What power Hydropower

Bhutanese generally do not save, they spend more than they earn. They even borrow to spend. So national-debt-is-not-my-concern attitude of politicians, bureaucrats, private individuals alike is not really shocking. Is there any other way, other than hydropower, to service mounting Nu 120 billion credit that is on upward spiral? Which sectors have potential to service $2.0 billion equivalent loan: agriculture, manufacturing/industry and/or tourism? Credit, by itself, is not so much of a concern, if the country has capacity to make the most of the loan and service it. For us, it’s a huge “if”!

As per the Financial Times, Japan is the most indebted nation in the world with gross debt to GDP ratio of 245%. The figure is mind-boggling but the public still maintain calm. The Japanese government holds large amount of assets, therefore the net debt to GDP ratio goes down to 132%. And then Bank of Japan holds a large amount of Japanese government bonds which, in principle, can be held forever without having to worry about how it is going to repay. Then the net debt relative to GDP ratio goes even further down to 80%. Some have calculated as low as 41%.

Looking at our current standing on assets that can be beneficially traded/harnessed, we have no choice except to harness our hydropower. It is already almost like staking the futures of our children/grandchildren on hydropower. The arguments on “eggs in a basket” are redundant. We can only talk about our ability to smartly harness hydropower and move ahead securely. Yes, securely! Let us not make hydropower an issue for political gamble. Please, people of Bhutan and the region deserve better and we have to have high ability because the hydropower, in my view, is a high risk investment. I do not buy “cost plus” paradigm with the Government of India as risk covers, certainly not on account of the following.

First, can anyone (including experts from both countries intensely involved in power sector) tell us capacity factors of the Bhutanese run-of-the-river mega power plants down the line, say in 10, 15, 20 years from now, considering water-flow variations, seasonal as well as year to year, technological shortfall then and other human factors? The way we import power at the moment from India in winter gives us impression that the capacity factors of our power plants are low even now. The capacity factor risks can be mitigated to an extent by optimizing the sizes and types of hydropower plants. Why are we going ahead with mega run-of-the-river power projects with high capacity factor risks? Isn’t smaller run-of-the-river and reservoir power projects combination with high capacity factors the better option? In terms of energy storage, power plant efficiency and energy security, this combination is by far the better option. Shouldn’t capacity factor be one of the major considerations along with geotechnical, hydrological and environmental factors? What is the assurance that the run-of-the-river mega power plants will not be redundant in say 10, 15, 20 years when we consider snow and glacier melt runoff by then?

Second, we need to think ourselves as an open energy market player considering the regional (even global) power grid development. Then will our power be competitive in an open energy market considering that the energy profile of the world, including that of renewable energy in India, changes at a rapid pace? We better be aware of the open market forces in energy sector and prepare for the challenges. For instance, hydraulic fracturing (“fracking”) and horizontal drilling seem to be breaking the power of the OPEC to keep the oil price high. The brent crude is trading at $50/barrel from the high of $145/barrel in August 2008. Goldman Sachs says $20/barrel in future is a possibility.

Third, there are huge efforts for paradigm shift in urban energy systems with  distributed energy generators, also called energy servers, producing clean reliable, affordable electricity at site. Some even talk about grid electricity as fading trend in the new energy world. Will our power plants feeding the grids remain relevant through their economic life? Many power systems claim they generate electricity cheaper than the power companies for two main reasons. Firstly, their unmatched efficiency in converting fuel (e.g. fuel cell) to electricity, meaning systems producing significantly more electricity for the same fuel costs. Secondly, the ability to generate fuel at site eliminates the need for costly transmission and distribution infrastructure both physical and organizational. So much so that the savings typically are calculated to provide a 3-5 year payback on the initial capital investment on energy servers.

