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Nepal’s economy hammered by power outages


Nepal’s industrial sector has been hit hard by power cuts in recent weeks, with many small, medium and large businesses forced to shut down due to lack of power. The Himalayan nation relies heavily on imported energy from India, especially during the summer months.

But power generation in India is down as it faces one of the worst power crises in years, resulting in little power to export to Nepal. The Asian giant, which shares a long land border with Nepal, has itself faced power outages amid high demand, due to the hottest pre-summer months in decades, industrial activity and supply bottlenecks due to shortages of coal, which generates up to 70 percent of its electricity.

Heavy reliance on Indian electricity

Pre-summer stocks at Indian thermal power plants have fallen to one of the lowest levels in recent years, forcing the Indian government to reverse its course of overseas coal purchases and organize its supplies by accelerating imports. But imports have become more expensive since the start of the year, as spot coal prices climbed after Russia launched its invasion of Ukraine in late February.

“We import 30 to 40 percent of our electricity needs from India during the dry season,” said Suresh Bahadur Bhattarai, spokesman for the Nepal Electricity Authority. DW. “Now, due to severe coal shortages and higher domestic demand, India itself is facing an energy crisis, so we could only import a quarter of our demand.”

Bhattarai pointed out that the power cuts will likely remain in place for a few more weeks, before the start of the monsoon season, which officials hope will bring enough rain to raise water levels in rivers across the country. Nepal and stimulate hydroelectricity production. Electricity generation in Nepal relies heavily on its run-of-river hydro projects, which are intermittent power generators that generate more electricity when seasonal river flows are high and less during the summer months. dry summers.

Gokarna Awasthi, chief executive of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), an umbrella organization of more than 900 private sector companies, said the industrial sector is suffering because of the problems. “Industries are not able to operate at full capacity without electricity,” he said. “They’re using diesel generators to try to fill the supply gaps.”

Nepal bans many imports to save foreign exchange reserves

The power cuts come at a time when Nepal is already grappling with the problem of depleted foreign exchange reserves. Nepal recently banned imports of cars, alcohol, tobacco and other luxury items and shortened its working week to help conserve its foreign currency reserves. The ban, in effect until the end of the fiscal year in mid-July, also prohibits imports of toys, playing cards and diamonds.

The main sources of foreign exchange for Nepal – which exports little and imports almost everything from abroad – are tourism, remittances from foreign workers and foreign aid. Visitor numbers plummeted after the onset of the COVID pandemic, while remittances – which account for around 60% of the country’s foreign exchange reserves – also fell as Nepalese workers abroad had to return home during the global health crisis. This has hit Nepal’s $36 billion (€34.69 billion) economy hard, leaving many of the country’s 29 million citizens struggling.

Although there was a recovery in foreign arrivals in the first quarter of 2022, Russia’s war against Ukraine has halted the flow of tourists from these two countries, while contributing to a rise in the prices of everything , edible oils and food to air fares. .

Shortened work week to save fuel

Rising prices and a soaring import bill have had a negative effect on the trade deficit and the value of the national currency, raising fears that it could lead to a balance of payments crisis, which occurs when a country is unable to pay for its imports or service its external debt payments. The trade deficit rose 34.5% year-on-year to 1.160 billion Nepalese rupees ($9.5 billion, 8.8 billion euros) in the first eight months of the financial year, costs import increased.

Nepal’s gross foreign exchange reserves fell to $9.75 billion in mid-February, down 17% from mid-July last year at the start of its financial year. Reuters reported. Current reserves are estimated to be sufficient to support imports for approximately six months. To ease the pressure on foreign exchange reserves, the government has also reduced the working week from five and a half days to five dazs as part of its efforts to reduce fuel consumption, as rising crude oil prices add to pressure on Nepal’s foreign exchange reserves.

Nandini Lahe-Thapa, director of the Nepal Tourism Board, said DW that the decision is an “extremely promising step” for the promotion of domestic tourism. “We were pushing to have a two-day weekend not only for the promotion of tourism, but also for the mental health and recreation of the workers,” she said, adding that domestic tourism has proven to be vital. for the survival of the entire tourism and hospitality sector during the pandemic.