What makes technology transfer? Small-scale hydropower in Nepal's public and private sectors

Vol. 20, No. 7, pp. 979-989, World Development, Printed in Great Britain.

1992.

$5.00 + 0.00 0305-750x/92 @ 1992 Pergamon Press Ltd

What Makes Technology Transfer? Small-Scale Hydropower in Nepal’s Public and Private Sectors CLEAR

GODFREY CROMWELL* International, Loughborough,

UK

Summary. - Technology transfer requires long-term and wide-ranging investment beyond information sharing and training. Transfer is concerned with adapting technology to given socioeconomic and technical environments but it is also the development of suitable mechanisms within the destination environment. Risk sharing and institutional development are required to achieve sustainable transfer. Micro-hydro technology in Nepal is an example of successful technology transfer over 20 years of in-country adaptation, promotion and training by international and Nepali technical, financial and development institutions. The successes and disappointments of the sector provide useful lessons for technology transfer programs. The paper arises from original research, personal experience of Nepal’s micro-hydro sector and a review of associated literature.

1. INTRODUCTION Technology transfer is the movement of technology between technical, economic and cultural environments through a process of introduction, adaptation and adoption. Although this is a fundamental objective of many development programs, differences between the source and destination environments and the extensive, long-term human investment required for technology transfer are often underestimated. Successful (and unsuccessful) attempts to transfer technology have demonstrated that the iterative processes required to develop and transfer “appropriate” technology are both complex and gradual. Establishing localized useage, production, maintenance and control requires considerable investment of time and resources and the involvement of project partners and beneficiaries in continual reassessment and response. Transfer is not exclusively concerned with adapting technology to given socioeconomic and technical environments. It is also the development of suitable mechanisms within the destination environment whereby a technology can be successfully adopted and exploited - adaptation of the destination environment itself. Once a technology is identified as potentially transferable, extended periods of local development, risk sharing and institution building are usually required to achieve sustainable transfer. 979

Micro-hydro technology in Nepal is an example of successful technology transfer through more than 20 years of in-country adaptation, promotion and training by international and Nepali technical, financial and development institutions. The purpose of this paper is to review the experience of private and public sector microhydro in Nepal in order to identify the key components of successful technology transfer. The successes and disappointments of the mini and micro-hydro sector provide useful lessons for technology transfer programs in Nepal and elsewhere, particularly those seeking to promote the provision of utilities to rural areas in situations of minimal or constrained infrastructure.

2. BACKGROUND Nepal is one of the poorest countries in the world. In 1985 GDP per capita was US$160 per year and, although only 17% of the country’s land area is cultivable, agriculture is the major contributor to GDP, exports and employment. Economic vulnerability and geographical isolation are compounded by a rugged and unstable topography, few natural resources and no significant deposits of fossil fuels. These constraints mean that the government of Nepal faces massive *Final

revision

accepted:

September

6, 1991.

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in the provision of most utilities even to the more accessible lowland concentrations of population. The mountainous landscape and high surface runoff do, however, create an environment with great potential for hydropower generation - estimated at 83,000 MW, of which about half is said to be economically exploitable (Warneck, 1989). Large-scale hydroelectric installations have been constructed to tap this potential, typically involving major financial and technical assistance from overseas donors. Although these schemes now have a total capacity approaching 200 MW, the electricity generated is largely consumed in urban centers and lowland areas accessible at acceptable transmission costs. The difficult terrain that characterizes most of Nepal means that much of the country remains unconnected to the grid and is not likely to be linked to it for at least another decade. Rural communities - some 92% of the population - have a broad range of energy needs, which have traditionally been met using biomass and human labor or with imported fuels, principally kerosene. Highland communities have traditionally made use of water power, but its use has been limited to driving wooden water wheels for grinding grain (Nakarmi, 1987). Rising demand, an expanding population and the declining availability of traditional sources of energy, particularly fuelwood, have led to local and international concern for energy resources to sustain Nepal’s hill communities (UNDP/World Bank, 1983). One response to the need for energy both to improve the quality of life and to stimulate economic activity in rural areas has been the development of a local micro-hydro manufacturing sector to provide decentralized energy utilities to rural communities. In the last 15 years a combination of public sector credit, private sector initiative and appropriate technical assistance has enabled communities in remote areas of Nepal to own or gain access to locally generated power - both mechanical and electrical - and thereby to operate a range of financially viable end uses (Cromwell ef al., 1988). The development of the sector would not have been possible without integrated support from a favorable policy environment, appropriate credit facilities and targeted technical assistance. By contrast, direct involvement of the public sector in the form of state-owned and operated mini-hydro installations has generally been disappointing exactly because it has had neither clear objectives nor well-defined and realistic strategies for obtaining them (WEC, 1988). The socioeconomic impact of microhydropower development has, however, been

mixed and a recent evaluation of Nepal’s experience identified areas of benefit, differentiated access to benefit and disbenefits within rural communities where micro-hydro equipment has been installed (East Consult, 1990).

