and water supply and sewerage (Department of Water Supply and Sewerage-DWSS). None of the planning functions in any of the MWR depart- ments (as in all departmental ministries of HMG/N) are coordinated. Planning responsibility is greatly resisted by many middle level civil servants in Nepal, particularly the capable ones, since this does not provide a track for rapid promotion. Thus, even when it has been possible to obtain good professionals in planning positions in the MWR and its departments, these individuals in many cases have moved away from planning responsibilities to construction or technical activities. The Water and Energy Commission (WEC) and the Canadian Water and Energy Rsource Development Project (WERDP) 6.05 In recognition of the importance of water resources and energy matters in Nepal, HMG/N formally created the Water and Energy Commission in 1976. The government representatives of the WEC, the organization of its Secretariat (WECS) and functions of each of the directorates of the WECS are shown in Figure 2 (page 136). A key force that has bolstered - 78 - water and energy planning in Nepal has been the arrival of the Canadian advisory team in 1978 under the Water and Energy Resource Development Project (WERDP) financed by CIDA. The project was intended to assist the newly created WEC develop a permanent planning capability in the fields of water and energy. However, HMG/N also wished to use the team to provide engineering and operational assistance to the Electricity Department instead of planning assistance, and for the first eighteen months much work was done assisting the Nepalese in operational problems. Initially, little progress was made in introducing planning, but as the Electricity Department's capability was strengthened, staff of the WECS began to focus on sectoral and strategic planning matters. From what was in essence electricity subsector planning, a steady effort was made to expand planning in the water and energy sectors. Over the following two years, considerable progress to this end was made but with limitations imposed by a serious lack of data, basin studies, and feasibility studies. Moreover, the lack of both guidance and information from higher levels of government tended to create uncertainty regarding key assumptions upon which alternative plans and programs could be evaluated. Decision making in the Planning Commission clearly needs to be strengthened to deal with broad water resource development and related economic development issues along the lines outlined in para 6.02. 6.06 In spite of the fact that all ministries are represented on the WEC (Figure 2), channels for communication and coordination among ministries have not been kept open and the Commission meets infrequently. WEC has been perceived as the planning and policy making arm of the Ministry of Water Resources due to its preoccupation with water development. The mission emphasizes the urgency of instituting regular monthly meetings of the WEC which will provide a forum for inter- action and coordination between the ministries and bolster WEC's position as an overall energy planning institution. The mission strongly recommends that the Canadian project be extended for another five years. However, for the project to play a greater role in future energy planning, the mission supports current efforts to strengthen the role of WEC as an energy planning organization by making it more independent of the MWR. This includes establishing a well-defined set of intervention points where WEC is required to be involved before line ministries and agencies can proceed with energy sector activities. Such steps would earn the WEC more credibility, acceptance and cooperation of the other ministries involved in the energy sector. HMG/N will need to carefully consider the appropriate institutional arrangements, including WEC's future relationship with the NPC. 6.07 WEC suffers from a lack of senior staff with engineering back- grounds to participate in sectoral planning matters. Intermediate staff have been equally difficult to recruit. The main causes of aversion to planning positions are the inferior allowances and earned seniority points attached to these positions. The long-discussed restructuring of the system of grading, promotion and emoluments is needed to correct this situation in public administration. - 79 - The Electricity Subsector 6.08 The organization of the electricity subsector in Nepal is shown in Figure 1 (page 132). The Ministry of Water Resources, under the Minister and Secretary, plays a dominant role in a variety of sector matters. It is in the MWR that most broad issues involving development of the electricity sector are addressed. The Electricity Department (ED), under the Chief Engineer, is responsible for investigating, planning, participating in the arrangement of financing, and constructing all medium and large hydroelectric projects as well as transmission and distribution lines. Although ED has responsibility for managing the construction of projects, this is generally done through the vehicle of a development board. Once projects undertaken by the ED have been built and commissioned, they are turned over to the Nepal Electricity Corporation (NEC) which is responsible for operating the grid systems, distributing power to customers, metering and billing, and collecting revenues. In the past few months, the former Eastern Electricity Corporation that served customers in Eastern Nepal from an isolated system has been incorporated into the NEC. This was done in anticipation of integrating the Central and Eastern systems with the completion of the Hetauda-Biratnagar 132 KV interconnection. A small amount of electrical plant is maintained by the Butwal Power Company in the west which provides a load to domestic and industrial consumers from another isolated system. 6.09 This high degree of fragmentation in such a small power sector has resulted in a lack of continuity in planning and development, inefficient deployment of limited skilled staff, confusion in decision making and mobilizing resources for power system development, and poor fiscal performance. HMG/N has recognized this problem for some years and in 1977 appointed British Electricity International (BEI) to carry out a study on reorganizing the power sector. BEI's report in 1978 recommended the establishment of a single public enterprise to replace the existing util]ities and to be responsible for the planning, construction and operation of all power facilities in Nepal. This recommendation was later made again by Coopers and Lybrand, hired to examine the BEI recommendations, and in connection with an ADB loan, a memorandum of understanding between ADB and H1MG was signed in November 1982 to establish one organization, the Nepal Electricity Authority (NEA). The mission agrees that this is the right decision for Nepal. It will allow better coordination between various functions, and therefore should en- able the power sector to operate more efficiently at a time when consi- derable expansion is taking place. Once this new utility is authorized, adequate resources are needed to ensure its sustained operation until it becomes financially independent. Coopers and Lybrand also made recommendations dealing with the detailed design of the organization and the design and implementation of the systems for the new NEA, including financial operations, manpower planning and training programs. The planning and operation functions would be developed and strengthened using outside assistance financed under a Bank Technical Assistance project. - 80 - 6.10 Nepal also needs to assess the technical manpower and management requirements for an integrated system and place high priority on develop- ing the necessary staff to handle a highly demanding sector that will be growing rapidly over the next two or three decades. The mission recommends that serious consideration be given to expanding the capacity of the Butwal Technical Institute, opening new and special programs at Tribhuvan University, and actively seeking donor support for very selective training programs in India and overseas. 6.11 Small hydel development (up to 1000 kw) is the responsibility of the Small Hydel Development Board (SHDB). The SHDB has received tech- nical assistance from the Swiss (SATA) in the past and currently is receiving assistance from the ADB but to date has lacked clear policy guidance on its proper role and priorities for development. The mission strongly recommends that SHDB hire foreign expertise to review its program, carry out site investigations and design work, supervise construction, and train SHDB staff (para 4.21). The Forestry Sector 6.12 As a result of the 1957 nationalization, not only did the management of Hill forests almost cease, but substantial forest lands were cleared and converted to agriculture to prevent the government from assuming ownership of these lands (Annex IV). Because of the great need for better protection and management and because the government formally recognized that it cannot manage the forests, new legislation was enacted in 1977 which delegated responsibility for managing 2.2 million ha of forests to local village communities (panchayat) and private individuals or agencies. Under this legislation, the following categories of forests can be entrusted to community or private control: (1) Panchayat Forests (PF) are barren and denuded forest lands handed over to panchayats for planting. Planting is done by the panchayats with the technical guidance of the Department of Forestry. Foreign aid agencies also have been asso- ciating themselves with this program. Revenue derived from panchayat forest is credited to the panchayat, subject to the condition that 50% of the revenue will be used to manage the forest. (2) The Panchayat Protected Forests (PPF) are degraded forests entrusted to panchayats for management. Greater protection and regulated usage are expected to rehabilitate these forests; some gap planting will, however, be required. Seventy-five percent of the revenue derived from the forests is credited to the panchayat and 25% to the government. (3) Religious Forests are similar to panchayat protected forests but entrusted to religious institutions for management. (4) Contract Forests are denuded government forest lands which can be leased out to individuals or insti- tutions for reforestation and for production of forest products. Detailed terms and conditions for granting such leases have not been outlined by the government yet. The potential for community control is being aided by IDA's Community Forestry and Training Project, among many other foreign aid projects. - 81 - 6.13 The key to increased planting and better management of existing forests is the ultimate decentralization of the ownership and management of new and existing forests. Only by delegating this task to the panchayat will Nepal achieve the planting program outlined in paras 3.06- 3.12 to satisfy its fuelwood needs. Steps should be made to accelerate the transfer of these forests to the panchayats, with the Government providing seedlings, extension and technical assistance. The Ministry of Forestry (MOF) 6.14 Established in 1958, the Ministry of Forestry (MOF) is respons- ible for Nepal's overall forestry sector. Although the Ministry employs over 11,000 people, it is still very much constrained by a lack of tech- nical and administrative personnel, and has a history of weak forestry management; emphasis has been concentrated on exploiting the valuable timber remaining in the Terai. Coordination within MOF is lacking, the most obvious example of this being the simultaneous existence of the Fuelwood Corporation (FCN), the Timber Corporation (TC), and the Forest Prod,ucts Development Board (FPDB), whose operations overlap consi- derably. None of these agencies has planting programs of any signi- ficance, and their cutting activities are unrelated to reforestation efforts by the Forestry Department. Harvesting dwarfs planting. Unfortunately, even the trend of operations by the Ministry of Forestry is in the direction of more deforestation: in 1975, the Ministry was responsible for a decrease of less than 300 ha of forest, but by 1980 this figure exceeded 5000 ha. The Department of Forestry (DF) 6.15 The Department of Forestry (DF) within MOF is responsible for overall administration and management of forests on behalf of HMG/N. It is concerned with licensing and organizing timber sales from the Terai forests. It also has been involved in afforestation, improvement and demarcation programs. The Community Forestry and Afforestation Division (CFAD) within the FD is in charge of implementing several afforestation projects, notably the Bank's Community Forestry Development Project. It also is responsible for establishing and maintaining nurseries and distributing seedlings. The major constraint in implementing a large plantation program is the acute shortage of technical staff. The target of 30,000 ha a year proposed under the accelerated program or even the substantially lower target of the BAU scenario from 1985 to 1990 greatly exceeds what the Department has been undertaking so far. The recently established Department of Soil Conservation and Watershed Management has a very limited forestry staff. 