According to government reports for 1988-89, approximately 95 percent of energy consumed was from traditional sources: fuelwood (76 percent), agricultural products (11 percent), and animal waste (8 percent). The remaining resources consisted of petroleum products (over 3 percent), coal (over 1 percent), and electricity (under 1 percent). Alternative sources, including steam, solar, and wind power, also were used on a very small scale.

Despite the great potential for hydroelectric power, most of the energy used by the Nepalese came from its forests (see Forests , this ch.). The terrain, lack of a transportation network, and the need for large amounts of capital investment for hydroelectric plants and electric facilities hindered the development of these sources of energy. The uneven distribution of resources, however, indicated the importance of moving away from excessive dependence on fuelwood as a source of energy. Nepals' forests were rapidly being degraded.

In the early 1980s, more than half the electric energy generated was used by households, and only one-third was used by the industrial sector. The share of electricity use by the household sector was declining in the late 1980s. In 1985 about 6 percent of the population had access to electricity, and by 1991 electricity was accessible to more than 8 percent of the population. There were no regional power grids, and electricity was available regularly only in the capital and a few of the larger population centers. Approximately 15 percent of the electricity was generated by diesel plants.

Some estimates indicated Nepal's hydroelectric power potential at 80 million kilowatts--2.6 percent of the world's capacity. Only a tiny fraction of this potential energy had been utilized until 1960, and by 1964 less than 3,000 kilowatts of electricity was generated by hydropower. By 1989, however, in excess of 230,000 kilowatts of electricity--more than 80 percent of the country's installed electric power--was generated by hydroelectric power. Although there were difficulties, the output of electricity had grown. For example, a 60-megawatt hydroelectric project known as Kulekhani I, funded by the World Bank, Kuwait, and Japan, became operational in 1982. Kulekhani II, an additional 32-megawatt project, was completed in 1987. Kulekhani III, in the planning stages in 1990, projected an additional 17-megawatt capacity. It was estimated that by late 1990, generating capacity would be at least 237 megawatts.

Feasibility studies and engineering designs were planned for several hydroelectric projects and rural electric facilities. Nepal and India had joint irrigation-hydroelectric projects on the Narayani (India's Gandak River), Kosi, and Trisuli rivers. A feasibility study was being conducted for a dam project to harness the hydropower potential of the Karnali River. Inasmuch as Nepal could not use as much energy as it could produce, the potential for selling excess energy to neighboring countries (especially India) existed. The expansion of electric power, however, had to be accompa9b4 panied by the construction of transmission lines across the country, a project requiring considerable capital.

The Asian Development Bank committed funds to establish a national electricity grid with hydroelectric power plants on the Arun and Marsyandi rivers. The Marsyandi site, a US$325 million project with a 69-megawatt capacity, was commissioned in 1990 with major financing provided by Germany, Japan, Kuwait, Saudi Arabia, the Asian Development Bank, and the World Bank. A 404-megawatt Arun III Project was planned, but construction was not scheduled to begin until 1992, and completion was not expected until 1997.

The government also encouraged establishing biogas plants with help from the Agriculture Development Bank. More than 1,000 plants were erected in 1988 and 1989. Although these plants were small, they were capable of slowing deforestation--at least for the short term.

To meet energy needs, petroleum products were imported. In the late 1980s, more than 40 percent of Nepal's foreign exchange earnings were spent on petroleum imports--particularly during the trade and transit dispute with India. In 1988-89, the government contracted with two foreign companies to do exploratory drilling for oil and gas. A joint venture of Royal Dutch Shell and Triton Energy received a concession to explore for petroleum in southeastern Nepal, but they relinquished their contract in May 1990 upon drilling dry wells. Nonetheless, further analysis of the area was being carried on, and other exploration blocks were being evaluated and traded among various companies.

Data as of September 1991