Fourth, we have to be absolutely sure about our hydropower policy and strategy, and transform the economic development pattern to resource, more specifically water-resource, based model. This may involve massive reforms including redirecting investments and entrepreneurs, and reforming, streamlining and cutting the civil service to size.  The civil service needs to be free from cronyism and corruption, and has to have strength to face, not hide, the reality on ground. Are we prepared to transform,  cut and clean? The pseudo-fanaticism piggy-backed on “cost plus” principle is bound to fall flat.

Fifth, key to above lies on the abilities of our current and future workforce that need to be highly educated and dynamic to take up the challenges posed by the massive economic shift. There is no denying that the quality of our workforce is the weakest link in the development process. The IQ level of our school children are low (anyone can verify this). Are we ready to reform education sector based on meritocracy as fundamental ideology and principle in the education system? The education system has to aim to identify and groom bright young students for positions of leadership. Leadership in energy is not an easy option. Children need to be taught manners, honesty, respect and responsibility. We may need to go beyond to teach softer skills such as collaboration, critical thinking and creativity. Critical factors for developing creativity in school include: (i) creating in the classroom an environment that support creative thinking and work; and (ii) teaching creativity skills and strategies explicitly and assessing in the context of academic learning. Misplaced priorities in education do not produce leaders of international level. Nationalism has its own place and should evolve through deeper sense of respect, knowledge and substance, not through parroting of catchphrases. The practices incubate superficiality, obliterates creativity, and let go public interest.

We either tighten our belts and work hard to take the hydropower issues head on or float on “cost plus” paradigm and bask on self-liquidation delight letting the open market forces squeeze in future the best out of us. The choice is with us!

The Growth Model

Our economic growth model seems an import-driven internal consumption-based pattern characterized by high credit growth and internal and external imbalances, and presumably heading towards resource based economy with assumption that manufacturing, as well as services, will no longer provide engine of growth. It is an easy-go model that requires no major effort to ensue. Basically beseech, borrow and spend (not even invest) brand that takes practically no account of  accountabilities for the financial recklessness, be it millions spent on domestic airports, education city, IT park, massive buildings and/or feeder roads of negligible benefits to the nation.

The economic growth model has to be supported by comprehensive plans. It should evolve fully responding to various challenges emerged as a result of detailed analysis of country’s  situation, strengths and weaknesses including people-sourced details. In formulating the model, it may even involve transforming the economic development pattern completely. Late Lee Kuan Yew said, "Well, we are pragmatists.  If in order to survive, we have to open up a sector, we open it up. Because the best test - the yardstick is, is this necessary for survival and progress? If it is, let's do it. We are ideology-free. What would make the place work, let's do it." 

Let us take the case of Bangladesh. With about $21 billion in exports in 2013 (80% of total exports) Bangladesh has become hot spot of ready-made garments (RMGs) producing mainly 5 items: T-shirts, sweaters, trousers, men’s and women’s shirts. There are more than 5,000 factories employing almost 4 million workers. Some experts forecast export-value growth of 7-9% annually and Bangladesh RMG market to touch $45 billion (about Nu 2.9 trillion, yes trillion) by 2020. Mind-blowing figure!

The main factors, among others, for Bangladesh RMG boom are: (i) strong and expanding backward linkage particularly for cotton items; (ii) domestic supply meeting 90% of fabric and 75% of yarn requirements; (iii) low labour and production costs (in time when increasing labour costs in China started to become an issue); (iv) easy and abundant access to skilled labour force; (v) flexible labour market laws and regulations; (vi) price competitiveness;  (vii) product diversification and upgrading; (viii) world standard and social compliances; (ix) courageous and bright entrepreneurs; (x) export friendly government policies; (xi) flexible financial market; and (xii) major push for image building and market promotion.

The Bangladeshis are working on improving transport infrastructure and energy supply, and reducing political unrest and strikes. The three main stakeholders — the government, suppliers, and buyers — work together. The government's top three priorities for investment are infrastructure, education, and trade support. It is clear, Bangladesh is on export-led development model and directs investment and entrepreneurs towards manufacturing exports. This is how they have been able to carve a $45 billion niche in the world market that involves even shifting RMG manufacturing base from China to Bangladesh. I envy them in an affirmative way!