6.16 The recently appraised IDA Terai Forestry Project includes a component to carry out an organizational study to draw up long-term plans for establishing plantations, managing existing forests, and reorganizing sector institutions. The mission supports this study and urges that following its completion, action to recruit and train the required number of technical personnel be initiated. To carry on a much expanded role, it has been suggested that a Planning, Programming and Monitoring Office - 82 - (PPMO) be established within the Ministry of Forests and Soil Conser- vation under the Secretary. PPMO, in collaboration with respective departments (ie, the Forest Department, Soil and Watershed Department, etc.), should review existing projects to combine them into an integrated sector program. To attain this, PPMO should undertake a series of studies aimed at: (i) identification of national objectives; (ii) general assessment of resource potential; (iii) identification of administrative and legal constraints; (iv) assessment of institutional capability (manpower and facilities); (v) identification of temporal and spatial pattern of operations; (vi) assessment of scope and scale of each operation; and (vii) identification of the specific operations included in each project (eg, plantation establishment, production, civil works, training, procurement, etc.). 6.17 Using this data base, PPMO should assess the feasibility of an integrated program and propose necessary short-term actions that should be taken to reallocate resources, reassign operational targets, and im- prove coordination among the institutions. Finally, PPMO should identify the scope and the magnitude of work required to formulate a long-term development plan for the sector including objectives and the scope of planning, required planning activities, timing, input requirements, and organization and staffing. Technical assistance requirements, job descriptions, terms of reference for advisors, and cost estimates required to carry out a part of this program already are included in the recently appraised Terai forestry project. Integrating the projects into a single departmental program and moving staff as required would not necessitate deviations from the agreements made between the government and the supporting agencies. On the other hand, anticipated rescheduling of operational targets would secure consistent progress in project implementation. As a means of translating afforestation planning targets into integrated national energy planning, the mission further urges that the Canadian team supporting the WEC include a forester. This is in addition to the renewables specialist advocated in para 6.25. 6.18 Two levels of training are offered by the Tribhuvan Univer- sity. One is the diploma course intended for the officers of the Department of Forestry and the Department of Soil Conservation and Watershed Management. The duration of the course is two years for direct recruits with a diploma in science and three years for service candidates with a lower level of academic qualification. The course, started in 1981, is conducted at the Hetauda Forestry Institute but may be shifted to Pokhara. The other course is a two-year certificate course at the Hetauda Forestry Institute for Assistant Rangers. Recruitment is after secondary school leaving certificate. About 30 students are admitted each year for the diploma course and 80 for the certificate course. In addition, about 10 officers are sent to the Indian Forest College in Dehra Dun for the diplomas course each year. 6.19 The ODA/USAID Forestry Training Mission reviewed forestry educa- tion in Nepal in 1979 and estimated that, to meet the existing deficits and future replacement requirements in the Departments of Forestry and Soil Conservation and Watershed Management, Forest Corporations, and in - 83 - the private sector, the annual requirement is 40 officers and 200 technicians (Asst. Rangers). Clearly, there is a need for increasing the intake in forestry training, particularly for the certificate course. This is in addition to a separate Training Wing under the Ministry of Forests and Soil Conservation Watershed Management at Kathmandu which provides in-service training and orientation courses. During the mission's discussions, the Forest Secretary mentioned that several forest development projects had to be shelved because of an acute shortage of forest officers. The mission therefore recommends that about $1.2 million in technical assistance be secured to send about 40 directly recruited candidates for training abroad (Australia, Pakistan or Burma) in the next two years, in addition to the number normally sent to India. Details are given in Annex VI D. The Renewable Energy Subsector 6.20 Institutionally, planning activities in this field are the implicit responsibility of the Water and Energy Commission (WEC) and, in a more general way, the National Planning Commission (NPC) through relevant inclusions in the five-year plans. There is no line ministry or department presently charged with planning, programming and regulating activities specifically for the subsector. 6.21 On the implementation side, commercialization and large-scale dispersal activities are carried out mainly by the private sector, e.g., Balaju Yantra Shala (BYS) for solar water heaters and the Gobar Gas Company (GGKYV) for biogas. Demonstration activities are conducted by aid agencies working independently or through integrated rural development programs, and by a number of NGOs. Research and development is a primary function of Tribhuvan University's RECAST; however, R & D activities are also being conducted by a research arm of GGKYV for biogas, BYs for solar water heaters, etc. These latter efforts probably pertain more to spec:ific product improvement work than technological investigations. 6.22 Commercialization programs for specific renewable energy tech- nologies have been fairly successful so far, largely because they were carried out as essentially private sector ventures with continued support from active NGOs and aid agencies such as the Swiss Agency for Technical Ass istance (SATA) for BYS solar water heaters and United Mission of Nepal (UMN) for GGKYV biogas. There is less information available with which to gauge the effectiveness of the many smaller demonstration activities and specific R & D activities being conducted by RECAST. 6.23 The absence of a governmental body to plan, program and oversee renewable energy activities in Nepal is perceived as a weak link in the present energy development organization. Since water resources loom larger than others in Nepal, it is inevitable that WEC has tended to focus its attention exclusively on hydro development matters. The Executive Director of the WEC charged with renewable energy matters has no staff and appears to have a very limited "advisory" role. There are no official R & D priorities drawn on a national level; aid agencies and NGOs have essentially a free hand in deciding on renewable energy project - 84 - activities they feel are appropriate for Nepal. For large projects that arise, the assignment of responsibilities has been more or less ad hoc; for instance, the disbursement of funds for renewable energy projects approved under the recent economic "crash program" has been assigned to the Department of Electricity. 6.24 These limitations are recognized by many government officials; however, although the need is felt for some sort of governmental renew- able energy body, there seems to be no clear idea of the composition of this entity or its appropriate niche in the governmental structure. Aside from additional resource requirements, a valid concern expressed against creating a new agency is the small pool of renewable energy professionals available in the country today. It is highly likely that the key staff of a new body will have to be drawn from existing agencies such as RECAST already engaged in this type of work. 6.25 An alternate short-term approach is to strengthen the relevant institutions already in place. For planning and overall coordination, the unit handling renewables in the WEC (Energy Planning Directorate) should be strengthened by adding a support staff of at least two or three technical and economic people. In addition, the planned full-time renewable energy expert to be employed by the Canadian advisory group presently supporting WEC could be assigned to the unit. This unit should be given a formal role in reviewing all project proposals involving renewable energy which require government funding, subsidy or counterpart contribution. Assuming that the unit performs this role competently, it could minimize the possible proliferation of activities of marginal usefulness without adding to existing bureaucratic barriers. This unit head should be very knowledgeable in the renewable energy field and must develop good professional linkages with both local and foreign renewable energy workers in the country. To ensure wide support of renewable energy policies, he should form under his chairmanship an advisory council composed of a mixture of technical and non-technical professionals from the public and private sectors (with possible token financial incentives). The council would be convened by the unit as necessary, e.g., to deliberate on a new aid agency renewable energy proposal or to discuss the subsector's inputs to the next five-year plan. 6.26 On the implementation side, it is anticipated that the most extensive dispersal activities in renewable energy in the short-to-medium term would be on small hydro power, biogas and improved cooking stoves. There are line ministries with departments already charged with executing each of these activities. For example, the Ministry of Water Resources (SHDB) for small hydro, the Ministry of Forests for improved chulos and the Ministry of Food and Agriculture, through the ADB/N, for biogas dissemination. They should retain these responsibilities. REU's role, aside from participating in discussions to revise or expand each project, would be to regularly monitor their progress, primarily by analyzing official progress reports, and, in some cases, by conducting its own surveys and impact studies. - 85 - 6.27 The research and training aspects should continue to be the primary role of RECAST in close coordination with REU and NGOs active in the energy field. Given its limited facilities, RECAST has conducted some relevant R & D work on renewables in addition to its other activities in the general area of applied science and technology. However, it is clear that its full potential as a research arm for national energy development activities has been hardly tapped. For this potential to be realized, RECAST must place more emphasis on activities directly supportive of ongoing or planned government-promoted dispersal programs. RECAST's research and training contributions to the CFDT stove component project are examples of a role that could be effectively utilized in other areas. In biogas development, for instance, GGKYV's research arm could focus its resources on product development work, while RECAST could conduct longer-range, more intensive technical studies. It could become a principal cooperator to GGKYV in conducting the suggested two-year systematic monitoring of operational problems with community size plants. RECAST can also provide useful support to the solar water heating industry and its clients by establishing a solar water heat test facility that could conduct performance tests of flat-plate collectors and other solar energy products being commercialized. At the moment, RECAST does not appear to have the resources to assume these roles if requested by the operating agencies. There is clearly a need to strengthen RECAST's staffing and scientific facilities through a program of new recruitment, personnel training and the acquisition of more modern research equipment for renewable energy work. The mission therefore recommends that a $250,000 technical assistance project designed to strengthen RECAST along the lines outlined above be implemented as soon as possible (Annex VI E). Other Commercial Energies 6.28 The Department of Mines and Geology (DMG), within the Ministry of Commerce and Industry, has the best pool of geologists in the country, totalling 50. To carry out the IDA-financed petroleum exploration promotion project (PEPP), a special unit was created with DMG. This unit includes petroleum geologists, geophysicists and legal staff, and training under the project will further strengthen it. DMG is also responsible for coal, lignite and geothermal exploration activities. The Department is planning a more intensive program in 1983 and 1984 and a four-year plan (1980-84) for geothermal. However, in view of the potential importance that coal can play in substituting for fuelwood, part:icularly in industry, the mission recommends that efforts be made to investigate ways to increase and centralize coal imports to ensure better quality and reliability of supplies, possibly with the help of Nepal Oil Corporaton (NOC). NOC