By Ratna Sansar Shrestha, fca

In the previous fiscal year, Nepal Electricity Authority (NEA) exported 1,946 GWh surplus electricity (which would have been spilled if not exported, hence it would be called spill energy hereinafter) for Rs 17.06 billion. Similarly, in the first 5 months of the current fiscal year, NEA exported 1,765 GWh of spill energy for Rs 13.04 billion; equivalent to $96.59 million. NEA has targeted to export about 4,059 GWh spill energy for Rs 30 billion, equivalent to $222.2 million, in the current fiscal year.

This is certainly a positive step. If the spill energy had not been exported, NEA could have incurred a loss or will incur a loss. Currently, out of 3,242 MW of electricity generation capacity in Nepal, 3,075.73 MW is hydropower. NEA owns 583 MW hydropower plants (18.9 percent of the total installed capacity) that generate spill energy especially during the rainy season. Similarly, NEA’s subsidiaries own 492.9 MW hydropower plants, in which the general public has invested in its equity and NEA also purchases the spill energy from these plants. Further, independent power producers (IPPs) own 1,999.77 MW hydropower plants, from which also NEA is forced to purchase spill energy. Because under the power purchase agreements (PPAs) between NEA and IPPs, the former is obliged to purchase all contracted electricity and pay for it. Normally a profit-making organization neither produces commodities that cannot be sold on its own, nor does it purchase such commodities from others. On the contrary, NEA is in an ironic position of not only generating spill energy but also purchasing the same from others, and it does not have any choice but to export.

Monopsony Trap

However, India is basically a monopsony buyer with respect to the export of electricity. Other goods and/or services can be exported to countries other than India. But due to geographical reasons, electricity can only be exported to India. While discussing this, it should not be forgotten that India is not a reliable and trustworthy neighboring country. Thus far, India has imposed 4 blockades on Nepal for no rhyme or reason: in 1962, 1970, 1989 and 2015. Moreover, India had imposed the last two blockades immediately after devastating earthquakes in Nepal that caused huge loss of life and property.

Electricity is also a kind of commodity, which is called an electromagnetic field, and no matter which power plant it is generated from, it cannot be distinguished during transmission, distribution and utilization as to whichever powerhouse it is generated from and, where, when and for what purpose it is being used. However, India has imposed unreasonable conditions on the import of electricity from Nepal. The restriction is on the import of electricity generated by powerhouses built with Chinese investment or by Chinese contractors or using machinery, equipment, etc. produced there.

Moreover, Section 6.7.1 of the Electricity Import/Export Procedure issued by the Central Electricity Authority under the Ministry of Power of Government of India (GoI) in February 2021 stipulates that GoI reserves the right to import/export electricity from/to neighboring countries for reasons of larger policy interest, and same shall be binding on importers and exporters. That means GoI can ban electricity imports from Nepal at any time at its discretion. If this happens, NEA would be in a dire strait.

If GoI is to prohibit the import of electricity from Nepal at any time using the discretionary authority mentioned above, it could lead to NEA’s bankruptcy. Because NEA can stop generating spill energy from the powerhouses it owns, which is less than 20 percent. However, according to PPAs, NEA cannot refuse to buy spill energy generated by its subsidiaries and IPPs and it has no choice but to buy and pay for it. If more than 80 percent of spill energy cannot be exported, NEA may face a major economic/financial crisis, including even becoming insolvent since NEA plans to export spill energy worth Rs 30 billion in the current fiscal year as mentioned above. Therefore, exporting spill energy to India is a risky venture in several ways. Hence, efforts should be made to find alternatives to exporting electricity to unreliable and untrustworthy India, a monopsony buyer.

Export to Bangladesh

NEA, NTPC Vidyut Byapar Nigam of India and Bangladesh Power Development Board have signed a tripartite agreement to export 40 MW of electricity from Nepal to Bangladesh via India. However, since India was also a party to the agreement, India has restricted the export of electricity to Bangladesh generated from powerhouses built with Chinese investment or by Chinese contractors or with machinery, equipment, etc. produced there.

Moreover, Bangladesh does not have a good track record as it has defaulted payment for electricity imported from India. Bangladesh owes $850 million to Adani Power and $23.3 million to Tripura State Electricity Corporation Ltd.: total default amount Rs 117.895 billion. While some industries in Nepal are said to have defaulted a few billion rupees, NEA will have serious liquidity problems if a large amount of money is defaulted by Bangladesh for electricity imported from NEA.

Since NEA has started exporting to Bangladesh too, it may not be appropriate to call India a monopsony buyer any longer. However, there is no substantial difference between exporting to India and exporting to Bangladesh, since the conditions imposed by India apply to the export to Bangladesh as well.

Innovative Use of Spill Energy

Innovative technologies have developed in the world that can utilize spill energy. The Royal Government of Bhutan (RGoB) used spill energy to mine Bitcoins, one of the cryptocurrencies, in 2024 and sold 367 Bitcoins; earning $33.5 million (Rs. 4.6 billion) and is holing Bitcoins worth $1 billion (Rs. 137.46 billion) in stock.

Similarly, a large quantum of electricity is required to process data and to train artificial intelligence (AI), for which spill energy can be used. Data processing and training AI is done at Data Centers.

It takes seven years for new Data Centers in Virginia, USA to have electricity connection with Dominion Energy, Inc.; a utility which supplies electricity to Virginia, North Carolina, and South Carolina states. This fact is not mentioned here to imply that NEA should start exporting electricity across the seven seas to some states in the USA because electricity cannot be exported that far; not even by satellite. This scribe opines that Nepal’s spill energy should be put to alternative innovative uses that are more lucrative. Either Data Centers from the USA should be invited to Nepal or GoN itself should establish and operate Data Centers in Nepal. It has the potential for an exponential quantum of revenue for GoN, compared to exporting to India and/or Bangladesh.

