The Sino-Nepal agreements that can work towards the political and economic benefits of Nepal

The signing of the trade and transit agreement with China in March 2016 (of which the protocol was signed in April 2019) followed by becoming one of the signatory countries of the Belt & Road Initiative (BRI) in May 2017 were of strategic importance to Nepal. These treaties directly serve as the transitional gateway for Nepal to improve its political position in China-Nepal-India geopolitical complex and its state of International trade and economy. These two agreements succeeded within the short period of couple of years drastically heightens the diplomatic relationship between Nepal and China. Meanwhile, it even challenges the Indo-Nepalese bilateral relationship that privileged India to maintain ubiquitous foothold in the economy and internal political affairs of Nepal.

As of now, complete reliance on India to allow passage for the landlocked Nepal to conduct its third-country trade and import critical energy resources has advantaged India with trade passage monopoly over Nepal. Such advantage has allowed India to also maintain substantial influence in the domestic political and economic affairs of Nepal to its benefit. On such ground, Kathmandu’s attempt to unilaterally pursue certain foreign and domestic policy ambitions unsuitable to the interest of New Delhi have even been met with unpleasant responses from the Southern regional giant. The responses primarily refer to the imposition of border blockades orchestrated against Nepal in the periods of 1989 and in 2015. Furthermore, the context of Nepal’s international trade scenario that has historically oriented towards India has also not remained economically beneficial for this Himalayan state. Such argument founds on the fact that Nepal suffers an average of 80% trade deficit in the last five fiscal years with India as it reportedly conducted an average of 60% of its total trade volume with the South Asian giant in the same fiscal years. While internal lackluster within Nepal ranging from unfavorable policy environment till infrastructure adequacy is partially to blame for Nepal’s trading incompetency, there are also certain arguments that acknowledge Nepal to have a very limited comparative advantage with India mostly in agricultural trade. It ultimately signifies the gradual need for Nepal to diversify its scope of trading partners in order to improve its international trade position.

At first and foremost, achieving the trade and transit agreement with China as part of the 10 pacts agreement package importantly allows Nepal to use ports in China to conduct its third-country trade and import critical resources. It emancipates Nepal from the need to completely rely on Calcutta and Vishakapatnam based seaports in East-Coast India for such purposes. In addition, the subsequent agreement between Nepal and China on the construction, management, and maintenance of the Xiarwa boundary river bridge in the Hilsa of Northwest border of Nepal (see agreement no. 2) further visualizes the distant potentiality for Nepal to directly import petroleum commodities from the gulf oil fields via West China. Such conceptualization founds on the aspiration of the China government to build corridors to connect West-China border cities with the Persian Gulf as part of the Silk Road Economic Belt (SREB) initiative to also open inland transshipment alternative for China’s energy supplies. And, with the potential to extend the inland connectivity from the Kashgar city of West China until Hilsa border via the 219 National Highway of China and Xiarwa bridge, the very alternative inland avenue for oil importation also remains feasible for Nepal. Most importantly, this diversification of avenues for procuring critical oil resources shall grant necessary geopolitical mileage for Nepal to take unfettered political-economic pathway that entirely suits its national economic well-being. Meanwhile, the subsequent pledges in second BRI forum and during auspicious visit of President Xi in 2019 by both governments to incorporate Nepal into BRI under the banner of Trans Himalayan Multidimensional Connectivity Network (THMCN) substantially improves the chances of such Trans-Himalayan connectivity of great strategic nature.

Nevertheless, the idea of diversifying Nepal’s trading avenues and routes away from being virtually dependent on India does not pertain to obviating India as a trading partner per se. Instead, this platform of BRI rather assists Nepal to more intensely engage with both Indian and Chinese economy to graduate its international trade context from being Indian dependent to Trans-Himalayan Interdependent in order to improve its trading platforms and avenues.

Last but not the least, the trade benefits for Nepal by engaging in the BRI can especially be pictured in terms of potentiality for generating Tri-country multipurpose tourism economy involving the regions of Tibet, Nepal, and the Uttar-Pradesh (UP) & Bihar respite with historically significant religious-cultural heritage and natural sceneries. Besides, the concept of aspiring Nepal as the gateway for the inland trade between China and South-Asia (see pp.21-23 of the issue link) also holds ample opportunity for Nepal to venture into trade assistive service industries to support its ascending service economy.