3. PRIVATE

SECTOR

EXPERIENCE

(a) Background Traditional water-powered mills have for generations provided the only form of mechanized agroprocessing in Nepal and they are still widely used in hill areas. With the decline of isolationist policies in Nepal during the 1960s small diesel engines driving agroprocessing equipment became available. These allowed the replacement of some time consuming and inefficient methods of grinding, husking and oil expelling (Cromwell et al., 1988). Despite the inherent difficulties of fuel supply and maintenance, several thousand such diesel-powered mills are now operating in rural areas. During the 1960s and 1970s several nongovernment organizations (NGOs) ran pilot projects with local manufacturers using different types of micro-hydro turbine in attempts to find renewable energy solutions to the rural demand for mechanical agroprocessing equipment (Metzler. Yoder and Scheur, 1984). By 1976 the crossflow design was gaining acceptance as the most appropriate for Nepal’s mid-hills region and, by 1988, 423 crossflow turbines had been installed out of a total of some 600 private sector microhydro installations. These projects were all undertaken by private Nepali manufacturers, in some cases with assistance from NGOs. Of the turbines installed by the end of 1988 over 90% are used primarily to provide mechanical power for agroprocessing equipment while about a quarter of the total supply electricity using either add-on or stand-alone generators (Jantzen and Koirala, 1989). Micro-hydro technology and management has now become an integral part of the manufacturing, agroprocessing and rural enterprise sectors of Nepal.

(b) Policy environment The Seventh Five Year Plan (1985-90) had as its objectives the increase of production, expansion of employment and provision of the basic needs for the whole population. It also emphasized the need for regionally balanced development within Nepal. Policy strategies adopted to meet these objectives included decentraliza-

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tion of economic management, promotion of agro-related production and the greater use of national resources. These strategies were elaborated as sectoral development policies, including expansion of and targeted subsidies for “alternative energy techincluding micro-hydro. Increasing nologies” amounts of public sector funding have been allocated to the promotion of rural electrification through public and private sector installations. In 1989 rural electrification projects were eligible for a 50% electrification capital cost subsidy, rising to 75% for remote installations. These incentives were increased by making the same percentages applicable to total capital costs in 1990 and the accessibility of the funds was increased by expanding the range of banks from which these subsidies can be obtained. While these policies have provided welcome support to the sector, actual budget allocations to pay the subsidies have been relatively small to date and of limited impact. The two most significant policy contributions have been through adjustment of licensing regulations and effective provision of state credit. Until 1984 operating licences were required for all private electrified installations and the lengthy procedures involved in obtaining these proved to be a major disincentive to prospective installers. Following recommendations from Nepal’s Water and Energy Commission and other advisory bodies, the government acknowledged that direct government involvement at this level was illconceived and sites producing less than 100 kW were delicensed (WEC, 1988). Private financing of projects and unrestricted tariffs were also now permitted. The deregulation of micro-hydro has, by making the initiation, operation and management of village-level installations a profitable and practicable avenue for local private investors, directly contributed to the rapid increase in installations.

(c) Public sector credit To date almost all micro-hydro installations have been financed using concessionary public sector credit to cover all or part of the capital costs other than the civil works (canals, settling tanks, etc.). This facility has enabled rural entrepreneurs to afford the high capital costs (relative to local incomes) that micro-hydro installations require and has, therefore, been instrumental in the spread of the technology. Over 90% of private sector installations receive loans from a single government corporation, the Agricultural Development Bank of

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Nepal (ADBN). The ADBN has developed a specialized knowledge of financing micro-‘hydra projects through coordination of its Appropriate Technology and Loans Sections. While the ADBN is to some degree susceptible both to political vagaries within Nepal and to bureaucratic inertia, it has been a key contributor to the success of private sector micro-hydro.