A model is a conceptual framework devised to be used as a guide in making a diagnosis, understanding a developmental process, and forming a prognosis for continued future development direction of the country. It has normally five components: (i) the identifiable state describes the stage, level, phase, or period of the condition or process; (ii) the shift in state identifies qualities of change as progressive, sudden, abrupt, or recurrent; (iii) the form of progression describes patterns of development as linear, spiral, or oscillating, (iii) the  force that triggers the change or the step in development may be self-actualization or any form of stress, and (v) development is ultimately constrained by the fifth component, potentiality, the genetic and environmental possibility of growth.

It is not possible to have a dynamic economic growth model if the economy is mostly government-centric and does not enjoy the confidence of private  and non-profit sectors. That is what it is, and therefore step-by-step transformation of economy to the new growth model is prerogative. Plans drawn off the cuff and casual commitments with foot in the mouth by politicians do not work. The haphazard action plans/activities formulated on the back of an envelope not only distort  development resources and efforts streamlining,  but also stifles innovation, enterprise, and enquiry into cause and effect relationships. Without due attention to these it is impossible to interact with fiercely competitive world. Many with vacuum of ideology, principles, purpose and integrity may say why do we need to interact with the world? Many experts consider North Korea, Laos, Cambodia, Myanmar, and New Guinea as east Asia's failed states. Their one common characteristic: failure to trade and interact with the world.

As per Economic Development Policy (EDP), Bhutan’s economic development policy, guided by the overarching philosophy of Gross National Happiness (GNH), is based on the four pillars: (i) sustainable economic development; (ii) preservation and promotion of culture and tradition; (iii) conservation of environment; and (iv) good governance.

On sustainable economic growth alone, major challenges identified in EDP are:

(i)           Economy largely financed by external aid

(ii)          High fiscal deficit

(iii)         Weak balance of payment

(iv)         Mounting public debt

(v)          Difficult to sustain foreign exchange reserves as it is not built through exports

(vi)         Small domestic market

(vii)        Inadequate infrastructure

(viii)       High transportation cost

(ix)         Difficult access to finance

(x)          Inconsistent policies

(xi)         Lack of management skills

(xii)        Shortage of professionals

(xiii)       Low productivity of labour

(xiv)       Absence of R&D capability

(xv)        Access to land

The EDP recognizes that unless these constraints are systematically removed, the capacity of the private sector as the engine of growth cannot be enhanced. Heavy sentence!

Our competitive advantages identified in EDP are:

(i)          Political stability

(ii)         Peace and security

(iii)        A vibrant and living culture

(iv)        Natural and pristine environment

(v)         Geo-economic location and open access to the emerging Indian market

(vi)         Reliable and competitively priced energy

(vii)        Nation of GNH

(viii)       Wide use of English language

I suggest you to put the above pros and cons on an economic growth balance and see for yourself if these so called advantages can be classified as the country’s Unique Selling Proposition (USP), one that is expected to build on and to become Brand Bhutan. I will not go into geographical location that lacks credible reasoning to term as competitive advantage. The questions are, “Are we really up for export-led development model? Do we really want to lure credible FDIs to achieve our goal the way Bangladesh is doing?” The optimism displayed by our pseudo-idealists lack understanding how tough the mainstream FDI customers are! Credible FDIs do not do emotional investment. They look for opportunities and markets favourable to their businesses in the terms they dictate, if possible.

I am not disparaging EDP. We are in mid-2015 and the government statement of achieving minimum growth rate of 9% annually and striving to be a middle income nation by 2020 in EDP sounds hollow. It is not difficult to assess how much of efforts have gone so far into the Areas of Economic Opportunities identified in EDP to help generating wealth, employment and sustainable growth within the framework of GNH easing above 15 challenges. Surely, we cannot be taking things so casually once we put credibility of the nation in the forefront. Can we?

