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Economics Of Shortages Of Electricity, Gasoline, And Water

Issue 10, March 04, 2012

Siddhi B Ranjitkar

Nepal has been facing acute shortages of three main basic things such as petroleum products, electricity and water. The public utility companies such as Nepal Oil Corporation, Nepal Electricity Authority, Kathmandu Valley Drinking Water Limited have been the most inefficient companies. They have been incurring huge losses that have been piled up on the consumers ever increasing the prices of these three basic needs. Any political party coming to power uses these three public utility companies as tools for making money ignoring the shortage of petroleum products, electricity and water, and how badly the short supply of these three things has adversely affected the national economy.

Nepalis have faced the acute short supply of these three things since late Girija Prasad Koirala became the interim prime minister in 2006. Previously also, Nepalis have the short supply of electricity in the dry season but not so much as today, sometimes we faced the short supply of petroleum products, too but not in the scale of such a protracted period as of today, and of water, too but not like today. Today, we have once a week water supply for two hours, electricity for eight hours including the undeclared power outage a day, and perpetual short supply of petroleum products.

Majority of time Girija Prasad Koirala and his disciple Sher Bahadur Deuba had been the prime minister since 1990 after the people’s movement that uprooted the non-party Panchayat system imposed by the despotic Shah ruler in 1962. Since then these Nepali Congress leaders such as Girija and Deuba did not build a single hydropower stations but issued a number of licenses to the private companies for surveying, doing feasibility studies and then building hydropower plants but none of the license holders of large hydropower plants had hardly done anything. Even one of the foreign companies had failed to build a hydropower station even though it had highly publicized to build a large hydropower station and then even sell electricity to India.

Why none of the large hydropower plants was built. Girija Prasad Koirala and his disciple Sher Bahadur Deuba were driven by the notion of the market economy, and they were for privatizing the state-run factories and other companies. The administration was not only for not building any commercial enterprise but also was for selling the state-owned companies and even destroying them for the sake of the market economy. In fact in 1990s, the Girija administration had sold quite a number of state-owned factories to the private companies and destroyed the Kathmandu-Bhaktapur trolley bus line built by the Chinese assistance, and the Sajha bus service company to make room for the private companies particularly the one his family favored to run bus services. The Girija administration had issued the licenses for surveying, doing feasibility surveys and finally building hydropower stations to the private companies that had anticipated to make money selling these licenses to other companies but they could not materialized it. Genuine companies that wanted to build hydropower stations could not have licenses because the concerned departmental minister asked huge commissions for issuing licenses. The result was no large hydropower stations were built during the last twenty years.

Nepal Electricity Authority (NEA) is the state-run public utility company that manages the generation and distribution of power supply in the country. It has its own power plants but it also buys power from the private power generators. Every year demand for power goes up but NEA has not added up the power to its existing system. Naturally, NEA resorts to cutting power in some areas while providing power in other areas. This is called load shedding in Nepal. NEA could have built a number of power plants but as already said the then government had no policy on building power plants in the government sector. NEA also loses about 47% of the power generated to theft and to the obsolete power transmission lines. NEA could improve the power transmission lines for both reducing the theft and transmission loss of electricity but the vested interest groups under the protection of the politicians did not allow the NEA to do so. In addition, NEA has a large army of employees that have been burden on it rather than an asset. The concerned departmental minister and other officials down to the lower level officials extract money and other resources from the NEA to the extent possible making it a huge loss-making company. Instead of making NEA an efficient company for improving its performances, the government often increases the price of power transferring the burden of corrupt practices of the ministers and officials and inefficient performances of the NEA to the consumers.

Nepal Oil Corporation (NOC) is another public utility company that has the monopoly on importing, distributing and setting prices of petroleum products. The prices of petroleum products are directly dictated by the prices in India because we not only import petroleum products from India at high prices but also are vulnerable to the prices in India. So, we need to follow the prices of petroleum products set by the Indian government. It is not wise for the students to launch a protest against the price rise in petroleum products because if we make the prices of petroleum products less than the prices in India then NOC would not have motivation to bring the petroleum products to Nepal from India. We have the example of the Girija administration not increasing the prices of petroleum products but selling them on the Indian market for making money causing the short supply of petroleum products in Nepal. That was the easiest way of making huge money for any political party in power. Since then it has been the set practice of the political party in power. The students demanding the rollback of the prices of petroleum products are really assisting the corrupt ministers and officials in making money at the cost of the national economy.

Water supply has been short supply because of the corrupt practice of the concerned ministers in building the highly hyped Melamchi Drinking Water project. The then Prime Minister Krishna Prasad Bhattarai of the Interim Coalition Government led by the Nepali Congress party had said that he would wash the streets of Kathmandu by the water from this project but after 30 years since the prime minister boasted not a single drop of water has flowed from the Melamchi River to the Kathmandu Valley. One of the ministers of the Deuba administration had openly said that he had transferred Rs 20 million from the Melamchi Drinking Water Project to his party coffer. Both of these guys later landed in jail after Gyanendra Shah unwittingly grabbed the power from them in mid 2000s.