is responsible for purchasing and distributing oil products in Nepal, and seems to have the capability for handling oil imports. - 86 - VII. ENERGY STRATEGY AND INVESTMENT Introduction 7.01 Nepal's energy strategy has to address two problems: one is that irregular and inadequate supplies of energy have contributed greatly to the economic stagnation of recent years. The other is that the growing imbalance between household energy requirements and sustainable fuelwood supplies threatens the basic provision of energy for cooking and heating. The imbalance also adversely affects Nepal's economy because the forest shrinkage jeopardizes agricultural productivity and the growing scarcity of fuelwood causes more labor to be diverted from more productive activities to collecting wood. 7.02 Because of the country's limited financial resources and the needs of other economic sectors, Nepal will have to choose very carefully among competing priorities. The analysis of relative energy prices in Chapter V indicates that the appropriate strategy is to meet the basic cooking and heating needs as far as possible with fuelwood from forestry programs. For faster economic growth, cheap and plentiful energy sources are needed, and the report suggests that biogas in the Terai and small turbines in the Hills are attractive ways of providing power for agro- processing and for cottage industries in rural areas. For modern, commercially-oriented activities, the strategy is to increase electricity supplies and reduce costs by sizing hydro plants somewhat larger than is immediately required for domestic needs and to sell the excess power to India. A well sequenced development of projects to take advantage of site complementarities could reduce the cost of electricity from its present 15¢/kWh to 5-6+!kWh. 7.03 Dealing with future energy needs requires a substantial program of energy sector investments. But to be realistic, this could only be successfully implemented as part of an overall improvement in Nepal's development performance. Two scenarios therefore have been considered. In the first, energy demand projections and the required investments are considered as part of an overall economic acceleration in which development efforts are intensified and better focussed, public administration strengthened and the policy environment for productive investment and entrepreneurship improved. Agriculture could then grow at three percent a year as irrigation facilities are developed and other inputs for modern farming become available, and the non-agricultural sector could increase to 6-7% per year; overall GDP growth could therefore average five percent. Better implementation of population programs also could reduce the population growth rate from its present 2.6% a year to 2.2% by 2010, further assisting in raising per capita income. Per capita income would increase from its present $140 to $205 in 2000 and to $280 in 2010. The second scenario is moderate, allowing for a more modest-expansion of energy sector programs in the context of continued overall economic stagnation. Agricultural output would grow by no more than 1.5% a year and that of the non-agricultural sector by four percent giving an overall GDP growth rate of about 2.9%. This would be only slightly faster than population growth which, without an improvement - 87 - in overall development efforts, is likely to continue at present levels. 7.04 The energy projections in Chapter II indicated that, because of the continued predominance of household fuel needs for cooking and heating, overall demand would grow only slightly faster in the accele- rated scenario than in the moderate scenario (2.9% per year vs. 2.5% per year). The pattern of demand would change, however. With faster GDP growth, commercial energy demand would grow by an average of 8.5% a year, and increase its share of total energy to 24% by the year 2010 compared with 6% in 1981. Commercial energy growth would be only five percent, with slower GDP growth, and commercial energy would only amount to 12% of total energy demand in 2010. With faster growth, the need for Nepal to develop its own commercial energy resources (hydro power) becomes important if the energy import bill is to be kept within reasonable limits. Energy Scenarios 7.05 The accelerated energy scenario discussed in Chapters III and IV is an ambitious but necessary approach to meeting Nepal's energy needs during the next 25 years. The future energy supply and demand situation is summarized in Table 7.1. Shortly after the year 2000, the projected forestry development plus conservation from introducing improved stoves could be sufficient to meet the fuelwood demand. The biogas and turbine programs would meet five percent of commercial energy demand by the year 2000, and the accelerated power program would lead to substantial exports of electricity. 7.06 With accelerated economic growth, mineral fuel imports are projected to grow by 7.5% a year during 1981-2010 and to increase from 156,000 TOE in 1981 to 612,000 TOE by 2000 (Table 7.2). However, since Nepal's export earnings are also projected to grow by 6.9% during this perlod, the future burden of fuel imports will be determined by the expected increase in the real price of mineral fuels. 1/ It will also depend upon the composition of mineral fuel imports, because coal is much cheaper than oil. If coal can be maintained at one quarter of total mineral fuel imports, the cost of energy imports would increase to only 32% of projected export earnings from goods and non-factor services by 2000, compared with 17% in 1980/81. If all mineral fuel imports were petroleum, the percentage would be 39%. Part of this, however, will be offset by exports of electricity. Such exports will be a mix of primary and secondary power, but since the latter is actually 100% firm for seven consecutive months, it also may be valued close to the marginal costs of thermal power in India which is about US#5/kWh (para 4.15). By the year 2000, the value of power exports could be 13% of export earnings, making 1/ Real prices of petroleum are projected to increase over their 1981 value by 8% in 1990, 35% in 2000 and 73% in 2010, and those of coal by 0%, 21% and 55%, respectively (IBRD price projections, January 1983). - 88 - net energy imports equal to 19-26% of exports of goods and non-factor services. 7.07 The accelerated energy scenario would require a substantial increase in investment expenditures, the bulk of which would be for hydro and forestry programs. Annual energy sector expenditures would rise from US$56 million in 1980 (1982 prices) to $146 million in 1990, and $256 million in the year 2000 (Table 7.3). However, because economic growth is also assumed to pick up, expenditures would be no more than 4.4% of GDP by 2000 compared with 2.3% in 1980. Moreover, ongoing and planned power sector investments would, in any event, raise the ratio of expenditures to GDP to this level by 1985. The accelerated program would therefore maintain the current tempo of total energy sector investments although the share going to forestry and related programs would be higher than currently planned. Energy investments would rise from 17% of total investments in 1980 to 26% in 1984/85, and decline somewhat thereafter. This level of energy investments is appropriate for a country at Nepal's stage of development. 7.08 While the more moderate expansion in energy sector programs would represent a substantial increase over existing levels of activity, in relation to Nepal's future energy needs it still would be inade- quate. Nepal must achieve energy sector investment levels well in excess of the moderate scenario if it is to have any hope of meeting future energy needs. 1/ Fuelwood supplies would meet only 53% of projected demand in 2010, forcing a substantial diversion of manure for fuel instead of being used as fertilizer. This loss of fertilizer would reduce foodgrain production by about 0.4 million tonnes which would cost at least US$100 million to import. 7.09 The demand for mineral fuels would grow more slowly with lower economic growth, reaching only 352,000 TOE by 2000. However, the policy of sizing hydroelectric plants strictly to meet domestic requirements would provide little if any surplus power for export. Thus, despite the lower growth in import requirements, the burden of mineral fuel imports would reach 31-39% of export earnings by the year 2000. 1/ Indeed energy difficulties are only one aspect of the problems that would face Nepal in the 1990s if economic stagnation continues. For example, with agricultural production rising slower than population growth, foodgrain deficits could become substantial. Financing food imports would require an increasing proportion of export revenues and, even with donor assistance, it is doubtful whether export earnings could provide for adequate consumer and intermediate goods imports, let alone investment needs. This would put Nepal's already precarious living standards in jeopardy. Table 7.1 Energy Demand and Supply 1981-2010 Accelerated Propram Moderate Program Fuelwood a/ Coal/Petroleum b/ Electricity Total Fuelwood a/ Coal/Petroleum b/ Electricity Total 1980/81 Demand 2,806 156 13 2,975 2,806 156 13 2,975 Supply 1,697 - 10 1,707 1,697 - 10 1,707 Surplus/Deficit -1,109 -156 -3 -1,268 -1,109 -156 -3 -1,268 1989/90 Demand (net) 3,415 319 48 3,782 3,449 235 40 3,724 Supply 1,724 11 103 1,838 1,671 10 40 1,721 Surplus/Deficit -1,691 -308 +55 -1,944 -1,778 -225 - -2,003 1999/00 Demand (net) 3,94R 647 183 4,778 4,252 352 81 4,685 m Supply 3,174 35 384 3,593 2,101 22 81 2,204 Surplus/Deficit -774 -612 +201 -1,185 -2,151 -330 - -2,481 2009/10 Demand (net) 4,115 1,299 504 5,918 5,076 522 188 5,786 Supply 4,115 83 911 5,109 2,694 30 188 2,912 Surplus/Deficit - -1,216 +407 -809 -2,382 c/ -492 - -2,874 a/ Net demand is after savings from ISP; supply includes biogas used for cooking. b/ Supply is biogas used in economic activities plus kerosene saved by domestic lighting from agro-processing turbines. c/ Totally unmet from fuelwood since remaining unprotected forests would have disappeared by about 2005. Source: Annex IX Table 7.2 Energy Trade Balance Accelerated Program Moderate Program Imports of Exports of Net Imports of Net Mineral Fuels Electricity Imports Manure a/ Mineral Fuels Imports 1980/81 % of Exports of GNFS 17 - 17 - 17 17 1989/90 TOE ('000 mt) 308 55 253 - 225 225 Value (million US$) 110-140 b/ 32 78-108 - 81-100 b/ 81-100 % of Exports of GNFS 26-34 8 20-29 - 25-31 25-31 1999/00 TOE ( 000 mt) 612 201 411 - 330 330 Value (million US$) 275-340 b/ 117 158-223 - 148-183 b/ 148-183 % of Exports of GNFS 32-39 13 19-26 - 31-39 31-39 2009/10 TOE (6000 mt) 1,216 407 809 2,382 492 2,874 1 Value (million UJS$) 700-870 b/ 236 464-634 115 283-351 b/ 398-466 0 % of Exports of GNFS 42-52 14 28-3p 16 40-50 56-66 a/ Burning of dried manure to meet household energy needs. Value is resulting loss of agricultural production. b/ Import value, range depends on whether imports are 75% petroleum, 25% coal, or 100% petroleum. - 91 - Table 7.3 Energy Program: Investment Summary (US$ Million 1981/82) 1979/80 a/ 1984/85 1989/90 1999/00 2009/10 I. Accelerated Program Forestry (planting and management) -- b/ 3.7 20.9 55.3 22.6 Stoves - 0.2 1.2 1.2 3.4 Biogas 0.6 0.5 0.6 1.4 3.8 Hydro 54.8 113.3 a/ 122.0 195.0 297.0 Turbines 0.7 0.8 1.4 2.9 2.3 TOTAL 56.1 118.5 146.1 255.8 329.1 Energy Investment as X of GDP a/ 2.4 4.2 4.2 4.4 3.3 Energy Investment as % of Total Investment a/ 17.4 25.6 21.0 18.0 13.0 Total Investment as % of GDP a/ 13.5 16.5 20.0 25.0 25.0 II. Moderate Program Forestry (planting and management) -- b/ 2.4 9.0 14.2 24.8 Stoves - 0.1 0.2 0.4 0.6 Biogas 0.6 0.5 0.6 0.8 1.3 Hydro 54.8 113.3 c/ 100.0 130.8 150.0 Turbines 0.7 0.6 0.7 0.8 0.4 TOTAL 56.1 116.9 110.5 146.2 177.1 Energy Investment as % of GDP 2.4 4.3 3.6 3.7 3.3 Energy Investment as % of Total Investment 17.4 28.6 24.0 25.0 22.0 Total Investment as % of GDP 13.5 15.0 15.0 15.0 15.0 a/ 1979/80 energy expenditures have been converted to 1981/82 prices by inflation factor of 1.2. b/ Expenditures mn planting and conservation were almost nil in 1979/80; other forest department expenditures were about Rs.12 million. c/ Ongoing and anticipated programs. - 92 - Priorities for Investment 7.10 While the future without an accelerated program would be dismal, such an expansion will be difficult if development performance does not improve as fast as expected. If economic stagnation continues, Nepal's economy will remain one of traditional subsistence agriculture with little increase in the dependence on commercial fuels. The first priority would then clearly be to ensure adequate supplies of energy for cooking and heating needs. Indeed, failure to do this would threaten the viability of even the traditional economy, as the remaining accessible forests will disappear during the 1990s. Planting 1.2 million ha of forests by the year 2000 would cost only one percent of GDP by 2000 and could be contained within feasible investment levels even with continued economic stagnation. The problem is not mainly the level of investment but the need for HMG/N to make a special effort to expand forestry planting and conservation programs. Since the foreign costs of forestry programs are relatively limited, the major role for donors would be to provide technical and managerial assistance to create the impetus for greatly expanded forestry programs and to overcome institutional barriers. 