(d) Technical assistance Several local and international NGOs have been instrumental in the introduction of appropriate micro-hydro technologies and the skills required to manufacture, install and operate them in Nepal (UMN, 1988). Two workshops were established during 1970s one with Swiss aid in Kathmandu, the other with Norwegian assistance at Butwal in the west of Nepal. Both these enterprises produced a range of items but gradually built up their expertise in micro-hydro and ran several pilot micro-hydro projects. A standard design was developed using crossflow turbines to produce mechanical power to drive a range of agroprocessing equipment. More recently, an increasing number of mechanical agroprocessing schemes have added electric generators to the range of end-use utilities and stand-alone electrical installations are also being installed. These workshops, through very gradual development and testing and by continuous emphasis on training, have built up centers of microhydro expertise and experience within Nepal’s manufacturing sector. One result has been that some ex-trainees have set up as small-scale turbine producers in their own right. Despite a generally weak national industrial base, 10 Nepali workshops now include turbines in their product range and some are even exporting turbines to other countries within the region (World Water, 1989). The micro-hydro sector is now integrated into Nepal’s industrial infrastructure and could (in many cases does) survive without inputs from NGOs. While agroprocessing end uses, however, are now well known and widely adopted, the generation, control and use of electricity still require research, development and training to enable consistent provision and use of good quality (and therefore utilizable) electrical power. A major constraint on dissemination of such technology has been the cost of conventional electrical control technologies which ensure that electricity of adequate quality is supplied to end users. International research and local develop-

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ment of suitable technologies have now reduced these costs by some 50%. Originally manufactured in the United Kingdom, technology transfer is now underway to localize fully the manufacturing, installation and operation of low-cost electronic load control. Electricity is presently used almost exclusively for village lighting. It is a highly prized social amenity and rural communities have demonstrated their willingness to pay tariffs well above the subsidized rate charged for grid power in urban areas to obtain this “nonproductive” electricity. Nevertheless, this pattern of use means that there is a peak of simultaneous demand for electricity in the evening while daytime power is wasted. Electrical control technology is now relatively well-developed and disseminated and, therefore, research efforts are now being directed to develop or adapt day-time end-use technologies that can increase the attractiveness of investment in micro-hydro electric installations and/or their end-use technologies. This research is largely being undertaken within Nepal. The long-term involvement of local NGOs and the assistance they have received from international NGOs has initiated and supported the gradual development of a self-supporting microhydro sector in Nepal. Above all the continuity of such assistance (over more than 20 years) has been an important contributor to sectoral development through the provision of broad-based and easily accessible support, advice and seed capital. One result has been that ADBN and NGOs are now free to concentrate on new nearmarket research in supplementary areas (new end uses, cheaper means of power generation, etc.).

(e) Private sector manufacture Nepali workshops have taken up the market opportunities offered by strong local demand and appropriate low-cost technology. The principal role of external technical assistance has been in technology transfer and training. This has actively involved local enterprises in a process of technical adaptation and individual entrepreneurial and technical imagination rather than a passive adoption of alien technologies (Metzler, Yoder and Scheur, 1984). Assistance to existing entrepreneurs based in their own small workshops (rather than attempting to create “small-business skills” afresh) is an important reason for the successful development of the industry and the efficient uptake of assistance. Many of the small workshops are

now, through their own applied experience and experimentation, at the forefront of micro-hydro technical adaptation. Similarly their ability to identify and meet market opportunities, negotiate contracts and secure funds has ensured their financial survival even though most employ less than 10 people. (f) Decentralized management Almost all private sector micro-hydro schemes in Nepal are installed and managed by rural entrepreneurs investing rural surplus (Jantzen and Koirala, 1989). Latent demand in the form of very laborious traditional agroprocessing techniques for grain and oilseed crops has been tapped to generate income in cash or kind as payment for the much shorter processing times and higher extraction rates achievable using micro-hydro powered equipment (East Consult, 1982). Similarly, the aspiration of more prosperous villagers to obtain electricity has provided an adequate revenue base to justify investment in electrification schemes. Private installations are generally managed by a very small “staff” comprising perhaps the owner and one or two other people - often family members (Jantzen and Koirala, 1989). Attempts to initiate community-owned and operated schemes have generally foundered on the problems arising from the more complex, and generally less familiar, systems of accountability and organization required for successful cooperative management. Schemes which have the greatest community involvement tend currently to be those installed in communities with less hierarchical ethnic or social traditions (Pandey and Cromwell, 1990). Various, more formal attempts to develop equitable ownership systems are being undertaken by NGOs in Nepal using, for example, community share-holding systems. Water management is familiar to Nepali hill communities and the canals and other civil works used in micro-hydro installations are similar to those used in traditional irrigation and waterwheel systems (Pradhan, 1988). Consequently the construction, maintenance and repair of the water-control systems can all be undertaken and managed at the village level. Other technical advice and back-up is available through the manufacturers who, although based in urban accessible and have an areas, are relatively interest in maintaining the reputation of their installations. (g) Socioeconomic In terms of commercial