The concerned minister of the coalition government led by Chairman of UCPN-Maoist Prachanda had attempted on expediting the building of the Melamchi Drinking Water project in 2008. She had even gave the contract of building the 26km plus long tunnel that was to be constructed for bringing water from the Melamchi River to Kathmandu to the Chinese building company but Prachanda quit the administration after nine months in power protesting against the president’s interference in his business of sacking the then Chief of Army Staff General Katumangad Katuwal. Thereafter, the successive ministers of the concerned ministry i.e. Ministry of Physical Planning And Works hardly did anything except for extracting some commissions from the project.  The result is only about five kilometers of the 26-kilometer long tunnel has been done so far.

To mitigate the shortage of power, the then Prime Minister Prachanda came up with the proposal for building a 200-megawatt thermal plant in 2008 and importing power from India. The then-coalition partner CPN-UML opposed it vehemently saying it was very costly, and even threatened to pull out of the coalition government. The government could not import more power from India, as the capacity of the transmission lines was limited to the power already importing. The concerned minister of the current coalition government led by Prime Minister Dr. Baburam Bhattarai has came up with the same proposal put forward by Prachanda in 2008 but the Public Account Committee (PAC) has opposed it this time.

Opposing the building of a 200-megawatt thermal plant, these guys either don’t know that they have harmed the national economy to the extent possible or they are simply for meeting their own interest. The PAC members are either illiterate in the economics or they are simply not for giving any credit to the government led by the Maoists not allowing the government to build a thermal plant to immediately mitigate the power shortage. However, these guys are not so stupid as you might like to think but they are very smart to oppose anything the Maoists’ attempts on doing good things to the country.

Opposing the building of a thermal plant these PAC guys have made a huge damage to the national economy. One expert has estimated that one-day shutdown called by protestors cost the nation Rs 1 billion. So, anybody could imagine how much cost Nepalis have been bearing due to the loss of doing their jobs caused by not having the power on the average from 12 hours in the wet season a day to 18 hours a day in the dry season. The loss of business due to the short supply of power might go to hundreds of millions of rupees a day. Certainly, a thermal plant of 200 MW would not cause the loss of such a scale to the nation even though it would produce power at a lot costlier than any hydropower plants but it would produce the opportunity of doing a business worth millions of rupees if not billions for millions of Nepalis. Even if the cost of production of power by the thermal plant is several times higher than by any hydropower plants, it is economically viable if these PAC guys think in term of the economic opportunities the power creates to the people.

The power shortage has hard hit the small industries. If you go to the tailoring shop, the owner tells you to come next week. S/he complains that power is not available and her/his tailors have to work only when the power is available. Small cold stores could not operate. Owners of other small industries have the same complaint. You can imagine how many labor hours a day lost to the power outage. Majority of Nepalese businesses are in the hands of small companies that could not afford to install a thermal plant to generate power for running their business regularly.

The water company people say that they could not regularly pump water and supply the consumers even two hours a week due to the power outage. The supply has become irregular. The water supply has been at midnight, early in the morning, at midday, afternoon and so on whenever power is available. People need to be vigilant when the water supply will be next time. This also is the economic loss to the people.

Big factories or industries have to install a thermal plant at the additional cost to generate power whenever the power from the national grid is not available. Their products cost higher than used to be. Large storeowners run generators to supply power to keep their business going on. Commercial banks do the same. Even small storeowners at the commercial hub run small generators for illuminating their stores. So, if you walk on the New Road at the time of power outage you will find a number of small generators running to light their stores. The power outage has caused an additional financial burden and added cost to their businesses, as they have only the choice of either closing their businesses or installing thermal plants.

The impact of the short supply of petroleum products on the national economy is even higher than that of the shortage of power. Nepalis need to close their business to fill up their cars or to get a cylinder of cooking gas. For example, taxi drivers have to line up at the gas station for several hours to fill their taxis. They not only lost several hours a day but also the business for that period. Thus, Nepalis face both the loss of time and doing business due to the short supply of petroleum products causing a tremendous loss of economic development.

Similarly, Nepalis have to stay in the line to get a cylinder having 14.5 Kg of cooking gas starting at midnight. A newspaper story of how a businessperson takes pains to secure a few cylinders of cooking gas is as follow. The news posted on ‘’ on Thursday, February 23, 2012 has it: Deepesh Aryal and two of his restaurant staff set out in the dead of night and brave Kathmandu’s biting wintry chill to meet a carefully-cultivated contact. As they count their cash, they could be planning a drug deal or a cloak-and-dagger meeting of spies — but the truth is rather more prosaic: they are joining a 10-hour queue for cooking gas. Like thousands of traders in Kathmandu, 28-year-old Aryal will go to extraordinary lengths to secure the fuel he needs to run his business amid an energy crisis, which is crippling life in the impoverished nation. He is forced to queue for the best part of a day and, after his 4:00 AM start he finally has three full cylinders of cooking gas.