7.11 It is, however, difficult to ignore the urgent need to end economic stagnation and for Nepal to achieve some real improvement in the standard of living for the majority of its people. The biogas and turbine programs can play an important role in encouraging the growth of rural agro-processing and the cottage industry. Relatively few resources are required to exploit their potential, say US$6 million during 1985/86- 1989/90, and much of the costs will be borne by the private sector. Therefore, even in the face of continued economic stagnation, an acceler- ated loan program would be justified to encourage these activities. 7.12 The other critical element and one that warrants strong donor support is to expand the production of indigenous commercial energy supplies such as hydropower. The key to this would be a 25-30 year power sector investment plan based on a sequenced development of power pro- jects. This would assist HMG/N and donors in assessing individual projects on the basis of a long term strategy. Planning the sequenced development would be facilitated if donors could, as far as possible, indicate the scale of their assistance for the power sector expansion plan as a whole, rather than on a project by project basis. ANNEK I NEPAL: ENERGY BALANCE (1980/81) (in thousand TOE) Supply Fuelwood Charcoal Crop Wastes Animal Wastes Biogas Cbal Petroleum Electri. Total Production 2,722.9 0.1 28 57 0.5 56.1 1/ 2,864.6 Lrporta 50.2 111.4 3.8 165.4 Exports -0.3 -0.3 Net Supply 2,722.9 0.1 28 57 0.5 50.2 111.4 59.6 3,029.7 Transformation I/ -0.5 -2.0 -2.2 -3.7 -46.1 2/ 54.5 Net Supply 2,722.4 0.1 28 55 0.5 48 107.7 13.5 2,975.2 Demand Households 2,676.5 0.1 28 55 0.5 30.3 6.6 2,797.0 Transport 64.5 67.5 Industry/Commerce 45.9 48 8.2 6.5 105.6 Agriculture 4.7 4.7 Other 0.4 0.4 3/ Total 2,722.4 0.1 28 55 0.5 48 107.7 13.5 2,975.2 1/ Includes 50.2 thousand toe of hydropower, converted on an input basis 2900 kcal/GWh, and thermal generation of 5.9 thousand toe. 2/ Includes energy used as losses in production of charcoal, biogas and thermal electricity, and own use in power generation. Distributed as follows: generation losses: 40.1 thousand toe; transmission and distribution losses: 5.7 thousand toe and power sector own use: 0.3 thousand toe. 3/ Includes street lighting, transport and agricultural use. - 94 - ANNEX II Page 1 of 5 Analysis of Household Fuel Consumption in Urban Areas 1. The pattern of household energy consumption in urban areas is revealed by two surveys. The first was carried out in 1973-75 by Nepal Rastra Bank and the second by the Agricultural Projects Services Center in 1982. The first survey collected information on the ownership of energy consuming appliances in Kathmandu. Table 1: Survey of Energy Consuming Household Applicances in Kathmandu 1973/75 Ownership of Appliance High Income Middle Income Low Income Total in Each Group Group (10%) Group (62%) Group (28%) (100%) Kerosene Stoves 88 76 54 72 Kerosene Heaters 11 4 3 5 Electric Stoves 35 7 - 8 Electric Heaters 73 18 2 19 Electric Irons 12 10 1 9 Electric Fans 35 10 1 10 Electric Refrigerators 8 1 - - Source: Nepal Rastra Bank, Household Budget Survey, 1978. Although kerosene consumption in urban areas during the seventies has remained extremely low (currently estimated at 10,000 tonnes), the ownership of kerosene stoves is widespread. Over half of the low income households and over 70% of the middle and upper income groups own them (Table 1). This, together with the rapid growth of urban areas, suggests a substantial potential for future growth in kerosene consumption by urban households. 2. The second survey, conducted by Agricultural Projects Research Center (APROSC) and summarized in Table 2, correlates income with energy consumption. The average consumption of energy by an urban family, estimated at 833 kg of oil equivalent (KOE) a year, ranges from 466 KOE in low income families to about 1320 KOE in high income families. Electricity consumption is in the range of 23-185 KOE, averaging about 96 KOE, while kerosene consumption is in the range of 15-140 KOE. The most surprising result pertains to woodfuel. Table 2 shows that, although consumption of electricity and kerosene increases with increased incomes, so does the consumption of fuelwood. The higher income of people in urban areas provides them with better purchasing power which has resulted in a greater inflow of fuelwood from neighboring forests and led to depletion of many of these areas. Even assuming a margin for statistical error, the evidence indi- cates that there is no proportionate decrease in woodfuel consumption as incomes - 95 - ANNEX II Page 2 of 5 rise. Nevertheless, it is important to note that in spite of the very low levels of energy consumption in urban areas, woodfuel is still the dominant fuel; at the same time, kerosene and electricity are obviously taking hold among higher income groups. Table 2: Survey of Energy Consumed in Urban Areas by Income Group (1982) (KOE) Annul Family Comercial Energy Income (Rs.'000) Fuelwood Kerosene Elect. Total Total Energy Less than 5 428.4 14.7 23.5 38.2 466.6 5-10 462.4 43.0 44.1 87.1 549.5 10-15 530.4 61.5 63.2 124.7 655.1 15-20 612.0 68.4 74.5 142.9 754.9 20-25 652.8 113.3 91.6 204.9 857.7 25-30 618.8 139.6 132.8 271.6 890.4 30-35 826.2 125.6 118.4 244.0 1070.2 35-40 737.8 141.0 164.0 305.0 1042.8 40-4.5 1105.0 75.3 134.2 209.5 1314.5 Over 45 1023.4 118.3 185.3 303.6 1327.0 Average Cbnsumption Levels 649.4 87.0 96.2 183.2 832.6 Source: APROSC 3. Table 3 shows that on a per capita basis, higher income individuals consume a higher proportion of commercial energy than lower income persons, while their consumption of woodfuel does not decrease. Thus, high income families are to some extent beginning to dominate consumption levels and are instrumental in bringing about rapid growth in commercial energy consumption. Those with incomes above Rs.25,000 (35% of the population) consume 56% of all energy, 60% of kerosene and 65% of electricity. ANNEX II Page 3 of 5 Table 3: Survey of Per Capita Annual Income Levels and Energy Consumption in Urban Areas (1982) FamiTy Income % of Income Woodfuel Kerosene Electricity Total liergy Level Group Per Capita Percent of Per Capita Percent of Per Capita Percent of Per Capita Percent of (Rs. '000) Consumption Consumption Consumption Consumption Consumption Consumption Consumption Consuption (KOE) (%) (KOE) (%) (KOE) (%) (KOE) (%) Less than 5 3 97.4 11 3.3 3 5.3 4 106.0 9 5-10 13 85.6 10 8.0 7 8.2 7 101.8 9 10-15 20 78.0 9 9.0 8 9.3 8 96.3 9 15-20 17 80.5 9 9.0 8 9.8 8 99.3 9 20-25 12 81.6 9 14.2 13 11.4 9 107.2 9 25-30 7 71.9 8 16.2 15 15.3 12 103.5 9 30-35 8 93.9 10 14.3 13 13.4 11 121.6 11 35-40 5 76.1 8 14.5 13 16.9 14 107.5 10 40-45 2 131.5 15 9.0 8 16.0 13 156.5 14 Over 45 13 101.3 11 11.7 11 18.3 15 131.4 12 All Incomes (average) 84.3 12.5 108.1 Source: Mission Calculations based on APROSC Survey. ANNEX II Page 4 of 5 - 97 - 4. Calculations based on the energy survey by APROSC have confirmed that lower income groups spend a higher portion of their incomes on energy. Table 4 indicates that 65% of the population with incomes of Rs.25,000 or less spend 7- 15% of their annual income on energy, while the remaining 35% earning over Rs.25,000 spend only 5-6%. At current price levels, lower income families spend about the same as higher income families on commercial energy but this is partly due to pricing distortions. Electricity is mostly used in lighting for income groups below Rs.10,000-15,000 who fall in the smallest user category (less than 25 kWh per month); their actual use ranges from 2-22 kWh and they pay an option between Rs.0.25 and Rs.0.69 per kWh since they are charged a flat rate of Rs.6.25 per month. Households with annual income levels above Rs.20,000 are in a higher electricity use category (26 - 100 kWh) and their actual use ranges from 26 kWh to 49 kWh at prices over Rs.0.40 per kWh. As income increases, electricity demand tends to rise because in addition to lighting, electricity is used for cooking and heating, and small household appliances. As indicated in Table 1, upper income families already have many appliances; e.g., over 70% have electric heaters, and 35% have electric stoves. Table 4: Survey of General Expenditures on Energy (%) Percent of Total Energy Commercial Energy Family Income Level Population Cost as % of Cost as % of ('000) in Each Group Income Income Less than 5 3 Over 13 3 5-10 13 13 3 10-15 20 9 3 15-20 17 7 3 20-25 12 7 3 25-30 7 6 3 30-35 8 6 3 35-40 5 5 3 40-45 2 5 1 Over 45 13 Less than 5 2 Source: Energy consumption based on APROSC Survey - Energy prices based on fuel prices charged by FCN, NOC, NEC. - 98 - ANNEX II Page 5 of 5 5. The APROSC survey which covered six panchayats (4 in Kathmandu Valley and Pokhara, one in Biratnagar and one in Nepalgunj) in six major urban centers consuming 134,653 tonnes of household and industrial fuelwood, estimated an increase in household demand by the same panchayats to over 250,000 tonnes and in industrial demand from 37,000 tonnes to about 100,000 tonnes by the turn of the century. By interpolation, it can be assumed that total fuelwood demand in urban households can be expected to increase from the current level of 258,000 tonnes to about 500,000 tonnes (i.e., 170,000 TOE). The survey, which proposes to review ways to supply the six panchayats with fuelwood, recommends that four areas in the Terai be selected for establishing fuelwood plantations with fast growing species. The plan aims at using clear-felling depleted old stock for supplying needs in the first ten years, and replacing it with plantations which would yield for the following ten years, i.e. from the eleventh year onward. The total area would be 50,000 ha including 18,000 ha for Kathmandu Valley, 9,000 ha for Pokhra, 19,500 ha for Biratnagar and 3,400 ha for Nepalgunj, all at a cost of Rs.2,837 per ha ($218). - 99 9 ANNEX IlI NEPAL: Prospective Hydro Sites Average Catchment Annual Installed Annual Project Basin River Region Type Area Flow Read Capacity Fnergy Sq. R4 Cu. n/S (M) (00) (aWh) Chisapani Karnali Karnali FW S 42,890 1,335 175 4,6()0 15,225 Lskhapata (KR-3) Karnali Karnali to FW S 20,970 587 377 2,341 11,339 Bheri Lakhapata (KR-3) Karnali Karnali to FW FRR 20,970 587 224 832 4,904 Bheri Surkhet (Bheri) Karnali FW S 11,780 398 159 1,200 4,435 Seti Karnali Seti FW S 7,090 300 158 270 1,250 Karnali Bend (KR-1) Karnali Karnali FW ROR 19,260 500 148 483 2,899 Karnali Bend (KR-1) Karnali Karnali FW S 19,260 500 301 1,600 8,433 Pancheswar Mahakali iMahakali FW S 12,100 509 220 1,691 5,500 (Sarda) Kali Gandaki Gandaki Kali C FOR 7,100 310 95 60-90 385 S.hece A Gandaki Kali Gandaki I Gandaki Kali C S 9,150 410 314 1,600 6,700 Kali Gandaki II Gandaki Kali C S 11,330 500 143 300 1,240 Sapt Gandaki (Dev-Ghat) Gandaki Sapt Gandaki C ROR 30,800 1,600 39 200 1,416 Buri Gandaki Gandaki Buri Gandaki C S 5,370 218 175 320 1,353 Bagmati Bagmati Bagmati C S 2,720 177 91 295 674 Mulghat Kosi Tamir E S 5,640 324 49 68 425 Kankai Kankai Kankai E S 1,190 46 75 80 157 Sapt Kosi High Dam Kosi Sun Kosi E S 59,539 1,765 260 3,000 13,140 Sun Kosi High Dam Kosi Sun Kosi E S 16,200 639 120 360 832 Tamba Kosi Kosi Kimiti Khola E RFR 384 27 723 66 185 Dudh Kosi II Kosi Dudhi Kosi E ROR 1,900 113 308 170 327 aidh Kost III Kosi Dudh Kosi E FOR 1,900 113 160 90 174 West Rapti Rapti Rapti FW S 3,376 101 176 279 924 Mugling Gandaki Trisuli Gangs C ROR 11,600 450 83 238 510 Total Installed Capacity 20,173 1/ FW = Far Western C = Central E = Eastern 2/ S = Storage RUR = Run of River Sources: A. easter Plan of Hydroelectric Powr Developrment in Nepal by Nippon Kosi - Sept. 1974. B. G/andaki River Basin Powr Study by Snowy Mxntain Eigineering Corporation - July 1979. C. Water and Energy ConTission Nepal (Project profiles) - 100 - ANNEX IV Page 1 of 4 Origin and Extent of the Fuelwood Crisis 1. The right of villagers to use the forests for fuel, fodder and grazing used to be a long-established custom in Nepal, particularly in the Hill areas. In most cases, the use was regulated by communal rules, and in the absence of population pressure on the forests, local management was sufficient to ensure that the forest resources were self- sustaining. In the Terai, with its commercially valuable timber, the situation was somewhat different; much of the forest was owned and exploited by members of the ruling Ranas. In 1957, in an effort to maximize Government revenues from timber resources and improve forest utilization and management, forests were nationalized. Although this was a reasonable approach for dealing with the commercially exploitable timber in the Terai, the capacity of the forest administration was not adequate for it to take over the complex task of managing the Hill forests for community use. Nationalization also conflicted with the customary rights of the villagers and was strongly resisted as they considered their access and use of fuelwood had been curtailed. In many areas the communal rules governing the use of the forests were abandoned and the forests began to be treated as an exploitable resource. The Forest Department was almost powerless to stop this. Indeed, in the absence of a forest survey and the demarcation of the forest boundaries, the Government did not even know how much area was legally under its control, which provided a strong incentive for villagers to destroy the forests so that the land could be claimed as private property. Thus, as a result of nationalization, not only did the management of Hill forests almost cease but substantial forest lands were cleared and converted to agriculture to prevent the government from assuming ownership. 