impact

dissemination

there

is

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little doubt that micro-hydro technology has been, and will continue to be, highly successful in Nepal. Similarly, in terms of meeting rural demand for utilities the successful spread of the technology is evidence of its attractiveness and ability to supply some local requirements. The spread of benefits across different socioeconomic strata within Nepal’s hill communities has, however, not been equitable, particularly in the case of electricity. This has implications for the future development and dissemination of microhydro and associated technologies. (i) Mechanical end uses Studies of the impact of mechanical end uses have consistently indicated the significant labor savings over traditional processing methods (see, for example, East Consult, 1982 and Jantzen and Koirala, 1989). Savings are particularly significant for oil expelling from mustard seed (the most significant rural cash crop) (see Table 1) and this allows timely processing and marketing of greater quantities for a significantly reduced labor input. Time savings are offset to varying degrees by the need to travel - sometimes many hours walk to reach a micro-hydro site. Nevertheless, recent evaluations and the willingness of end users to undertake these strenuous journeys both indicate the perceived value of mechanical agroprocessing. End users’ perceptions suggest that it is the reduction in drudgery (quality of labor) rather than the quantity of time saved that attracts clients to the installations. Traditional technologies, although cheap in cash terms, require exhausting physical effort over extended periods - generally requiring rural women to rise in the early hours of the morning to process the day’s requirements. Similarly, the social opportunities afforded by waiting at the mill site are popular with end users. Quality of output through increased efficiency of processing is also an attraction. Extraction rates for oil from mustard seed have been reported as increased by 29% over traditional methods and both wheat and maize show Table 1. Average time requirements of agroprocessing Traditional (Hrs) Milling (handmill) Hulling (dhiki) Expelling (khol) Source:

After

Jantzen

Hydropowered (Hrs)

32.2

1.2

32.5

1.1

117.5

4.5

and

Koirala,

1989.

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l-7% increases in flour yield (East Consult, 1982). Paddy processing has shown mixed results -10% to +lO%) but (from approximately mechanically processed paddy is said to produce a high quality husk that is fed to livestock. Differences between the taste of traditionally and mechanically processed flours have been reported in some cases - generally in favor of the former - but this has not prevented the use of mechanical methods for the bulk of crop processing. The impact of mechanized oil expelling is reflected in the virtual disappearance of traditional methods. Traditional milling technologies have been widely retained in communities having access to mechanical alternatives, but they are generally used to process small amounts at short notice for domestic consumption or ceremonial purposes. The installation, operation and maintenance of micro-hydro and end-use equipment has some employment impact through direct employment in the construction and repair of canals and other civil works and in the daily operation of equipment. Some is also displaced where traditional water-driven mills have been replaced. On balance there is generally a small net displacement of employment. At a national level the micro-hydro sector creates employment for about 10 Nepali manufacturing firms and a range of support services, notably credit provision, and has made a significant contribution to raising both the extent and the quality of the country’s manufacturing base. The distribution of benefits arising from the advent of a micro-hydro scheme in rural communities varies across socioeconomic strata. The principal benefit return on investment accrues exclusively to the installation owner. The relationship between owner and end users in the community, however, is generally symbiotic. Competition, in the form of either traditional alternatives (albeit laborious ones) or other water or diesel-driven equipment, generally regulates the pricing of hydro services to the community. The community is prepared to pay for these services but is not totally dependent on them, except in the case of oil expelling. The owner sets the price for services supplied by the installation but is also dependent on adequate throughput from the community to meet loan repayments and generate profit. All but the very poorest 3-8% of villagers use and pay for agroprocessing services. The degree of benefit is, however, proportional to the amount processed and hence to area cultivated. While this means that the more prosperous tend to gain more from the installation of agroprocessing equipment, micro-hydro is unusual in the