Some petroleum dealers run a parallel market of these products at higher prices. While I was standing in a line at a gas station to fill up my car, a man approached and offered me to fill up my car at the reasonably higher price. I would have followed him to the gas station if that were not so far to drive. Driving to his gas station meant burning a few liters of precious gas. So, the offer was not attractive to me and I stood in the line for hours to fill up my car. I have another experience in filling up my car at the Nepal-Police-run gas station at Naxal in Katmandu. Only about 10 cars stood in the line at the Naxal-Police gas station ahead of me when I joined the line but it took me one and a half hour to reach the pump because most of the time the pump attendance pumping the gas to the vehicles standing on other side of the gas station, I could not see. I don’t know whether the gas pump attendance was dong a favor to the people standing on other side of the gas station or he was simply filling their cars at higher price.

The news posted on ‘’ on Thursday, February 23, 2012 has it: a shortage of petrol and diesel means people have to queue for many hours or turn to the black market to run cars and the generators which light their shops when the electricity goes out. The crisis has led to angry criticism of the government and even civil unrest, with protests stopping traffic and citizens resorting to criminality to get hold of fuel. A taxi driver says he is forced to spend half his day queuing for fuel and might even move to South Korea for temporary work.

A market monitoring team led by Minister for Commerce and Supplies Lekhraj Bhata Wednesday arrested D.R. Bhattarai, managing director of Himal Gas, on the charge of indulging in black marketing of cooking gas; the monitoring team found Himal Gas Company was involved in black marketing of gas supplying its products to sellers other than its dealers, ‘The Rising Nepal’ of February 23, 2012 reported.

The impact of shortage of drinking water and irregular supply of whatever available water to the consumers has been adverse on the economy, too. The power shortage has negatively affected the pumping of underground water causing additional shortage of water, and the state-run utility company could not pump out whatever available water to consumers due to the power outage. So, the company has to supply water to consumers whenever power is available that could be at midnight, early in the morning, at midday or afternoon. Consequently, consumers have to be vigilant when they will have water causing the loss of doing business at that time. Some media reports have charged the state-run water company that it has been selling water to the private companies that produce bottled water. Any household that could afford has dug a well or drilled in a pipe to pump up underground water. Most of the houses that could not dig a well or drill in a pipe have either to live without water or buy water from the private water suppliers at a high cost. Almost all hotels have drilled in large pipes to pump out water from the underground. They set a number of synthetic water tanks to process the underground water before supplying it to the guests in the hotel rooms. This means additional cost to the hoteliers.

The shortage of electricity, petroleum products and water has made a tremendous negative impact on the economy, as Nepalis cannot work without these three main important items required for their economic activities. They have either to wait for receiving these things for weeks or have to be in line for receiving them causing curtail of productions in factories, reduction of business at commercial enterprises ultimately reducing the Gross Domestic Products (GDP). Without the foreign employments, Nepalese youths would have brought another violent revolution in the country. Today, millions of Nepalese work in the Middle East, East Asian Countries and so on bringing billions of rupees for supporting their families in Nepal. The money they have brought in comprises 25% of the Nepalese GDP. If the foreign employment opportunities dry up, then it would be serious economic consequences to Nepalis. So, the very smart guys sitting on the PAC should grant a permission to the government for building at least one 200 MW thermal plant to mitigate the power shortage setting aside their political interest in the interest of the nation so that Nepalis would not need to seek foreign employments.

March 1, 2012


If the government of Nepal wants to make the Nepalese economy work, here are some tips how the US Government tries to energize the economy regulating the taxes.

The US Budget plan has five elements, according to the administration:

1. Eliminate dozens of tax loopholes and subsidies, broaden the base and cut the corporate tax rate to spur growth in America: The framework eliminates dozens of different tax expenditures and fundamentally reforms the business tax base to reduce distortions that hurt productivity and growth. It reinvests these savings to lower the corporate tax rate to 28 percent, putting the United States in line with major competitor countries and encouraging greater investment.

2. Strengthen American manufacturing and innovation: The framework would refocus the manufacturing deduction and use the savings to reduce the effective rate on manufacturing to no more than 25 percent, while encouraging greater research and development and the production of clean energy.

3. Strengthen the international tax system, including establishing a new minimum tax on foreign earnings, to encourage domestic investment: Our tax system should not give companies an incentive to locate production overseas or engage in accounting games to shift profits abroad, eroding the U.S. tax base. Introducing the principle of a minimum tax on foreign earnings would help address these problems and discourage a global race to the bottom in tax rates.

4. Simplify and cut taxes for America's small businesses: Tax reform should make tax filing simpler for small businesses and entrepreneurs so that they can focus on growing their businesses rather than filling out tax returns.

5. Restore fiscal responsibility and not add a dime to the deficit: Business tax reform should be fully paid for and lead to greater fiscal responsibility than our current business tax system by either eliminating or making permanent and fully paying for temporary tax provisions now in the tax code.


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