2. The forests were first surveyed in 1963-64 by the Forest Resources Survey Unit of the Department of Forestry with the assistance of USAID. The total area of forests according to this survey was 6.4 million ha, with 1.8 million ha in the Terai and 4.6 million ha in the Hills. The next survey was carried out in 1977-79 by the FAO/UNDP in collaboration with the Department of Soil Conservation and Watershed Management (DSCWM) based on satellite imagery maps. The survey concluded that the total forest area declined to 4.3 million ha, with 0.4 million ha in the Terai and 3.9 million ha in the Hills. The reduction of forest area in the period between 1964 and 1979 is 2.1 million ha which is nearly 33% of the original forest area. Since 1964, the area under agriculture has increased from 1.7 million ha to 3.1 million ha and apparently much of this came from forest land. 1/ 1/ Nepal Agricultural Strategy Studies, Asian Development Bank, May 1982. Statistical Pocket Book, Nepal, 1982. Central Bureau of Statistics, Kathmandu. - 101 - ANNEX IV Page 2 of 4 3. Fuelwood removal greatly exceeds the sustainable yield from the forests, and it is increasing every year, hastening the pace of denudation. Another contributing factor is the widespread practice of lopping trees for leaf fodder. The total livestock population in the country is nearly 16 million (1977-78). This far exceeds the carrying capacity of the limited land resources. Consequently, the animal feeding base has been seriously depleted and livestock productivity has declined substantially. Any solution aimed at eliminating surplus animals would be unsuccessful because in addition to religious traditions, they are veiwed as a source of food, fertilizer and energy. 4. Excessive and uncontrolled grazing is incompatible with scienti- fic forest management. It destroys regeneration and prevents successful establishment of forests. Heavy trampling by cattle compacts the soil, reducing infiltration of rainwater. The surface runoff increases and in the absence of protective vegetation there is accelerated soil erosion. The annual erosion rate is estimated to be 30 tonnes per ha in these grazing lands compared to 8 tonnes per ha for forest covered land. 1/ It is difficult to introduce any improvement in the management of the forests without a solution to the problem of fodder and grazing. The existing pressure of livestock on forest resources can only lead to further degradation. It is essential to develop separate pastures and fodder reserves to minimize the pressure on forests. Every farm should have its own fodder resources by cultivating suitable fodder grasses and trees so that each farmer may be self-sufficient, to the extent possible, with regard to his fodder requirements. Improved crop production through the use of inorganic fertilizer can help to improve fodder supplies by increasing the quantity of agricultural residues that can be used as fodder. A country-wide program of livestock improvement by cross breeding or artificial insemination backed by an efficient system of animal care is surely needed. 5. As the forests recede farther from human habitation, people have to spend more time gathering fuelwood and fodder. The time spent may be as much as 11 man-days for fuel collection and 15 man-days for fodder collection per month. 2/ The fact that almost 16% of manpower in the country is utilized in the mere task of fuelwood and fodder collection should give an indication of the enormous time and labor spent for this purpose. The scarcity of fuelwood is encouraging people to use more animal dung and agricultural residues for cooking and heating. It 1/ Phewa Tal Watershed Management Proposal. Phewa Tal Technical Report No. 5 by W. M. Fleming 1978. 2J Nepal Forestry Sector Review. Report No. 1952-NEP, The World Bank, August 1, 1978. - 102 - ANNEX IV Page 3 of 4 has been estimated that some time between 1985 and 1995, the annual burning of agricultural residues and animal manure could rise to more than 8 million tonnes, representing foregone production of over one million tonnes of food grain which is about one quarter of the current annual cereal production. There is also a loss in livestock productivity if agricultural residues are burned as fuel instead of being used as fodder. Because of deforestation and excessive grazing on the Hills and mountain, with high rainfall, there is accelerated erosion leading to silting up of rivers and flooding of the plains at the lower reaches. The infiltration of rainwater into the soil is reduced, drying up springs and lowering the water table. Productivity of agricultural lands in the Hills is declining and people from the Hills are migrating to the plains of the Terai in increasing numbers. 6. According to the 1963-64 survey, the estimated volume of growing stock in the forests was 266 million cu. m. in the Hills and 134 million cu. m. in the Terai, a total of 400 million cu. m. The annual sustained yield of fuelwood was estimated at 7.5 million cu. m. There has been no official estimate of the volume of growing stock in the forests since the 1963-64 survey. However, using projections of fuelwood and timber con- sumption, the volume of the growing stock in 1977 was estimated to be 152 million cu. m. in the Hills and 91 million cu. m. in the Terai, a total of 243 million cu. m. The decline in volume during the period is about 40%. Volume data for 1964 and 1977 are given in Table 1. 1/ Cal- culating at the same rate of decline, the current volume of growing stock is estimated at 186 million cu. m. and, assuming that the yield of fuelwood would be in the same proportion to the growing stock as in 1966, the estimated annual yield of fuelwood on a sustainable basis is 3.5 mil- lion cu. m. 1/ (i) "Degradation of Forest Resources in Nepal," by Sharma E.R. and Amataya D.B. The Nepal Journal of Forestry. Vol. 1, No. 4 1978. (ii) Solving Common Property Resource Problems: Deforestation in Nepal, by Wallace, Michael Bruce, Harvard University, Cambridge, Massachusetts, June 1981. - 103 - ANNEX IV Page 4 of 4 Table 1: Volume of Growing Stock in the Forests (Million Cubic Meters) 1964 1977 Commercial Non-commercial Total Commercial Non-commercial Total Hill 140 126 266 80 72 152 Terai 114 20 134 78 13 91 Total 254 146 400 158 85 243 7. The estimated annual consumption of fuelwood in the country is currently 10.5 cu. m. According to a recent survey in the Terai region, it is estimated that 76% of fuelwood consumed is obtained from national forests, the rest from private farm woodlots. If this is taken as the general pattern for the whole country, the annual removal of fuelwood from the forests is about 8 million cu. m. against a sustainable yield of 3.5 million cu. m., which is a clear indication of overexploitation of resources. The deficit was met by overexploiting the forest estimated to be the equivalent of clear cutting more than 0.1 million ha per annum. As demand increases and the remaining forest area decreases, over- exploitation will accelerate, and if no action is taken to reverse these trends, Nepal's forests will be largely exhausted by 2000. Most households would then be left with little alternative but to substitute dried dung. The shrinkage of the forest area would also accelerate the process of erosion and degrade not only Nepal's physical environment but also impose heavy costs on downstream areas through sedimentation and increased likelihood of flooding. - 104 - ANNEX V Page 1 of 9 Details Of Possible Forestry Projects 1. Terai Plantation Project Since the eradication of malaria in the Terai in the late fifties and early sixties, there has been an influx of people into this region from the Hills and also from across the Indian border. The settlement of people involved extensive clearance of forests, in some cases sanctioned by the government but mostly unauthorized. Terai, once a densely forested area, is now experiencing fuelwood scarcity, particularly in the eastern region. Animal dung and agri- cultural residues are being used increasingly as fuel. Terai is also a major supplier of fuelwood to Kathmandu Valley. Terai offers favorable conditions for establishing fuelwood plan- tations. The annual rainfall ranges from 2000 mm. in the east to 1000 mm. in the west. The soil is alluvial and relatively fertile. The water table is high. Moreover, large tracts of forests have been degraded due to overexploitation, which could usefully be replaced by plantations of fast growing species. Under the Sagarnath Forestry Development Project (Asian Development Bank), which has been in operation since 1977, 10,000 ha of fuelwood plantations are proposed to be established in the Janakpur division in the Central Terai. Under the recently appraised Nepal Terai Forestry Project (The World Bank), it is proposed to convert 10,300 ha of degraded forests in the Terai to plantations. The project discussed now is in addition to the two projects mentioned above. Project Location Four centers in the Central and Eastern Terai will be selected for the creation of fuelwood plantations over 14,000 ha in five years at an estimated cost of US$9 million. The centers proposed and their head- quarters are given below. The project will be implemented by the Forest Development Board. Center Headquarters Area to be Planted (ha) Nawalparasi Kawaswati 3500 Tamagadhi Tamagadhi 3500 Murtiya Sukhepokhari 3500 Morang Haraicha 3500 Organization Each center will be under the direction of a Divisional Forest Officer (Project Manager), and the entire project will be supervised by a Conservator of Forests with headquarters at Janakpur. Details of the staff and other facilities required are given in Annex Table 1. - 105 - ANNEX V Page 2 of 9 Plantation Operations Only degraded forest blocks will be selected for clearfelling and planting. For clearfelling and site preparation no heavy machinery such as bulldozers are proposed to be used, as maintenance of such machinery in 'Localities lacking even basic infrastructural facilities and where all spare parts and tools have to be imported will be extremely difficult. The species to be planted will be chiefly sissoo (Dalbergia Sissoo), teak (Tectona grandis) and Eucalyptus camaldulensis which have already proved successful in Terai. Recent trials with Ipil-ipil (Leucaena leucocephala) seem to be promising, and it maybe planted more extensively if its growth rate and wood qualities are favorable. Sissoo and ipil-ipil serve both fuelwood and fodder needs. Planting will be at 2-1/2 m x 2-1/2 m or 3 m x 2 m spacing. Sissoo and teak will be raised by stumps. In the case of eucalyptus and ipil-ipil, seedlings raised in polypots will be planted. Agro-forestry, practiced to a limited extent in the Terai, should be further extended. Under this system, where plantation areas are leased to cultivators for raising agricultural crops along with the forest plantation crop, the plantation can benefit greatly from the care and attention bestowed by the lessees. Weed growth, which is a problem in the Terai, can be better controlled. Plantation costs also can be reducecl because the maintenance operations are carried out by the lessees. The lease period may be two years. All reasonable incentives should be provided to attract lessees to take up cultivation in the plantation areas. If lessees are not available for the entire area, the Department itself may undertake cultivation of agricultural crops in the remaining area. Rotation will be every 10 years. Average annual yields anticipated are 12 cu. m./ha, totalling 168,000 cu.m. (121,740 tonnes). - 106 - ANNEX V Page 3 of 9 Table 1: Terai Plantation Project Area (ha) Plantations, Establish- Year Year Year Year Year Total ment of Plantations, Unit 1 2 3 4 5 Area NRP Cost 2000 2400 3200 3200 3200 14000 NRP '000 Site preparation, planting & weeding 2200/ha 4400 5280 7040 7040 7040 30800 2nd year maintenance 500/ha 1000 1200 1600 1600 5400 3rd year maintenance 200/ha 400 480 640 1520 Formation of 500000 2000 2000 nurseries per division (Cost of seedlings included in plantation cost) Roads - construction and maintenance 2500 2500 1500 1000 1000 8500 Fire protection 50 75 100 150 150 525 8950 8855 10240 10270 10430 48745 Staff salary and allowances 4300 4300 4300 4300 4300 21500 Buildings 12000 8500 20500 Vehicles - purchase 4000 2200 6200 Vehicles - operation and maintenance 750 1120 1120 1120 1120 5230 Equipment and furniture 1000 500 1500 Consultancy 1100 1100 1100 3300 Total