We are in high-voltage cloud computing age enabling to put-up apps in cloud storage, and do business or launch start-up. Those who do not realize value of internet, they can watch the world go by outside their window because you cannot eat pixels. The internet enables the use of the knowledge and power of community. Those who are not aware of this will eventually reach the point where they become a cubicle Jonestown devoid of anything resembling real-world logic.

Internet is the double-edged killer technology. The digitization not only benefit business in terms of product development and supply-chain management to sales and/or marketing, but also in providing straightforward information enabling people to interact among themselves facilitating benefits. It is possible to harness digitization benefits and the digitization process.

On the other hand it can ruin the foundational underpinning  with superficial use of information available in the net through application of shallow ideas and concept that are no longer relevant to the ground realities. We tend to be heading towards this syndrome. If you disagree with me, try talking to senior teachers how many shallow concepts and borrowed ideas have messed up the education system. Education is not alone. All most all sectors have applied policies and regulations that float because those are mostly square-pegs-in-round-holes. There are numerous ideas in the net that look good and can be downloaded free. These only help in framing superficial solutions sweeping under the carpet the real development dilemma and parroting frivolous nationalism. The problem is we suffer from doing things easy-way without analytical details to help structure development direction. Our inability or refusal to grasp in-depth knowledge of the structural problems, because we find conflicts of interest, will drive us to intellectual backlog deficit that will be of much bigger agony than any current account deficits. While the world's money is moving into the pockets of 25-year-olds with sexy ideas, our dated start-up engine does not fire because neither it has been retrofitted/modernized nor there is fuel.

In 1960, the American Economic Historian, W.W. Rostow, suggested that countries passed through five stages of economic development. According to Rostow development requires substantial investment in capital. For the economies of least developed countries to grow the right conditions for such investment have to be created. If aid is given or foreign direct investment occurs at Stage 3 the economy needs to have reached Stage 2. If Stage 2 has been reached then injections of investment may lead to rapid growth.

   

Rostow's Model - Stages of Economic Development

				Stage 5: High Mass Consumption   consumer oriented, durable goods flourish, service sector becomes dominant
			Stage 4: Drive to Maturity  diversification, innovation, less reliance on imports, investment
		Stage 3:Take Off               industrialization, growing investment, regional growth, political change
	Stage 2:Transitional Stage  specialization, surpluses, infrastructure
Stage 1: Traditional Society  subsistence, barter, agriculture

It is good to know the five stages of Rostow’s Economic Development model. I do not believe development ladder-steps are so structured and neat in reality. So we do not need to place ourselves on one of the Rostow treads. But there is no denying of the fact that one way or the other we need to climb the staircase for which a conducive environment for substantial investment in capital, both internal and external, is a prerequisite.

As of now I see two choices. Either continue status quo and head in the direction of east Asian nations mentioned above, or eliminate conflicts of interest in the areas of pursuing inclusive governance (such as, but not limited to, creating leveled playing field, exercising financial transparency, granting merit-based - rather than obeisance-rooted - reward and recognition, maintaining proper accountability, overhauling sectoral policies, regulations and procedures) and applying rule of law; and redirect the nation to proper economic growth model (even if it is resource based growth model). Unfortunately it is either/or. We need good alchemy!

Nepal Earthquakes

I could not walk pass some of the narrow gullies of Kathmandu,  without a thought about earthquake and feel of chill through my spine, looking how attached and fragile the houses were. I know the earthquake happens due to tectonic activity. But the earthquake disaster is a function of  tectonic activity, population size and quality of construction. Why were the authorities so indifferent that you almost feel like you are in three different countries while travelling around Kathmandu, Pokhra and remote villages of Nepal. That was my observation during our holiday there in January this year.  Sitting on top of major geological fault with one of highest urban population densities in the world (with population growth rate of about 6.5%) and dilapidated and fragile buildings all over, Kathmandu valley was clearly facing high earthquake risk. This, for smartphone era people with internet at their finger tips, is a general knowledge.

