Kathmandu, Feb.22:For its eighth rural electrification project, if Nepal Electricity Authority (NEA) is looking forward to receiving a US$ 50 million loan from the Asian Development Bank, it will have to make its consumers pay the price — once again raising the power tariff that was increased by around 30 per cent some three months ago.

“How much will be the tariff increase this time will be decided by the end of this fiscal year,” says Bhola Nath Chalise, Managing Director of NEA.

Under the second phase of tariff-hike it had promised to the ADB last year, NEA will yet again have to send up the per unit power price by around 25 percent. The latest increase in November last year, has placed the average power tariff at 6.5 rupees per unit.

“But even before raising the tariff, we will try to make the inhouse correction like bringing down the leakage, collecting arrears, among others,” assures Chalise. “If the idea works, perhaps the raise will be somewhere between 10 and 12 per cent.”

The two phase tariff hike was basically the brainchild of NEA after the multilateral agency stressed on a 50-55 per cent tariff hike in exchange of the loan it has already approved for the rural electrification project.

Understandably, the figure was too high for NEA to send the tariff shooting up at a time. Thus came the idea of the two phase tariff-hike to convince the donor for the US$ 60 million rural electrification project expected to connect around two dozen villages across the Kingdom with the national power grid. ADB’s loan apart, the project has had a green signal for US$ 10 million assistance from the Organisation of Petroleum Exporting Countries.

At the face of it, even if it appears to have been pegged with the eighth rural electrification project, NEA’s commitment to ADB on raising the power tariff dates back to 1996 when it negotiated the 144 MW Kali Gandaki hydropower project with the bank.

Then, the authority, aiming at the US$ 150 million loan from the multilateral agency, agreed to its two covenants: It should send its rate of return at six per cent and its self financing ratio, that has to do with its investment capacity on projects, at 23 per cent.

More than three years down the line, ADB still finds the two conditions unmet. “The raise in the power tariff last November has only covered the inflation since 1996,” says Richard Vokes, Resident Representative of the bank. Before the latest power tariff hike, it was only in May 1996 the price of electricity was increased.

With the second phase of the tariff-rise, the bank believes its two covenants, it had tagged with its loan for Kali Gandaki, will be met. The still under construction run of the river project is estimated to cost above US $ 450 million.

But, with NEA, as claimed by Chalise, trying to pull its socks up in a bid to limit the tariff-hike between 10 and 12 per cent, will the move please ADB? “It all depends on how much progress will be made,” asserts Vokes.

ADB’s satisfaction matters much in the rural electrification project since it has only approved the US $ 150 million loan but is yet to release it. “The loan will flow only after the covenants are met,” says Vokes.

An equal key factor for the project is NEA’s tightening up its own screw. Already marred by its around 25 per cent system loss in its a little above 300 MW installed capacity, the authority continues to  be over-burdened with arrears amounting to around Rupees 700 million — two thirds of it owed by municipalities and the rest by the government.