Base Cost 32100 26575 16760 15690 15850 106975 Physical Contingencies (10%) 3210 2658 1676 1569 1585 10698 Total Project Cost 35310 29233 18436 17259 17435 117673 (US$8.9 8 mill) - 107 - ANNEX V Page 4 of 9 2. A Forestry Project in the Hills Extensive denudation of forests on the hills has created an acute scarcity of fuelwood and fodder. Excessive soil erosion, silting up of river beds, devastating and recurrent floods, drying up of streams and springs and a decline in the fertility of agricultural land are other consequences of deforestation. Organization There are 28 Forest Divisions on the Hills and by planting about 200 ha in each Division -- a target which is not unmanageable by any standard -- 5000 ha easily could be covered a year. Additional field staff will be necessary to attend to this work. The proposed planted area is 20,000 ha over five years, at an est-imated cost of $6.5 million. Additional staff of 25 Forest Rangers with supporting subordinate staff will be required. (Details in Annex Table 2). The staff will be attached to territorial forest divisions and the Divisional Forest Officers will supervise implementation. Planting Operations For the hills there is a wide range of species, and the choice will depend on elevation, soil, topography and the needs of the local people. Species recommended are --- alder (Alnus nepalensis), Pinus patula, lapsi (Choerospondias axillaris) plum (Prunus cerasoides), mulberry (Morus alba), lankuri (Fraxinus floribunda), silver oak (Grevellia robusta) and willow (Salix spp.) A promising species to meet the fuelwood needs on the Hills is black wattle (Acacia mearnsii) . It is a tree, native to Australia and reported to be growing well in Kathmandu Valley. It is fast growing and regenerates naturally in profusion. Once introduced, it is known to spread aggressively and can be harvested repeatedly without the need for replanting. Black wattle is recommended for mid elevations, 1200 to 1800 m, in locations where frost is not severe. Planting sites should be selected in compact blocks of not less than 20 ha., as far as possible, so that their maintenance can be easily attended to by watchers. Seedlings will be raised in polypots and planted at a spacing of 2 1/2 m X 2-1/2 m to 3-1/2 m X 3-1/2 m according to the species. Application of fertilizer is recommended at the time of planting. Possible yield/annum is 200,000 cu.m. (144,930 tonnes). - 108 - ANNEX V Page 5 of 9 Table 2: Afforestation On The Hills Details Of Project Cost Area (ha) Area-Eastablishment Year Year Year Year Year Total of Plantations Unit 1 2 3 4 5 NRP Cost 2000 3000 5000 5000 5000 20000 NRP (i) Field Costs Site preparation planting & weeding 2000/ha 4000 6000 10000 10000 10000 40000 2nd year maintenance 400/ha 800 1200 2000 2000 6000 Plantation Watchers 180/ha/yr 360 900 1800 2700 3600 9360 Cost of formation of nurseries. 2 per 10000/ range/yr. nursery 500 500 500 500 500 2500 Fire protection 40 100 200 300 400 1040 Total 4900 8300 13700 15500 16500 58900 (ii) Administrative Costs Staff salary and allowances 1680 1680 1680 1680 1680 8400 Buildings 3000 3000 1500 - - 7500 Equipment and Furniture 300 300 100 - - 700 Total Base Cost 9880 13280 16980 17180 18180 75500 Physical contingencies (10%) 988 1328 1698 1718 1818 7550 Total Pro3ect Cost 10868 14608 18678 18898 19998 83050 (US$6.34 million) Note: Cost of seedlings included in plantation cost - 1.09 - ANNEX V Page 6 of 9 3. Fuelwood Plantations on Leased Forest Lands Leasehold Forest Rules, 1977, permit leasing of forest lands to private individuals, industries and institutions for the puprpose of producing fuelwood, timber, fodder and other forest products. In the absence of rules relating to detailed terms and conditions, no such leases have been granted so far. The prevailing price of fuelwood is as high as Rs.800 per tonne in private depots in Kathmandu Valley and therefore in the vicinity of such urban and semi-urban areas where there is acute shortage of firewood, growing fuelwood plantations would be a profitable commercial venture. Lease of denuded forest lands to private individuals may be considered in such localities. Industries consuming wood may also be granted lease of forest lands. Authorities of the Nepal Agricultural Development Bank with whom this subject was discussed mentioned that the Bank would be willing to extend credit facilities for these plantations. It is proposed that initially about 5000 ha may be leased out. The investment cost is estimated at $1.5 million (Annex Table 3). The Forest Department will have to supervise the leases to ensure that terms and conditions are followed. Seedlings of suitable species will have to be supplied by the Forest Department. - 110 - ANNEX V Page 7 of 9 Table 3: Fuelwood Plantations On Leased Forest Lands Details of Project Cost Area 5000 ha Unit Cost NRP '000 F.C.% NRP Cost of establishment and maintenance of plantations (to be advanced as loan to lessees) 3,300/ha 16,500 Formation of nurseries with store building -10 50,000 500 (Note: Cost of seedlings included in the cost of plantations) 17,000 10 Staff salary and allowances 870 (for five years) Total base cost 17,870 Physical contingencies 1,787 Total Project Cost 19.657 (US$1.5 million) 4. Charcoal Production in the Terai Charcoal has a restricted use in Nepal; it is used chiefly by goldsmiths, blacksmiths, metal artisans and in laundries. The past production of charcoal by the Fuel Corporation has been about 300 to 2000 tonnes per annum, but the yearly production has now come down to 200 tonnes. The experience in the Corporation is that converting produce which can be sold as fuelwood to charcoal is not in any way advantageous. - 111 - ANNEX V Page 8 of 9 The relative fuel values and effective calorific values of fuel- wood and charcoal are given below: Fuel Fuel Packing Thermal Effective Value Efficiency Calorific Value (K.cal) % per Kg. Fuelwood 3,500 17 595 Charcoal 7,000 28 1,960 In the present method of charcoal production by the corporation, which is by open stacks, five tonnes of wood are required to produce one tonne of charcoal. Even under optimum conditions, in properly designed kilns, the ratio is 4:1. Therefore from the point of energy conser- vation, little is gained by converting fuelwood to charcoal. In Terai, large areas of degraded natural forests are proposed to be converted to fuelwood plantations: Sagarnath Forestry Development Project (ADB) - 10,000 ha. Nepal Terai Forestry Project (World Bank) (proposed) - 10,300 ha. Terai Plantation Project (Proposed in this report) - 14,000 ha Total - 34,300 When all projects go into full operation, annually 6000-7000 hectares of forests are expected to be clearfelled. After the extraction of timber and fuelwood, considerable quantities of stumps and branchwood (estimated two tonnes/hectare) are left at site and burnt. Charcoal production at a cost of $0.11 million may be introduced in the felling areas to salvage the rejected materials. The annual production of charcoal is estimated at 3000 tonnes (Annex Table 4). The present method of charcoal production is wasteful. Portable steel kilns will reduce the waste in conversion. About 30 kilns, each with a production capacity of 100 tonnes of charcoal/yr., will be required. - 112 - ANNEX V Page 9 of 9 Table 4: Charcoal Production In The Terai Kilns Unit Cost/NRP NRP '000 Cost of 30 portable steel kilns 40,000 1,200 Per member/Year NRP Salary, dearness allowance and Travelling Staff Number project allowance allowance Forest Rangers 4 12,500 7,200 80 (for 1 yr) Total Cost 1,280 Physical Contingencies 128 Total Project Cost 1,408 (US$0.11 million) Cost of Production and Selling Rate (per ton) NRP Cost of preparation of wood and conversion to charcoal 500 Cost of transport to Kathmandu 300 Depot handling and overhead charges 80 880 Selling rate at Kathmandu 1200 Estimated annual production (tons) 3000 - 113 - ANNEX VI-A Land Suvey (Period of the Project - 2 years) Per member/Year NTRP Staff Number Salary dearness Travel allowance and allowance project allowance Divisional Forest Officers 4 19,100 12,000 Forest Rangers 16 12,500 7,200 Assistant Rangers 32 10,300 6,000 Clerical N.G.Class I 4 9,000 1,200 Clerical N.G.Class II 4 6,800 1,200 Drivers 4 7,500 6,000 NRP '000 Staff salary and allowances (2 years) 1,460 Rent for office buildings (2 years) 100 Purchase of jeeps (4) 680 Operation and maintenance of jeeps (2 years) 200 Equipment, furniture etc. 100 Total Cost Physical contingencies (10Z) 254 Total Project Cost (US$0.21 million) - 114 - ANNEX VI-B Technical Assistance Project For Disseminating Improved Cooking Stoves In The Kathmandu Valley 1/ The target of 100,000 stoves over a five-year period, even with careful planning and vigorous implementation efforts, is not unrealis- tic. This goal would have to be based on the mass manufacture of improved stoves at a central point (or a few central points) rather than owner built. A central manufacturer would allow a high production rate, close quality control and reduced unit cost. The finished stoves in "knocked-down" form would be transported to storage centers, possibly field offices of the Department of Forests, for pick-up by the prospective users. Two-man installation teams (paid on a per-piece basis) would then visit the homes to install the improved stoves and give instructions to the users. Without further going into implementation details, it is clear at this point that the critical tasks would be stove production and distribution. To achieve an average production rate of about 80 stoves a day, a large kiln or two may have to be built to permit mass firing. The whole operation may also have to be done under weather-protecting sheds to allow work to continue even during the rainy season. A sufficient number of installers will have to be trained formally (perhaps under the auspices of RECAST) since they will not only be stove assemblers but in effect extension workers. The actual dissemination rate would probably start at a lot less than 20,000 stoves a year, gradually building up until a total of 100,000 is disseminated after five years. A vigorous information and promotion drive in the initial stages of the project would be a key ingredient in ensuring positive public response. While the Kathmandu Valley dissemination project is underway, work should continue on developing better stoves and defining user needs and characteristics in other regions. Since the life of the clay stove is only 2-5 years, investment in disseminating the present models is not Iwasted" even if a better stove is eventually developed. The later model could be used at replacement time. The estimated cost of the initial project is $2-2.5 million, or about $400,000-500,000 per year (Annex Table 1). The estimated fuelwood savings, on the other hand, are great (see text paras 3.14). The expected social and ecological benefits may justify charging households only a very nominal amount (e.g., the installation cost of Rs.10-15) during this initial project. Any other scheme involving a significant cash outlay from them would probably not be very attractive. 1/ Once this intensive program is implemented and suitable stoves are designed for other areas with good logistics, the program can be expanded. - 115 -- ANNEX VI-C Esti-mated Cost Of Community-Scale Biogs Monitoring Project A. Equipment (Rs.495,000) Up to four (4) CSB plants, 9500-1500 cf/d size, plus monitoring equipment and 15% contingency; B. Personnel I - Project Leader (part time) Rs,36,000 X 2 yrs. 72 000 2 - Research AssistanLt 'full time) Rs.36,000 X 2 X 2 yrs. 144,000 Consultants, 3 man-months at Rs.79,200/m-m 235,800 local Personnel Travel Rs.10,000/yr. 20,000 Total Rs. 966,800 US$ $-I5,000 ANNEX VI-D Training Deputation of 40 candidates overseas for graduate courses in forestry 3 year's course @ US$10,000 per Candidate/yr. Total Cost -- US$1.2 million - 116- ANNEX VI-E Strengthening Of Recast Capabilities: Estimated Costs Expert Assistance ($50,000) 1. 