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breadth of socioeconomic strata to which access is available. The use of water resources requires good relations not only with upstream riparians but with all water users who are affected by the often conflicting schedules for agroprocessing, electrification and irrigation. The experience of microhydro in Nepal has been that where owners of installations are members of the existing community rather than outsiders there is a greater tendency for mutually satisfactory relations between the owner and the community. Community ownership has been constrained by several factors. While the cultural background of rural communities in many areas of Nepal is hierarchical rather than group oriented, the definition of community groups for credit purposes is also ill-defined. Consequently so-called community schemes funded by ADBN are often hastily formed committees rather than viable structures with clear equity of access, control and accountability. Similarly, subsidies are paid over to individuals rather than to a community (East Consult, 1990). (ii) Electrical end uses Electrical end uses have been developed and introduced more recently in Nepal than the mechanical end uses on which micro-hydro’s success to date has been based. The number of both add-on and stand-alone installations has, however, been increasing and electrification is widely viewed as the way forward for the sector. Mechanical applications of hydropower have centered on adding value to local production. Electricity, by contrast, is used almost exclusively for domestic and shop lighting. It may, however, be invidious to distinguish between productive end uses and applications which have more direct if less tangible impact on perceived quality of life. While electricity does not currently contribute to productive activities within rural areas, its symbolic and social value may contribute to the social sustainability of communities. Access is markedly less equitable than for the agroprocessing end uses and those connected in rural communities have been willing to pay tariffs for electricity well above the subsidized rate charged by the public sector in urban areas. Payment for electricity is entirely on a cash basis, increasing the difficulty of access for poorer groups, and in some cases even those contributing labor during the installation phase have not subsequently been connected. For the majority therefore, and particularly for the poor, access to electricity is restricted to such commons as lie within the village illuminated shops, teahouses, etc.

(h) Issues for the future (i) End uses The development of private sector microhydro in Nepal has been a success in terms of adoption, dissemination and sustainability. This has been achieved primarily on the basis of locally appropriate mechanical end-use technologies. While opportunities for mechanical end uses appear to have reached a plateau, demand for electricity has provided a new area of market expansion either in retrofitted or as stand-alone installations. Limited end uses for electricity result in underutilization of potential returns on the capital invested in any such installation. The future relevance of micro-hydro to decentralized development will be determined by the degree to which near-market research already underway in Nepal can develop appropriate electrical end uses. These may be either income generating, for example, crop drying technology, or resource (time/fuel/cash) saving, such as electric cooking technologies. (ii) Ownership NGOs and government bodies working in Nepal should seek opportunities to make the benefits of ownership of micro-hydro installations and/or end uses more accessible to poorer groups. This in turn will probably require suitable packages for credit, training and support and greater attention to group dynamics. Current research into lower cost methods of power generation, smaller scale turbines and cheaper methods of electrical control could also make the technology available to groups or individuals at a lower cost and/or scale. (iii) Technical support Training in aspects of micro-hydro technology will continue to be needed as the industry expands. While much of the necessary capacity now exists within Nepal, some support will be required to fund and coordinate training. Similarly, while transfer and dissemination of microhydro technology and some end uses could be considered either complete or expanding through locally sustainable mechanisms, opportunities still exist to reduce costs, increase end-use options, improve reliability and expand the area in which micro-hydro is applicable. (iv) Policy Micro-hydro is the only cost-effective source of mechanical and electrical power (even given the current subsidies on fossil fuels) that has potential for wide dissemination in Nepal’s remote hill areas. Policy measures will, however, be essen-

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tial to assist and direct the continued development of this sector. Public sector credit has been essential to the spread of micro-hydro technology but uncertainty as to the true availability of subsidies and the relatively small state budget allocations to fund them have meant that the potential impact of this policy has yet to be tested. Public sector experience with state-operated mini-hydro projects suggests that involvement in the private sector should be limited to appropriate regulation and provision of adequate financing facilities. The socioeconomic impact of micro-hydro at the micro level to date also suggests that more attention needs to be paid to the mechanisms and targeting of loans and subsidies.

4. PUBLIC

SECTOR

EXPERIENCE

(a) Policy environment For the last 15 years the government of Nepal, through the Nepal Energy Authority (NEA) in Kathmandu, has pursued a policy of rural electrification as a contribution to decentralized development and a demonstrable spreading of the benefits of modern technology to remote areas. One part of this policy has been the increasing number of administrative centers created in remote areas of Nepal. To supply electricity to these centers the government has installed minihydro electricity-generating equipment. Some 15 remote installations were operational by 1988 and a further six were reported to be generating electricity in 1989. In remote areas this has taken the form of electrifying administrative headquarters and, more recently, subsidizing private sector micro-hyroelectric projects. Despite this level of involvement, the goals of rural electrification policy were never formally stated until a study by the government’s Water and Energy Commission Task Force (WEC) in February 1988 (WEC, 1988). The objectives outlined in their report are not directly related to financial viability and relate to the provision of electricity as a service to promote production, tourism, and improved quality of life. Despite the lack of overriding financial objectives, the performance of public sector minihydro projects has often been judged by its profitability and found to be disappointing. This results from overoptimistic projections of demand, difficulties associated with semidecentralized management and technical shortcomings in the design, implementation and oper-