Cryptocurrency: Bitcoin

110,000 kWh of electricity is required to mine one Bitcoin. NEA has exported electricity that could mine one Bitcoin for merely Rs 812,900, equivalent to $5,913. But the price of a Bitcoin is now more than $100,000 (Rs 13.746 million). In other words, GoN can earn $100,000 dollars by mining Bitcoin using spill energy for which NEA receives merely $5,913 by exporting.

NEA expects to export electricity worth Rs 30 billion in the current fiscal year, equivalent to $218.2 million. It means approximately 4,059 GWh of electricity will be exported. This amount of electricity can be used to mine more than 36,900 Bitcoins, the price of which is $3.69 billion at the rate of $100,000/Bitcoin, which is equivalent to Rs 507 billion. This amount is almost 17 times the amount NEA receives from exports.

Ban on Cryptocurrencies

It should not be forgotten that Nepal Rashtra Bank has banned cryptocurrency transactions in Nepal under Section 12 of the Foreign Exchange (Regulation) Act. Therefore, legally, the general public can neither mine nor trade Bitcoin. But this ban is not applicable to GoN. Just as the RGoB has benefited from mining Bitcoin by using spill energy, GoN too can emulate.

In Nepal, gambling too is banned. However, GoN has issued licenses to 22 casinos and mini-casinos in order to allow foreigners to gamble, from which GoN is earning substantial royalty revenue. Therefore, if GoN itself mines Bitcoin by taking the spill energy from NEA, the Nepal government treasury will be enriched by a magnitude.

Data Processing & AI

Just as a normal computer uses a central processing unit (CPU), data centers use 300 watts graphics processing units (GPUs). A standard mid-range data center would comprise 500 racks with 42 GPUs in each rack: in total 21,000 GPUs. Operating 1 GPUs for an hour would consume 0.3 kWh of electricity. The cooling infrastructure to avoid overheating of GPUs also would consume some electricity. It is estimated that the all-inclusive cost of operating one GPU for 1 hour would be 1 kWh of electricity.

GPU rate per hour in the market is $2.5 to $3.5. Nepal can charge only $1.5 for one hour’s GPU operation. In this way, if the 4,059 GWh electricity that NEA has targeted to export in this fiscal year were used in a data center, GoN could earn $6.088 billion, equivalent to Rs. 836.92 billion. Which is almost 28 times the amount that the NEA will receive from exporting electricity.

Indian billionaire Mukesh Ambani's Reliance Industries Group has recently announced that it will operate the world's largest data center in the Indian city of Jamnagar in Gujarat, which will require a very huge amount of electricity. India can use Nepal's electricity for northern India and supply electricity within India to Jamnagar. It should not be forgotten that an agreement has already been signed to export 10,000 MW to India. Before this happens, it would be prudent for Nepal to establish and operate a data center and use the electricity that would be exported.

The hardware for the data center including GPUs and servers is estimated to cost $225 million and the data center building $5 million. Similarly, power and cooling infrastructure is estimated to cost $10 million and networking $3 million. Total initial investment is expected to be $243 million equivalent to Rs 33.40 billion. GoN can earn Rs. 836.92 billion annually with an initial investment of Rs 33.40 billion by operating a data center. While, less than 20 percent of GoN’s total budget for the current fiscal year has been allocated for capital expenditure and based on past track records actual capital expenditure is likely to be a lot less. On the other hand, Nepal’s foreign exchange reserve has reached $14.9 billion. Establishing a data centre at the cost of $243 million would amount to a revolutionary (not destructive, but creative) step for the upliftment of Nepal’s economy. Also, since the necessary human resource is available in Nepal itself, there will be no difficulty in operating a data center.

Income Tax Exemption

GoN’s targeted revenue collection in the current fiscal year is Rs 1,419 billion, of which Rs 1,284 billion is tax revenue. If GoN is to use the spill energy to mine Bitcoin, GoN treasury will receive more than Rs 500 billion and if a data center is operated, the state treasury would be richer by Rs 800 billion. This kind of revenue could metamorphose Nepal’s economy. Besides, GoN can take another “creative” revolutionary step by exempting people from income tax; maybe for people earning up to Rs 10 million/year. This would increase the purchasing power of the general public thereby arresting the downward slide of the economy or could jumpstart the economy that has stalled. People in Asian countries like Maldives and Brunei do not have to pay income tax and there is no income tax in the United Arab Emirates, Qatar, Bahrain, Kuwait, Oman, etc.

Or GoN can substantially reduce the quantum of domestic and foreign debt; the budget for this year is Rs 547 billion. Nepal's public debt has already reached Rs 2,434 billion and by putting spill energy to innovative uses, the debt service burden on the state treasury can be reduced by a magnitude, and the same can be utilized for productive uses or social welfare.

Conclusion

When Nepali Congress leader Sushil Koirala was the Prime Minister, India imposed an economic blockade, for no rhyme or reason, on 23rd September 2015, but most leaders of that party could not muster the courage to utter the “B” word. However, KP Sharma Oli, who was appointed Prime Minister on the 12th of October 2015 took a patriotic and nationalist stance and succeeded in having the blockade removed. Fortunately, the same person is now the Prime Minister. Unfortunately, the country's economy is facing serious problems. In such a situation, if PM Oli takes the initiative and utilizes the spill energy to mine Bitcoin or operate a data center, the economy will surely take an upward turn. Besides, exempting people from income tax will amount to distributing stimulus packages to the people with decreased purchasing power, suffering from Nepal’s economy that is stagnating or worse. It is earnestly hoped that such a golden opportunity will be utilized forthwith.