3 man-months to assist in detailed definition of facilities and training needs, and to help develop medium-to-long-term research and development program for RECAST. Staff Training ($100,000) 2. (i) Academic (Masters or Ph.D.) program for 3 selected staff, 2-3 years, possibly in institutions in the region (e.g., India, Thailand, Philippines). Fields would be energy planning and renewables; (ii) Short-term training (3-6 months each) for 6-8 RECAST staff, in relevant institutions in the region, possibly in stoves technology, biogas, micro-hydro, dissemination/promotion methods, etc. Equipment ($100,000) 3. Equipment to set up a workable solar test facility for research and to serve private sector needs, a stoves development laboratory and a modest data processing facility. Also, selected equipment to add to present fabrication capability and to fill training/promotional needs (portable audio visual systems, photo lab, art/drafting equipment, etc.). NOTE: Government counterpart would be required for local expenditures, specifically additional yearly allocations to RECAST to enable it to recruit new staff and to upgrade salaries of key staff. - 117 - 1 . ANNEX VII NEPAL: Mini Hydro Projects A. Completed GWh Name of Regton and TnstalLed Year of Operated Generated Project District Capacity (Kw) Commissioning By in 1980/81 DUhankuta E/Dhankuta 2x120 1972 NEC 0.491 Surkhet M&F.W/Surkhet 3x115 1978 ED 0.336 Khairenitar W/Kaski 2x140 1972 Agr. Dept. No metering Gajouri C/Dhading 1.25 198I NEC No metering Baglung W/Baglung Ix175 1982 SHDB 0.n28 Doti F.W/Doti 2x120 1982 Sf1DB n.037 Phydia E/Panchathar 2x130 1982 SHDRB .n43 Dhadiung C/Dhading Ix30 1982 ED 0.019 Total 1,595 B. Under Construction Year of Start & Total Fsti- Name of Region and Installed Proposed Year of Financed -1 nmated Cost Project District Capacity (Kw) Commissioning By (NRs millionl Namche E/Solukhumbu 6xl30 1977-85 Austrian 44.3 Govt .6&HMG Jomsom W/Mustang 2x130 1977-83 OPEC/HMG t3.3 Salleri/Cllialsa E/Solokhumbu 2x47 1977-83 SATA/HMG 4.5 Jumla M&F.W/Jumla 2x130 1971-83 OPEC/IHMG 14.4 Tapetjung E/Tapeljung Ix125 1979-84 UNC1)FiH/fG 5.34 Khandbari E/Sankhuwrsabha 2x125 1979-84 UtNCDP/IUIG 6.71 Ukhaldhunga E/Okhaldhunga 1x120 1979-84 UNCGDF/RMG 5.94 Ramechap E/Ramechap 1x75 1979-84 UNCDF/HMG 5.1 Bhojpur E/Bhojpur 2x125 1979-84 UNCDF/HMG 8.8 llam E/ilam 3x15O Uncertain ADR, OPEC. 14.17 1JND P/ HMG Tehrathum E/Therathum 2xlOO 1981-84 6.1 Dunche C/Rasuwa 2xl(10 1981-84 7.63 Tatopani W/Mustang 2x500 1981-84 36.90 serpudah F.W/Rokum 2xl00 1981-84 9.62 Chaurjari F.W/Rokum 2xl00 1981-84 9.15 Bajura F.W/Bajura 2x100 1981-84 6.37 Bajhang F.W/Bajhang 2xl00 1981-84 7 .74 Gorkhe E/ilam 2x32 Oct.1982 HMG 2.23 Helambu C/Sindu Palchok lxSO 1975-85 2.25 Manang W/Manang 4x40 1977-84 5.40 Dadeldhura F.W/Dadeldhura lx100 1981-84 3.5 Syangja W/Syangja 2x40 1977-84 2.86 Darchula F.W/Darchula lxl00 1978-83 3.54 Andhikhola W/Gulmi 2x250 1982-86 VMN/HiMG 50.no Total 5,489 C. Under Investigation Name of Region and Possible Project District Potential (Kw) Gai Ghat E/l3daypur I0 Dunale W/Dolpa 130 Khalanga M.W/Piuthan 33 Khalanga M.W/Sallyan 150 Ghatnpur F.W/Bajhang 200 Bandipur W/Tanahu 163 Ridi Bazar W/Gulmi 180 Jiri C/Dolakha 120 Phalebar W/Parbat 80 Chiangthapu E/Panchathar 50 Sindhuliman C/Sindhuli 120 Gorkha Bazar W/Gorkha 90 Best Sahar C/Lamung 100 Detgown tar W/Nawal Paresi 40 Chutra Besi W/Argha Khanchi 50 Liwang M.W/Rolpa 100 Total 1,786 1/ SATA: Swiss Association of Technical Assistance UNCDF: United Nations Capital Development Funds UMN: United Mission to Nepal ANNEX VIII Page I of 6 Table 1: Energy Costs 1/ Cost of Firm Energy after Cost Using Firm Energy Only Sale of Secondary Energy Discounted Present Worth Cost of PW of Selling Revised Cost Firm Energy of Project Firm Energy Secondary of Firm Energy (GWh) ($ million) (cts/kWh) ($ million) (cts/kWh) I. Run-of-River Plant (SG) A. For Domestic Market Only 2/ (i) 200 MW 2,389 311.3 13.0 - - (ii) 300 MW 2,389 354.8 14.9 - - B. With Exports 3/ (i) 200 MW 3,617 357.3 9.9 81.3 7.6 (ii) 300 MW 3,617 392.9 10.9 130.5 7.3 II. Storage Plant (BG) 3/ 400 MW 9,281 634.4 6.9 - - III. Run-of-River Plant (SG) 3/ Treating Storage as Sunk Cost (i) 200 MW 5,199 311.3 6.0 54.7 4.9 X (ii) 300 MW 5,199 354.8 6.8 110.7 4.7 IV. Storage and Run-of-River 3/ (i) SG 200 + BG 400 14,480 955.2 6.6 54.7 6.2 (ii) SG 300 + BG 400 14,480 998.2 6.9 110.7 6.1 V. Thermal Back up to Firm Up All Energy 3/ (i) SG 200 + BG 400 16,656 955.2 5.7 - - (ii) SG 300 + BG 400 18,906 998.2 5.3 - - 1/ Present worth calculated using 12% discount rate. 2/ Domestic demand only builds up to use all firm energy after 7 years. 3/ All firm energy used immediately (domestic and export). Source: Bank Staff calculation based on data in WEC's "Generation Expansion" and Project Profile Documents. ANNEX VIII Page 2 of 6 Table 2: Effect of Burhi Gandaki on Energy Produced at Sapt Gandaki Jan. Feb. MIarch April May June July Aug6 Sept. Oct. Nov. Dec. I. Water Flows (cu. m/s) A. Unregulated flow at BG 44 35 38 66 88 246 473 488 339 171 94 57 Regulated flow at BG 1/ 162 162 162 162 162 162 162 162 162 162 162 162 Additional Water available at SG 118 127 124 96 74 -84 -311 -326 -177 - 9 68 105 B. Unregulated flow at SG 387 294 275 363 621 1,683 3,979 5,389 3,289 1,733 833 496 Regulated flow at SG 505 421 399 459 695 1,599 3,668 5,063 3,112 1,724 901 601 II. Energy Potential A. Total capacity at SG Site (MW) 2/ (i) Unregulated 126 96 89 118 202 547 1,294 1,753 1,070 564 271 161 (ii) Regulated 164 137 130 149 226 520 1,193 1,646 1,012 561 293 195 B. SG Power (GWh) 3/ (i) Unregulated 200 MW plant 94 64 67 85 149 144 149 149 144 149 144 120 (ii) Unregulated 300 MW plant 94 64 67 85 150 216 223 223 216 223 195 120 (iii) Regulated 200 MW plant 122 92 97 107 149 144 149 149 144 149 144 120 (iv) Regulated 300 MW plant 122 92 97 107 168 216 223 223 216 223 212 145 1/ Corresponds to regulated flow for 225 MW firm (400 MW with 56% load factor), generating 1,971 GWh per year. 2/ Flow x head (39 meters) x 9.81 x 0.85. 3/ Capacity x 24 x no. of deys in month. ANNEX VIII Page 3 of 6 Table 3: Energy Summary Energy (GWh/year) Value of Secondary Energy 1/ Firm Secondary Total Annual PW I. SG Unregulated Flow 200 MW 768 690 1,458 17.3 81.5 300 MW 768 1,108 1,876 21.7 130.5 II. SC + BG Regulated Flow 200 + 400 MW 3,075 2/ 462 3,537 11.6 54.7 300 + 400 MW 3,075 940 4,015 23.5 110.7 1/ 2.5 cts. per kWh. 2/ BC is 1,971 GWh (all firm), SG firm is 1,104 GWh. CD3 I ANNEX VIII Page 4 of 6 Table 4. Calculation of Present Worth Expenditures and Dtscounted Firm Energy I. Sapt Gandaki - 200 MW Domestic Use Only Cost Cost estimate of Nippon Koei Revised estimate at Middle early 1981 level 1983 level (US$ million) (US$ million) Foreign = 235.5 289.6 (9, 8.5 and 8% annual escalation factor) Local = 47.3 59.6 (9, 9 and 12% annual escalation factor) Transmission = 10.0 Total = 282.8 359.2 Disbursement Profile Years 1 2 3 4 5 % 10 20 30 30 10 Million $ 35.9 71.8 107.7 107.7 35.9 P. W. at 12% discount 35.9 64.1 85.8 76.6 22.8 = US$ 285.2 million 0 & M p.a. 1.5% of 349.2 and 3% of $10.0 million = US$ 5.5 million P.W. of O & M from year 6 to year 55 = 5.5 x 8.3 x .567 = 26.1$ million Total cost = 285.2 + 26.1 =311.3$ million Cummulative energy used = 80 175 281 394 526 676 768 up to 50 years Discounting factor = .566 .452 .403 .360 .321 .287 .256 .229 Discounted energy = 2,389 GWh Cost per kWh = 311.3 x 100 = 13.0 cents 2,389 ANNEX VIII Page 5 of 6 II. Sapt Gandaki - 200 MW, including export Energy Years 1 2 3 4 5 6 upto 55 years. Output - - - - - 768 upto 50 years Benefits Years 4 5 6 7 8 9 10 11 12 upto 55 years PW of energy = 3,617 GWh Cost per kWh = 357.3 x 100 = 9.9 cents 3,617 Assume sale of secondary energy to India at assumed rate of 2.5 cents/kWh: Secondary energy = 1,458 - 768 690 GWh Benefit of secondary energy per year = 690 x $2.5 million 100 = $17.25 million (6 year to 55 year) PW of this benefit = 17.25 x 8.30 x 0.567 = $81.3 million Revised cost = 357.3 - 81.3 = 276.0 Cost/kWh 276.0 x 100 = 7.6 cents 3,617 III. Calculations for other cases are based on sending up previous estimates. ANNEX VIII Page 6 of 6 Table 5: Expenditure Summary (US$ million, 1983 prices) Investment Present lWorth Capital Transmission, Etc. Total Annual OM Costs Capital OM Total A. SG 200, for Domestic Only 349.2 10.0 359.2 0.015 x 349.2 + 0.03 x 10.0 = 5.5 285.2 26.1 311.3 B. SG 300, for Domestic Only 399.2 10.0 409.2 0.015 x 399.2 + 0.03 x 10.0 = 6.3 324.9 29.9 354.8 C. SG 200, including export 349.2 50.8 410.0 0.015 x 349.2 + 0.03 x 50.8 = 6.7 325.5 31.8 357.3 D. SG 300, including export 399.2 50.8 450.0 0.015 x 399.2 + 0.03 x 50.8 = 7.5 357.3 35.6 392.9 E. BG 400, including export 689.0 50.8 739M8 0=015 x 689.0 + 0.03 x 50.8 = 11.8 587.4 56.0 643.3 F. SG 200 + BG 400 1,038.2 60.8 1,099.0 0.015 x 1,038.2 + 0.03 x 60.8 = 17.4 872.6 82.6 955.2 G. SG 300 + BG 400 1,088.2 60.8 1,149.0 0.015 x 1,088.2 + 0.03 x 60.8 = 18.1 912.3 85.9 998.2 - 124 - ANNEX IX Energy Demand and Supply ('000 TOE) Accelerated Program Business as Usual Fuelwood Coal/Petr. Electri- Total Fuelwood Coal/Petr. Elec- Total and Other city and Other tricity Biomass Biomass 1989/90 Demand 3,479 319 48 3,846 3,475 235 40 3,750 Savings due to ISP 64 - - 64 26 - - 26 Net Demand 3,415 319 48 3,782 3,449 235 40 3,724 Supply _11 103 1,838 1,671 10 40 1,721 Forests (Planned) 918 - - 918 856 - _ 856 Private 1/ 804 - - 804 813 - - 813 Biogas (2) 2/ (2) - 4 (2) (2) - 4 Turbines - (9) 3/ 2 11 - (8) 1 9 Liydro - - 101 101 - - 39 39 Surplus/Deficit -1,691 -308 55 -1,944 -1,778 -225 - -2,003 1999/00 Demand 4,270 647 183 5,100 4,358 352 81 4,791 Savings due to ISP 322 - - 322 106 - - 106 Net Demand 3,948 647 183 4,778 4,252 352 81 4,685 Supply 3,174 35 384 3,593 2,101 22 81 2,204 Forests (Planned) 2,244 - - 2,224 1,096 - - 1,096 Private 1/ 924 - - 924 1,001 - - 1,001 Biogas (6) (7) - 13 (4) (4) - 8 Turbines - (28) 6 34 - (18) 4 22 Hydro - - 378 378 - - 77 77 Surplus/Deficit - 774 -612 201 -1,185 -2,151 330 - -2,481 2009/10 Demuand 5,080 1,299 504 6,883 5,319 522 188 6,029 Savings due to ISP 965 - - 965 243 - - 243 Net Demand 4,115 1,299 504 5,918 5,076 522 188 5,786 Supply 4,115 83 911 5,109 2,694 30 188 2,912 Forests (Planned) 3,133 - - 3,133 1,484 - - 1,484 Private 1/ 964 964 1,202 - - 1,202 Biogas 18 19 - 37 (8) (9) - 17 Turbines - (64) 14 78 - (21) 4 25 Hlydro - - 897 897 - - 184 184 Surplus/Deficit - -1,216 407 809 -2,382 -492 - 2,874 1/ Fuelwood from non-forest sources. 2/ Fuelwood savings from biogas. 3/ Kerosene savings from using 1/3 of turbine output for lighting. - 125 - ANNEX X Page 1 of 4 Donor Activities in the Energy Sector Extent of Overall External Assistance 1/ 1. Nepal has consistently received substantial technical and financial assistance from various external sources. India, China, the United Kingdom and the United States have been the largest bilateral sources, followed by the Federal Republic of Germany, Japan, Switzerland, Canada, Kuwait and others. Multilateral sources have been mainly the ADB, The World Bank, the UN Group and the OPEC Fund. During the Fifth Plan (1975/76 - 1979/80) external assistance constituted on average 46% of total development expenditure, increasing from 40% in 1975/76 to 57% in 1979/80. In 1980/81, the first year of the Sixth Five Year Plan, the ratio was 56%. In absolute terms Rs.1,562 million ($120 m) of foreign assistance was spent in 1980/81 which represents an increase of 16.5% over 1979/80. During the Sixth Plan period, external assistance is expected to meet between 50 - 60% of the development expenditure. 2. The traditional predominance of grants as opposed to loans is slowly declining. During the Fifth Plan period loans accounted for about 40% of external assistance. But the percentage has increased each year. In 1980/81 it reached 44% as compared to 30% in 1975/76. The reason for this is the increasing loans from multilateral sources, particularly IDA and the Asian Development Bank. But this borrowing has been on very concessional terms; Nepal's debt service liability was only two percent of total export earnings in 1980/81. In relation to conver- tible export earnings it was 5.0%. 3. In 1981, $294 million of external assistance was committed, of which 41% represented technical assistance. Natural Resources received the largest share of total external assistance (32%) followed by Agriculture, Forestry and Fisheries (25%) and Transport and Communication (14%). The shares of other sectors are relatively small. Agriculture, Forestry and Fisheries received the highest share of technical assistance (34%) followed by Natural Resources (30%). The largest recipient of capital assistance was Natural Resources (33%), followed by Transport and Communication (22%), and Agriculture, Forestry and Fisheries (19%). This is similar to the sectoral distribution in previous years. 1/ Information in this Annex is based, in part, on the UNDP's "Resident Representative's Annual Report on Development Cooperation to Nepal, 1981", dated July 1982. - 126 - ANNEX X Page 2 of 4 4. In 1981, half of external assistance commitments were from bilateral sources and half from the UN System -- mainly the UNDP, the World Bank and Asian Development Bank. Donor Activity in the Energy Sector 5. It is rather difficult to point out with accuracy every donor activity in the energy sector because of the nature of the sector and its linkages with every other activity in the economy. In Nepal, this is especially so due to the predominance of fuelwood in energy consumption and the related effects of environmental degradation so that almost every project has some linkage to energy. For example, UNICEF is active in the research and dissemination of improved cooking stoves because of their beneficial effects on the health of women, and in turn on the family and child. Another example would be the complex activities included in watershed management and landslides and soil stabilization schemes, from tree planting, to fodder production, water management, etc. The following is a compilation of only the major donor activities in each of the subsectors. Forestry Development 6. Table 1 gives a detailed list and description of major ongoing projects involving forestry development. Table 1: Sixth Plan - Major Afforestation Programs 1/ (1980/81 - 1985/86) Main National Panchayat Panchayat Farm Name of Project Aid Agency Forest Protected Forest Forest 2/ Total (targets to be achieved in ha and others) CcmTnity Forestry IDA - 39,100 11,750 811 51,661 Departmental Afforestation Self-Financed 3,000 - - 1,350 4,350 Karnali Bheri 3/ CIDA 783 - - - 783 Rapti 3/ USAID 590 690 915 346 2,541 Resource Conservation and Utilization 3/ USAID 2,130 751 - 445 3,326 Tinau Watershed 3/ German Swiss 55 12 75 - 142 Rasuwa Nuwakot 3 IDA 1,000 - - - 1,000 Ciautara Forest Development Australia 1,000 450 1,600 180 3,230 Sagarnath Project ADB 3,700 - - - 3,700 Koshi Hill Project ODA - 110 510 68 694 Second Forestry Project IDA 5,900 - 2,000 4,750 12 650 (under preparation) Total 18,158 41,113 16,856 7,950 84,077 1/ This does not include tree plantations to be carried out by the Departmeint of Soil and Water Conservation (DSWC) of 1,595 ha during the sane period. 