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ation of the schemes. The net results have been that: - operation and maintenance difficulties are widespread causing consumer frustration and reduced revenues; - projects have failed even to cover their operating costs; - NEA has been obliged to meet the shortfall in resources by subsidizing the projects from government budget allocations. There appears to be a continued commitment to the electrification of district headquarters but there is increasing concern over the rising financial commitments involved in operating them. While there are many areas in which the performance of these projects could clearly be improved, it is perhaps unfair to expect them to be profitable. If the primary objective is accepted, namely electrification of remote administrative centers, then economic performance should be evaluated on a least-cost basis. Very few government-operated projects can be expected to become net revenue earners in the forseeable future but if these projects are compared with alternative means of supply to the same locations (grid extension, fossil fuel-powered generators, photovoltaics), the capital and operating costs of micro-hydro installations are generally far more acceptable. Thus policy makers face two principal decisions: whether rural electrification is a worthwhile policy objective, and if so, which method of achieving it requires the least overall cost.

(b) Technicalperformance The design of public sector micro-hydro is carried out by NEA headquarters in Kathmandu using field staff for site surveys. In contrast to the private sector (where, despite the different manufacturers, there is a fairly high degree of standardization between installations) public sector schemes have been drawn up on a once only basis with separate tenders and contractors from Nepal and overseas for different aspects of project construction. The subsequent diversity of equipment, servicing and repair requirements strain Nepal’s limited resources of trained technicians and the budget for spare parts. Many schemes are designed and planned without sufficient hydrological, geological and economic information. This has lead to poor siting, unsuitable designs (for example, requiring more water than is actually available), incorrect projection of demand and interference with water requirements for irrigation (WEC, 1988). The scale of public sector installations falls

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between the very small scale of private sector micro-hydro projects for which traditional water management technologies are often suitable (canals, weirs, etc.) and the large hydro projects where extensive use is made of concrete and permanent structures. The technical design of such installations is, therefore, difficult and has given rise to some highly inappropriate designs based on inconsistencies in the standards and cost constraints applied to different installation components, particularly civil works. This problem is compounded by the difficulty in finding contractors who are willing and competent to undertake the work. Sometimes projects reported as operating are in fact defunct. For example the author visited an installation in late 1988 that NEA claimed to have put into operation earlier that year: the civil works required major remedial work, the electromechanical equipment was incomplete and the site had, to all intents and purposes, been abandoned.

(c) Management Staffing of NEA installations follows public sector regulations and this has lead to the allocation of large numbers of staff, many of whom are support staff, relative to the one or two staff which are the norm at private sector installations. Despite the trained staff allocated to public sector installations, little incentive is provided to manage the projects successfully. For example, all revenues are passed to the Ministry of Finance while even small purchases of spare parts require time-consuming applications to the center for funds. It is ironic that the management of decentralized power generation is, in fact, highly centralized and that this is an important constraint on the performance of public sector installations (Bienen et al., 1990).

(d) Impact In Nepal, as elsewhere, many hopes have been pinned on mini and micro-hydroelectric installations by government and nongovernment bodies alike. This has sometimes lead to extravagant claims for rural electrification as a simultaneous promoter of rural development and conserver of natural resources. Experience worldwide now indicates that in reality rural industrial development has tended to follow electrification in relatively prosperous areas where economic expansion and the development of markets are already in progress (Flavin, 1986). Poorer and more remote areas, on the other hand, require

the development of both physical and servtce infrastructure in order to utilize electricity for productive end uses (ADB, 1983). District headquarters in Nepal have functioned as administrative centers rather than decentralized growth points. Rural electrification by both public and private sectors has had no significant impact on productivity according to both government and independent evaluations (WEC, 1988; IDS, 1988) and an ADBN evaluation in 1979 concluded that many proposed projects near district headquarters actually interfered with irrigation rather than complementing it (ADBN, 1979). Similarly, exaggerated hopes in the 1970s for rapid expansion of alternative energy sources to replace traditional fuels and deteriorating “ecological capital” (INFRAS, 1984) have now been tempered by more economically realistic assessments of the medium-term potential of electricity as a source of light and heat in rural areas (Meier, 1981). The impact of public sector, and to a large extent private sector, electrification has been in social amenity and little replacement of traditional fuels for heating and cooking has yet been achieved. What is clear, however, is that electric lighting is locally perceived as beneficial by many rural communities. Whether or not these benefits are worth the cost involved either in public sector projects or through subsidization of private sector installations, is a matter for Nepal’s new policy makers.