The Nepali villagers may say some things are beyond control. It was their karma. The tectonic activity is beyond anyone’s control but population density and construction qualities are man-made. The 1934 and 1988 earthquakes severely damaged Kathmandu with around 10,600 and 1,500 fatalities respectively. Life of human being is, at some point, touched by tragedy of some kind. I believe only those who accept this fact are more prepared to face it, for tragedy does not come with warning. How could the authorities not accept the facts of tragedies of such dimensions and get caught so unprepared? It is, in my view, the recklessness of ruling generations with neither a sense of responsibility nor accountability.

The devastation wrought by 7.8 magnitude on 25 April 2015 is hard to grasp. The official counts of dead are at least 8,046 people and injured more than 17,800 and adding. As per New York Times more than a quarter of the Nepal’s 28 million people have been affected. Entire villages remain buried under avalanches or landslides. About 75 percent of the buildings in Kathmandu are destroyed or are unsafe. We are close neighbour. Looking at these figures and images, our hearts ache. We prayed and did whatever we possibly could, and are still doing.

Looking around Kathmandu valley, people who survived may have just started to come out of the shock and feel little lucky. Lucky that it did not hit them hard. Lucky that the earthquake was during the daylight, during the night people would have been sleeping and who knows what would have happened. And that it was Saturday, when the children were not in schools. Also lucky that it did not happen during mid-monsoon or mid-winter.

As if not to let the Nepalese escape the trauma, another earthquake of 7.3 magnitude strikes Nepal again on 12 May 2015 followed by several aftershocks.  The government reported more than 100 deaths and 2,500 injuries.  Many would have said perseverance has limit. After the limit is crossed, what else can you do when the world is turned upside down? Thank God, Nepalese are more bold than one could imagine. If one Nepali rises in organizational hierarchy, pulling the person down is typical  Nepalese characteristic. But if in emergency, they fight and reach out to one another like no one else. They do not desert, as if to bear witness to the fact that true qualities of a being is tested during emergency. That probably shows bold Gurkha  chi with high resilience. The reason why PM Narendra Modi believes in the saying that “if a soldier says he is not afraid of death, he is either lying or he is a Gurkha.”

While the spirit may be strong, Nepal needs to fight the big battle, the battle to prevent cholera and other disease, speed-up relief operation to beat monsoon season which begins in about five weeks to provide tents and food to as many as 800,000 Nepalis whose homes are uninhabitable, and also quash  unscrupulous elements from becoming active in stealing properties, child trafficking, corruption  and other malpractices.

The big question now is, when will the Indian plate stop pushing Eurasia plate north-east causing unprecedented devastation in Nepal?  Will the Nepalese get over the search and rescue phase and move onto relief operation or they will be thrown back to digging survivors again? Some speculate that the thrust between the subducting Indian plate and the overriding Eurasia plate is moving eastwards, meaning towards Bhutan. The speculation may have been based on the fact that the epicentre has moved from west to east of Kathmandu valley. No one can predict earthquake. It does not come with warning. The fact is the Himalayan range sits on geological fault. The preparation now to face future earthquake will improve resilience and save many lives. 

And then moving on to rehabilitation and reconstruction phase, the longer-term challenge for Nepal is to rebuild shattered infrastructure and economy that may have been pushed back by a decade. Nepal is at a critical cross-road. It may look as an opportunity to rebuild better and do well, and rebound with Gurkha life-force. Or it may continue to remain a country bogged down by the caste-dominant power base ridden with corruption depriving other castes the benefits of sound governance and inclusive development. In Nepal they do not caste their votes, they vote their castes. If the Nepalese do not see opportunities to do well even after earth-shattering disaster, they may not see the light of the day for decades to come. Before that, situation may arise when the country may not be able to fulfill some of the basic conditions and responsibilities of a sovereign state (period).