2/ Based on targeted seedling distribution to the farmers and a planting density of 3 x 3 m. Also includes strip plantations and demonstration woodlots. 3/ Integrated Rural Development Projects. Source: ADB's "Nepal Agriculture Sector Strategy Study," December 1982. 127 - ARM X Page 3 of 4 The Power Sector 7. A critically important project in the power sub-sector and overall energy sector has been the 1978 CIDA-financed Energy Resources Development Project which has advisory and operational assistance provided both to the Electricity Department and Water and Energy Commission. With extension of the project (to 1984), it is hoped that WEC would function as an independent overall energy planning organization and integrate overall energy programs with planning for future water development. 8. Other current projects in the power sub-sector are summarized in Table 2 below: Table 2: Ongoing Donor Supported Power Projects Proj ect Donor Duration 1. Marsyangdi IDA 1983 - Hydroelectric Power Plan (78 MW) KFW Under Preparation 2. Karnali Preparation - TA IDA 1983 - Project (Technical Feasibility and Engineering) Under Preparation 3. TA to Electricity Dept. UNDP 1980 - 1985 4. Training of Nepalese Engineers for Hydropower Projects I & II UNDP 1980 - 1983 1981 - 1986 5. TA to Small Hydel Development Board UNDP 1981 - 1985 6. Mini Hydro-power Project ADB 1981 - 1985 7. Fourth Power Project (Transmission & Sub-stations) ADB 1981 - 1986 8. Pokhra Water Conservation and Irrigation Project China 1981 - 1985 9. Devighat Hydro-electric Project (14 MW) India 1978 - 1984 10. Kathmandu Valley Distribution Network Project JICA 1979 - - 128 - ANNEX X Page 4 of 4 Renewables 9. Activities in the USAID's Resource Conservation and Utilization Project include the distribution and installation, as seen suitable, of improved stoves, solar water heaters, crop dryers and biogas plants in the covered districts. The establishment of biogas digesters, an activity which supports both agricultural and energy development, is a major component of the ADB Fourth Agricultural Credit and of UNICEF's efforts through the ADB/N's Small Farmer Development Program to promote the use of selected appropriate technologies (biogas, improved cooking stoves, small watermills) in rural households. Mini and micro development projects receive assistance from a number of sources, most notably the ADB, UN and SATA. Regional and integrated rural development projects which receive assistance from the United Kingdom, Canada, Switerland, ADB, UNDP and USAID could serve as vehicles for energy activities in the appropriate technology category. However, only the Rapti Zone project presently has such a component, under which some 75 gobar gas plants, 15 water mills, 30 water turbines and 25 improved stoves would be disseminated. 10. Human resources development activites are invariably a component of foreign assisted projects in all the categories. Some of these activities directly impinge on the energy sector in terms of developing manpower and institutional capabilities for planning and implementing energy projects. Among these are: technical education (hydropower, etc.) programs for Nepalese engineers and technicians at universities in the region supported by SATA, UK, ADB, IBRD and others; Indian assistance for the development of the Institute of Forestry at Hetauda; World Bank and ADB assistance to upgrade technical education in the Tribhuvan university through staff development programs. 11. Finally, entrepreneurial activities in the private sector have also benefitted from foreign assistance. The BYS expertise which today fabricates and installs water turbines and solar water heaters, is largely a product of SATA technical and financial assistance over a long period. The Gobar Gas. Co. (GGKYV) owes a lot to USAID funded biogas work by the Division of Consulting Services of the Butwal Technical Institute, and to the continuing support of the United Missions to Nepal which administers funds donated by 33 churches from 26 countries. Hydrocarbons 12. Petroleum exploration is being undertaken with assistance from IDA. Drilling for marsh gas in the Kathmandu Valley is being carried with JICA assistance. -- 129 - Annex XI Proposed Power Sector Studies Institutional Approximate Cost' (millions) Strengthen ED Investigations Unit $ 2.0 (incl. Geophysical, Seismic & Lab. Facilities) Feasibility Studies 4 to 5 Sites as selected by WECS $20.0 screening process ($4.0 each) Basin Studies Kosi underway - Jica - - Kankai completed - Salzgitter - Gandak completed - Snowy Mtn - - Bagmati completed - Lehmeyer - Karnali (Lower) part of Karnali Study - Upper Karnali $ 3.0 - W. Rapti possible funding by CIDA $ 5.0 Annex XII Page 1 of 2 Table 1 Nepal: Projected Electricity Generation, Sales and Exports 1989/90 - 2009/10, Accelerated Energy Program 1/ Proposed Net Installed Available Available Projected Net Avail- Supply from Sales in Surplus Capacity 2/ Capacity 3/ Energy 4/ Losses 5/ able for Sale Micro-Turbines 6/ Nepal 7/ Exports (MW) (MW) (GWh) (GWh) (-) (GWh) (=) (GWh) (+) (GWh) T-) (GWh) C=) 1989/90 260 230 1410 235 1,175 22 558 639 1990/91 260 230 1410 235 1175 25 638 562 1991/92 560 500 3066 511 2555 28 729 1854 1992/93 560 500 3066 511 2555 31 834 1752 1993/94 560 500 3066 511 2555 35 953 1637 1994/95 560 500 3066 511 2555 40 1090 1505 1995/96 560 500 3066 511 2555 44 1246 1353 1996/97 960 860 5274 879 4395 49 1424 3020 1997/98 960 860 5274 879 4395 55 1628 2822 1998/99 960 860 5274 879 4395 62 1861 2596 1999/00 960 860 5274 879 4395 69 2128 2336 2000/01 1360 1230 7542 1257 6285 75 2355 4005 2001/02 1360 1230 7542 1257 6285 81 2606 3760 2002/03 1360 1230 7542 1257 6285 88 2884 3489 2003/04 1360 1230 7542 1257 6285 96 3191 3190 2004/05 1760 1590 9750 1625 8125 104 3531 4698 2005/06 1760 1590 9750 1625 8125 113 4324 4330 2006/07 1760 1590 9750 1625 8125 122 4324 3923 2007/08 1760 1590 9750 1625 8125 133 4785 3473 2008/09 2260 2040 12509 2085 10424 144 5295 5272 2009/10 2260 2040 12509 2085 10424 156 5860 4720 1/ HMG/N has prepared Detailed Generation and Load Forecast for 1980/81-1989/99. The most recent forecast of growth of Nepalese sales of electricity is for 15.3% average annual growth during 1980/81-1989/90. 2/ 300 MW Sapt Gandaki in operation by 1991, 400 MW Burhi Gandaki by 1996, and additional 400 MW plants by 2000 and 2004 and a 500 MW plant by 2008. 3/ About 10% of installed capacity is treated as reserve capacity. 4/ Utilization factor of 0.7 is assumed for system that exports energy to India; System with Nepalese sales only has lower utilization factor of 0.45. 5/ Projected losses are 20% of net available energy. 6/ Two-thirds of power shown in Table 4.4 since one-third is used for lighting purposes in rural areas and was not included in power sales projection. 7/ Sales in Nepal are assumed to grow by 15% annually between 1980/81 - 1989/90, 14% between 1989/90 - 1999/00 and 11% between 1999/00 -. 2009/10 (Sales in Nepal taken to be 157 GWh in 1980/81). See Table 2.8 ANNEX XII Page 2 of 2 Table 2 Nepal: Projected Generating Expansion Program for Moderate Energy Program 1989/90 1999/00 2009/10 GWh MW GWh MW GWh MW Projected Sales in Nepal a/ 465 942 2188 Projected Losses b/ 140 283 656 Required Generation c/ 605 153 1225 310 2844 722 Required Reserve Capacity dI 17 36 83 £ Total Capacity Requirement 170 346 805 a/ Sales in Nepal assumed to grow by 13% annually between 1980/81-1989/90, 7% between 1989/90-1999/00 and 9% between 1999/00 and 2009/10 (see Table 2.8). b/ Losses assumed to remain at 30% of Sales. c/ Utilization factor of 0.45 for system with sales to Nepal only. d/ Reserve capacity approximately 10% of total capacity. Figure 1: ORGANiZATION OF THE ENERGY SECTOR IN NEPAL National Planning Mnit Of Commisslon inance |Ministry of |Ministryd of Ministry of| Mlshd ater Ministry of Food & Industry 8 Law & Resources Iosr Agriculture Commrerce Justice EnergV I I i Commission II 9slall Hydel~~~~~~~ I to Nepa Electdclty~~~~~~~~~~~~~ Arcutua El_ctrcDpment DevelopmeNepal Oil Boaird Vadous Hydro _ Developrnentl Boards ed Bank-24546 Figure 2: ORGANIZATION OF THE WATER AND ENERGY COMMISION SECRETARIAT (WECS)' Water & Energy Commission Member/Secretary Executive Secretary D I R E C T O R A T E S Ii If Water Laws & I I Institutional !' I [ VVOTer l1esources Internctiona 3 Energy I & Manpjaoer Economic Policy & I information & PionninQ Arrangernents Planning Standards . ,___ . ____.___ __ _ _ _ __ - - '- - - - - ---- j S w "Analyses all aspects "Analyses national & "Analyses demand & "Analyses institutional "Analyses aconomic., "Collects energy-related of water resotirce de- internatioiesl cater supply sor trcditonal & & rnanpower needs for impact of onergy-related Information & sets standa,ds veloprnent includine laws & reviews case commerciol tnrrgins- & water & energy^' oroiects & policies" car different types of Irrigation & formulates histories of water carrles out energy studies" long-term plans" agreements" assessments" ] 'Member Secretary is the Secretary of the MWR. Other positions on the Commission are held by Secretaries of the Ministries of Food & Agriculture, Forestry. Industry, Commerce, Law & Justice & the Ministry of Finance. Word Bank-24547 I __ _ _ _ __ { ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(RD 168 &70 97 82 84' Jk- N ANUARY 1983 ISSUES AND OPTIONS IN THE ENERGY SECTOR |r- Sf}) t > PRnPOS[ OR POWER DEVELOPMENT UNDER CONSTRECTIO NVESTICATION EXISTING, -30, M < ( PE-PQ5[5 /E SER Lorge Hydra Plants , _ _- A D,esel Power Stations I / ,,'rs.,, S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Power Trans,fer Points aed Isniated Plants . A - S -4ydAhC C < /~', ro/o ;-I 132 kv Transmission Lines KnAR N A L-l / - 66 k Transmission L-nes PA//PA K R A t 33 kr TRansm--ission tn-es := _t CX\--j-~~~~UA J- 'S I/P 3,,S E Tn U,iN Energ y_Transfers Armi "A"F'DR FaerLasnn Th u?Ssl- I ird lhobouno:en6( .wn Import aAVV/Au, J~ rI A! lhA r Regional Bsid.,e o~~~~~O PAN En nda en mS.AU Rdl eeno n fdremn .eEsb rsc oAae -- - (s, s P/Ai _> _ -- onol EnnedariZs nAP/i,APrr P PPAPIU >- J 5' ,...r'-. ~~~~~~~~~~~~~~~~~~~~~~~~~International Enn-dories 5 /~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ '-sPETROLEUM PROSPECTIVE AREAS L I Tiberion Zone (Tethys Type Sediments) 30- . Fair S, SiWl wks Zone 77 Poor L] Ter.i AIlloo.,m Zone SEEPS- Folded and Metao,rophosed Himalayan Zone Gas ;r-Tllt Majo, Thrust Fovlt Zones ~/S~' Et T=2= j'~ :: t " /: < i i DJUMIA 5 : % X .Main Central Throst i ium-t~~~~~~~~~~~~~ 0 Coal Deposits )W. -., * teS ® L, Notional Capitol ~~- F t~~~v~~ff Therma O~~~~~~55ifl95 a ~~~~ Selected Yawns 71) ~~~~~~~~~~~~~~~~~~~~Rivers A Adminitnotrtie Zonal Boundaries SI4 A/.AC/7 n Internial Bo,,ndoies -29 _ _x > £ireveml (Sogormotho) 20IrLOMETERS I - ________________bft - _ _l 11 _______- 8813~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IR 16872 ED' N, ~~~~~~~~~~~~~~~~~~~~~~~~82' 64' 8681 JANLARY 1983 K- N E PA L ISSUES AND OPTIONS IN THE ENERGY SECTOR FORESTRY (FUELWOOD) BC, J~~~~~~~~~~~~~~~~~~~~~/~~~~~~~ ~~~~~~~~ TARGET BED~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ARE E Kl~ ~ ~ ~ ~ ~~~~C~ OB CIE TNY -005E8T HULM 3 A MN10AE ILN IMPROA ED-3 q -B"W~~~~~~~~~~~~~~~~~~~~~~~~~~~(0 2 EGBB LNE M]ANAGEMNS .NN ABANEI , IDN-O A Wodo. 6000 276, 2.05 ,801)61 ,0E ....... ..... D-~~~~~~~~~~~~~~~~~~~~~~ENIlIN NletoGoINp-le Poio 1000760 N 86,10 ,) 6 13 3 '1 "~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'~P, -( A Eooleo~ ~ d. % N -1C~- ,;l) BA TADI All -..- boo 80,760MM~~~~~~AA I H Dt .... '._ -d 'KIN ,<1 K AlA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~41 . .d ,,,$vQAGEErI8E8R..~~~~~~~~~4' . 8611603 7 *0' ONION A 1090 3NIAIINII TM~~~~61W.Ih.d~- 7 .........., f7l' ONA oto P0018 &V<-< ~~~~~~~~~81 40~~~~~~Al<< / ( (~~KAElEIlANE ~~~~~~2 ~~ ~ ~ -K\~ DAILEKH B --61 K AILE AL I \ "k6680ˇrf %A K00- 80~~~~~~~~~~~~~RUK 3M AA 'I 3 /J A KH F R A "P T~~~~~~/ 87980 ~~~,, >4, ..00o-IIB-IAR3~~~ (4V 01 1 , A:OASO ',< -28, 28'~~~~-v~-n~ N, g AL;~~~~~~~~~~~~~~~~?AHEI (6AOINWAAWA bAENGDEJ I'IKHURl O HA ~ ~ ~ z 1AA ' W N U~ A" / .7tIr 9 /- 03 INTO, 01001 og Poe1 14000 '=~~~~~~~~~~~~~~~~~~~~2.1\'1$) ,,~~~~~~~) '00~~~~~ 4 5 O8AEJKUTA o 1 L643'KAANPR~~A . NE- 11NNIIO... ,-,(WN Bk I 0 0.1PA00A I I-A ( ~ I HGCNGPUP 0 LI H_ _ _ _ - - 1,0A F-I-d Pi ..... ... d F.- 01.UO1110,I,0I,FARAHb o.,1ooooloT0ooA,~~~~~~~~~~~~~~N,Ooo1o,, lT,001101001,1 N110011,100101110E,.0410011 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~ UAYPU rJ Ch.,,..[ Nd-- T-, JCQ082 84-E18-