(e) Issues for the future Private sector installations in Nepal have demonstrated that rural electrification using micro-hydro can be self-supporting, albeit with some capital cost subsidy. Larger projects in Nepal to date the remit of public sector are not only established with a projects different set of objectives but also face problems associated with their scale that do not impinge on micro-hydro. Determining ways to improve the performance of mini-hydro projects (including opportunities for private sector management) is a priority for hydro at this scale in Nepal. (i) Policy andplanning Fundamental to a coherent approach for future state involvement in the micro and mini-hydro sector is the requirement for a clear set of policy objectives. A master plan for systematic development of Nepal’s hydro-power sector has been recommended by Nepal’s Water and Energy Commission for several years. This plan is

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currently being prepared in Nepal and should be used as a starting point for realistic and implementable policies at sectoral and ministry levels. The hydro sector is vulnerable to lack of coordination and intersectoral linkages since, as a source of energy, it spans sectors ranging from irrigation to industry. Currently diverse government organizations are involved in the hydro sector and greater coordination of both policy and implementation is required to reduce duplication and inconsistency. Government policy toward private sector micro-hydro also needs to be clearly articulated. The most effective contribution of policy to date has been a reduction of state involvement through deregulation (Meier, 1989). While this hands-off approach has allowed micro-hydro to spread relatively unhindered by the “dead hand” of bureaucratic procedure, other policy conditions are also vital to the private micro-hydro sector. Most notable of these is the availability of state-backed credit and subsidies. Uncertainty surrounding the size and continued availability of government financial assistance constrains continued investment. (ii) Management Difficulties in the management of public sector installations stem from insufficient devolution of responsibility and lack of local accountability. State-run installations have generally been viewed by rural communities as purely government concerns. This characteristic, combined with the often erratic technical performance of the projects, has made the population which could form .the basis of any economic returns sceptical about either the value or the possibility of connection to hydroelectric power. Despite these shortcomings no alternative management systems have been successfully proven elsewhere in Nepal for projects of this scale. Two NGO-installed projects, one at Tinau and one at Salleri-Chialsa, have demonstrated that decentralized management can bring benefits in terms of operational efficiency but both have also received high levels of expatriate input and consequently the real costs are probably beyond what would be acceptable on a broader basis. Nevertheless, increased responsibility for resources to keep the plant operational and accountability to (potential) end users are feasible if there is political will to implement such changes within an overall plan for the sector. (iii) Technical The technical difficulties of state-operated mini-hydro installations have been outlined above and relate both to the scale of the installa-

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tions and the lack of standardization. A further difficulty for planners and designers of these projects is the very scanty data base’available. Further hydrological research is required and. a full review of existing installations to identify key design issues. (iv) Demand and load development Demand projections for government installations have been unrealistic (often based on a load factor of more than 40% while actual factors achieved are close to half this) (WEC, 1988). Not only do estimates of demand need to be revised in the light of experience but demand analysis as a whole will need to form a more important part of project design. Demand for electricity is currently an evening phenomenon. Consequently both public and private installations will continue to be used well below their potential and the former to require continuing subsidy - until technically appropriate, locally affordable and locally demanded electrical end uses are available. Stateoperated schemes should be assisted in taking a development role in the testing and subsequent introduction of such end uses.

5. CONCLUSIONS The spread of private sector micro-hydro installations in Nepal demonstrates how a relatively complex technology can be introduced to and fully adopted by a developing country. The uptake of the technology and its contribution to a developing manufacturing sector have been hailed as models of technology transfer. At the same time the performance of public sector micro-hydro projects has generally been considered disappointing. Why did the two sectors have such divergent experiences?