 

NEA woes: Inefficient Monopoly in National electricity distribution

This time, it’s better to start with a now mythical adage that states as, “Nepal has the Hydro-electric potential to lighten up most of the South-Asia even after it would fully satisfy the domestic demand’. This very saying used to be anything that would inspire the Nepali citizen to keep dreaming about the days of prosperity and wealth. But today, after decades of waiting and experiencing the hardship of uncertainty and hunger, Nepali citizen find it as a hollow truth that was mercilessly turned into a fabricated lie by the leading members, ( And it includes more than just government). Cutting out the literature, it can be well said that there are numerous factors that has been impeding the growth of this infrastructure. Even a dictionary sized book would still be not enough to include all of the causes for this ongoing Hydro-power deficiency syndrome of Nepal. Therefore, I would specifically want to discuss over a part of the hydro-electricity distribution process that should be amended in order to improve the growth trend of this vital industry.

The concern remains over the fact that Nepal Electricity Authority (NEA) remains as a monopoly power trader and distribution agency of hydro-electricity. This godly privilege of non-competition for this government-run enterprise has actually spoiled its work-ethic as would of a child who is highly pampered by his/her parents. Since it is not about a child’s life, but about the future of the national economy at large, Nepalese Governments were stupidly brave enough to experiment the well-predicted dreadful consequence of an economically flawed law of creating government monopoly. While Independent Power Producers groan over the unacceptable low electricity pricing during the Power Purchase Agreement (PPA), the final consumers instead rages over the unacceptable high electricity pricing by the NEA. With all this, one should really wonder the vast amount of inefficiency drilled inside the working process of this government monolith due to the prevailing corruption and personal greed.

I had recently interviewed the chairperson of Energy Engineering Pvt. Ltd, which owns a power plant at Rasuwa district and he laments upon the stringent attitude of NEA to pay minimum price of Rs 4 per watt purchased, coupled with its unwillingness to review the price agreement at least in every four years interval. Besides, the back-breaking procedure of obtaining power production license from the Department of Electricity (DOE), forces the producers to make the purchase contract with the NEA even at a minimum price but ASAP. Unfortunately, the scheduled time of 4-5 years for a power plant to come into full-fledged production effectively obsoletes the pre-fixed price (but not re-negotiable) locked during the PPA due to the containing double digit inflation rate. All in all, the ever growing inflation coupled with the never growing power price mercilessly sends anything like ROI of the independent producer’s into dust. No wonder, people don’t think twice before they ignore to make direct investments in Hydro-power. Adding to the sorrow, banks know it and they wouldn’t want to risk their funds in hydro-power if they aren’t making anything as high as 16-20% of interest rates in their loans to this infrastructure. Relatively, the underlying unfriendly loaning policy of the commercial banks in charging such interest rates forced the Independent Power Producers Association to propose a fund that loans hydro-power based projects with subsidized interest rates of around 10% or less. This decision in turn drags this hydro-power industry towards the inefficiencies of subsidization that vividly violates the concept of free market. In general, the susceptible political will of the DOE and the unfair exploitation of monopolistic power by NEA are the major reason of this ongoing inefficiency in the supply-chain system of electricity production and distribution process

Well, I wouldn’t specifically blame NEA or the government. In fact, it’s the mechanism that stands as culprit. There is this well encrypted law of economics which states that, central planning replaces market with politics which wastes resources and retards economic progress.(Common sense Economics; James Gwartney, Richard L. Stroup and Dwight R. Lee) In other words, the intervention by the government to stifle the freely competing market through the creation of state monopoly creates inefficiency in the overall process. Free market is such a wonderful mechanism whereby the uncompetitive competitors are vanished by the competitive one, thus creating the vibe of efficiency in the overall industry. Sadly, free competition doesn’t exist in the state electricity distribution process and therefore, there remains no room for highly inefficient enterprises like NEA to be replaced by other private competitive power trading enterprises. Instead, expanding loss has become another reason for the NEA to request more budget for which the government has no other option than to comply. Well, it’s the general economic sense that applies here about which everyone should know, except for the government that pretends to be unknown.

Though it’s been two decades that Nepal officially launched Constitutional democracy, the control by the government over the total national energy through two mammoth but inefficient government enterprises, i.e. Nepal Oil Corporation (NOC) and Nepal Electricity Authority (NEA) should effectively mean that Nepali citizen is fully under the blessing of the so-called democratic government. The scarcity of fuel combined with the unavailability of electricity has sent the industrial development of the county into ashes. Surely, government should know the golden advantages of breaking the state of monopoly over such kind of strategic resources. But their preference of self-serving political will against the national economic will shall rather place such ideologies down six feet under.