Dam Rent-Seeking

Kaligandaki Hydro powerplant (Syangja District)

Recently in Nepal there has been a greater push for the creation of more hydro-power plants to help increase the supply of electricity. Until this past year, up to 20 hour periods per day of load-shedding were common across the country. This is not surprising given an average customer increase of 9% per year and much slower growth, almost stagnant, of the power grid. The state owned Nepal Electric Authority (NEA) has started to build more hydropower-plants in recent years to try and catch up with this demand.

The plants are built on a bidding process by contractors where rent-seeking is prevalent. Suppose that NEA decides that on River A they are going to build a hydropower station they will then start the process of looking for a contractor to build the plant. As soon as contractors get word that a new station is being built they immediately are in contact with directors at NEA and ministers to start offering employment for family members, fancy dinners, and even straight out cash bribes in order to win contracts. This leads to an increase in costs bared by the contractor which they then usually pass on in their bid, which usually gets selected. Upon completion, this higher cost of building the station is passed on by NEA to the consumers, the Nepali people, as higher price of electricity. In the end, society's welfare comes at the expense of resources being diverted from other uses in the economy.