(a) Private sector Four essential elements contributed to the successful transfer of micro-hydro technology to the private sector in Nepal: - high latent demand for less arduous/more efficient agroprocessing technology and rural aspirations for electric light have quite unexpectedly in some cases provided a profitable opportunity for micro-hydro based enterprises; - foresight and long-term commitment of several local and international NGOs to the incremental development of local private sector manufacturing capability;

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-

effective targeting of institutional credit at a national level enabled rural investment in successful village-based enterprises which would not otherwise be affordable; - partnership with existing rural and manufacturing sector entrepreneurs has contributed to the high success rate of private sector installations. The combination of these factors has resulted in the spread of micro-hydro technology across Nepal as the basis of over 600 successful enterprises. Private sector experience is often said to highlight the shortcomings of the public sector, but is this a fair analysis?

(b) Public sector The performance of public sector mini-hydro projects has suffered from constraints in five principal areas: - lack of clear criteria for project appraisal and evaluation and an absence of policies for end use and load development; - lack of hydrological and other information required for accurate design of installations; - lack of readily adaptable technology of the required scale and of consistent technical standards; - funder-led technology choice and consequent diversity of equipment, dependency on

external parts and expertise, compounded by donor’s unwillingness to meet recurrent costs; - retention of centralized management, particularly financial control, and of government staffing levels. It is easy to find fault with public sector installations but it would be naive to suggest that they should simply be privatized. Not only are most of them unlikely to show a positive financial return for the forseeable future but also the requirements of operating them are well beyond those met in the smaller, private sector installations. The experience of the private micro-hydro sector in Nepal highlights key elements for successful dissemination through the commercial sector. The technology is now embedded in rural communities in many areas of Nepal and is sought by others. Public sector experience has been very different but, while lessons should be learned from this experience, it is not logical to compare closely the performance of the two sectors. The former is based on commercial dissemination of a technology as the basis for rural small enterprise, the latter as a least-cost instrument of government policy. The difference in the experiences of the two sectors illustrates not only the different agenda of commerce and government but also the potential for the uptake of a particular technology to lead to contrasting outcomes even within the same country.

REFERENCES

Agricultural

Development Bank (Nepal), “Impact study of some bank financed activities” (Kathmandu, Nepal: ADBN 1979). Asian Development Bank, Report on the Regional Rural Electrification Survey to the Asian Development Bank (Manila: ADB, 1983). Bienen, H. er al., “Decentralisation in Nepal,” World Development, Vol. 18, No. 1 (1990), pp. 41-75. in developing Cromwell, G. et al., “Micro-hydro countries: Cost-effective power and local participation,” Paper presented at Micro-Hydro ‘88 Conference (Toronto: 1988). East Consult, “Socio-economic evaluation of the impact of micro-hydro schemes on rural communities of Nepal” (Kathmandu, Nepal: East Consult, 1990). East Consult, “Socio-economic evaluation study of small turbines and mill installations” (Kathmandu, Nepal: East Consult, 1982). Flavin. C. “Electricity for a developing world” (Washington DC: Worldwatch Institute. 1986). INFRAS “The SATA energy-related co-operation program in Nepal” (Switzerland: INFRAS, June 1984). Integrated Development Systems, “Impact of rural

electrification in Nepal” (Kathmandu, Nepal: IDS, 1988). Jantzen, D. E., and K. Koirala, “Micro-hvdropower in Nepal,” Mimeo (Kathmandu, Nepal: Jdnuaiy 1989). Meier. U. (SKAT) Personal communication. 1989. Meier, U., “Local’experience with micro-hydro technology” (St. Gallen, Switzerland: SKAT, 1981). Metzler. R., R. Yoder, and H. Scheur. “Small water turbine for Nepal: The Butwal experience in machine development and field installation” (Germany: FAKT. 1984). Nakarmi, A. M./Kathmandu Metal Industries, “Private Sector approach to small-hydro development in Nepal” (Kathmandu, Nepal: KMI, 1987). Pandey, B. R., and Cromwell, G., “Cost-effective monitoring of technology transfer: Case studies from Nepal,” Appropriate Technology Journal. Vol. 16, No. 4, 1989. Pradhan, U.. “Sharing mountain water,” Himal Magazine (Kathmandu) (Nov/Dec 1988). UNDP/World Bank, Nepal: Issues and Options in the Energy Sector (UNDP: Kathmandu, August 1983). Warnock, J. G., “The hydro resources of Nepal,” Water Power and Dam Construction (March 1989).

WHAT

MAKES

TECHNOLOGY

Water and Energy Commission, “Report of the task force on rural electrification impacts in Nepal, Vol. 1” (Kathmandu, Nepal: WECS, 1988).

TRANSFER?

World Water, “Nepal to export World Waler (October 1989).

989 micro-hydropower,”