Nepal's private sector recently announced its biggest hydropower initiative till date - the 100 MW Kaligandaki Gorge project, estimated to cost Rs 10 billion. In stark contrast stands the under-construction 70 MW Middle Marsyangdi, whose cost is now estimated to cross Rs 26 billion. According to Winrock International's cost comparison of Nepal's hydropower projects, public sector projects built under donor funding have been almost three times (US $4,000 per kilowatt on an average) costlier than projects built by local private sector (US $1,499 per kw on an average). In between lie projects built by international private sector (US $2,610 per kw on an average). The comparison of construction costs includes 60 MW Kulekhani I (US $3,565 per kw), 69 MW Marsyangdi (US $5,602 per kw) and 144 MW Kaligandaki A (US$ 2,639 per kw) under donor-funded projects; 60 MW Khimti (US $2,436 per kw) and 36 MW Bhotekoshi (US$ 2,784 per kw), both of which are projects undertaken by international private sector with international commercial funding; and 20 MW Chilime (US $1,547 per kw) and 3 MW Piluwa (US $1,451) under projects completed by local private sector with rupee financing. These figures are based on US $ prices in 2002. "In general, public sector projects are more expensive as there is little cost consciousness and there are conditions attached with aid,' said Winrock's Suman Basnet. "The private sector is seen as more efficient with focus on return on investment.' In projects built under grant money, there is restricted bidding, thus raising costs. Uttar Kumar Shrestha, deputy managing director of Nepal Electricity Authority (NEA) said the country extending grant usually sets the condition that bidding for equipment, consultancy and contractor be done from the donor country only. The Middle Marsyangdi, which is being built under partial German financing, has German contractor and German consultant. "Projects funded by the Asian Development Bank and the World Bank are comparatively less costly as there is global bidding,' Shrestha said. Also, most projects owned by NEA are peaking run-of-river projects, which are automatically costlier than run-of-river projects that the private sector prefers. But that is not the sole reason for high cost of public projects, Shrestha argued. "Costs of hydropower projects are site specific. Usually, projects undertaken by the government require huge investments in infrastructure, such as road and transmission line,' he said. An example to support this argument is the under-construction 30 MW Chamelia project. "We are building 140 kilometers of transmission line for this project,' Shrestha said. "It would be unfair to compare cost of this project with private sector projects such as Khimti and Bhotekoshi in which the government built the roads and transmission lines.' Does that mean private sector is smart in identifying projects that require little auxilliary infrastructure investment, and the government generally ends up choosing projects that need heavy investment in such infrastructure? Anup Kumar Upadhyay, joint-secretary at the Ministry of Water Resources says the government cannot always think in commercial terms only, as it has social responsibility too. "The private sector does financial analysis while selecting projects, while the government does economic analysis, which considers economic needs of the country,' he said. "For instance, the government has to undertake projects with the size that meets power needs of the country. Such projects may not necessarily be financially attractive.' Posted on: 2008-03-16 21:48:32 (Server Time)