Exploiting Nepal’s Hydropower Potential: Some Prospects

Abstract

Abstract: This article examines the macroeconomic effects of hydropower projects in Nepal using an economy-wide, computable general equilibrium model. Hydropower projects can be expected to have important effects because of the considerable construction expenditures they involve and their electrical power generation. The finding here, as might be expected, is that hydropower projects will provide overall benefits, especially economic growth, although there may be an increase in the general level of prices and a decline in traditional exports in the short term. The benefits will be particularly significant if private foreign investment can be attracted to finance such projects. To the extent that the projects are financed domestically, the overall benefits are modest because funding for the projects will have to come from foregone investments. Given Nepal’s abundant water resources and the enormous demand for electricity in neighboring India and China, exploitation of this resource represents an excellent opportunity to finance the process of broad national development of Nepal. However, complex geopolitical problems in the region present serious challenges, and considerable political conviction will be required to see these projects through. It is imperative that hydropower projects are seen as equitable and take environmental issues into account through the highest degree of transparency and participation.