Electrifying times
NOV 12 -
If there is one sector that has got everyone—from the government, donors and the private sector to foreign investors—engrossed, it is hydropower. New enthusiasm can be seen in the hydropower sector following the signing of a power trade agreement (PTA) with India, and investors are keen to finance hydro projects. How keenly interest is growing in the sector can be gauged by the fact that all the country’s leading business houses are lining up to invest in hydropower while foreign direct investment (FDI) commitments have increased significantly in the last three years.
Hydro is the sector that has attracted the most FDI pledges. The Department of Industry’s statistics show Nepal has attracted FDI commitments of Rs 16.93 billion from 20 different projects during the period 2011-12 to 2013-14. While FDI commitments during the period 2001-02 to 2010-11 stood at Rs 11.76 billion, they amounted to just Rs 2.75 billion during the period 1991-92 to 2001-02.
Even the general public is bullish when it comes to hydropower shares in the capital market. Sanima Mai Hydropower Company’s initial public offering (IPO) on September 2013 was over-subscribed by around 29 times. Promoted by non-resident Nepalis (NRNs), the 22 MW project had issued 2.1 million shares to the general public. Similarly, ordinary investors have been eagerly waiting for the IPO of the 456 MW Upper Tamakoshi Hydropower Project, the largest project under construction in the country.
“Energy is a fundamental prerequisite for development of any other infrastructure,” said Khadga Bisht, president of the Independent Power Producers’ Association Nepal (Ippan). “We need to cash in on the current momentum and positive notion in the energy sector.” According to Bisht, the signing of a PTA and a project development agreement (PDA) for the 900 MW Upper Karnali Hydropower Project has opened a new avenue.
However, for a mega investment of $ 1-2 billion to pour in and translate the agreements into action, investors will require a sense of confidence. “Much will depend on the endorsement of the constitution,” Bisht said, adding that the government would also have to arrange funds for infrastructure development to maintain the viability gap. “Since infra projects do not have a very fast rate of return, the government needs to support the private sector with funds to bridge the viability gap.”
Private sector developers are developing hydro projects with a combined installed capacity of 360 MW. “To graduate from the list of the least developed countries (LDCs), we need investments of at least Rs 100 billion in the energy sector every year. And we have not been able to inject even half that amount,” Bisht said.
Energy Secretary Rajendra Kishore Kshatri said that the basics for infra development currently was laying the foundation and that the ministry had started it with the recently concluded PTA. “Till the time our internal absorption reaches a high level, we need to look for exports. We have succeeded in doing that through the PTA,” said Kshatri. According to him, government and private sector developers from the US, Malaysia, Bangladesh and Turkey, among others, seem to have become interested in Nepal’s energy sector after the signing of the PTA.
Transmission challenges
According to a rough calculation, Nepal is likely to produce 8,000-9,000 MW of energy 10 years from now. However, the most challenging issue is likely to be the development of transmission lines to connect the generated power to the national grid. Several transmission line projects including the 75-km Khimti-Dhalkebar and the Thankot-Chapagaun-Bhaktapur line, among others, have hit snags like land pooling and compensation issues. Bisht said that the government needed to involve the private sector in developing short transmission lines of 40-50 km under the BOT (build-operate-transfer) scheme for some time.
Managing director of the Nepal Electricity Authority (NEA) Mukesh Kafle said that the NEA was confident about pulling off the transmission line projects after fulfilling the contractual and administrational requisites at the earliest possible. However, social issues including land acquisition and compensation, security and political matters should be handled by the government and the political parties. The government has allotted Rs 12.62 billion for electricity generation and Rs 13.55 billion for building transmission lines in the current fiscal year’s budget. Likewise, in a major reform initiative, the budget has talked about unbundling state-owned NEA into three separate entities—generation, transmission and distribution.
NEA restructuring
The other crucial thing that will bring a change to the country’s energy sector, according to Kshatri, is the NEA’s planned restructuring. “This year’s programme and policy of the government has stated that the NEA will be restructured. A separate company for transmission and sales will be established,” Kshatri said. Likewise, the establishment of a regulatory body is in the offing. The Ministry of Energy is also mulling creating a mechanism through which the government itself will identify projects and take it to a certain level by completing a detailed feasibility study. This will allow potential projects to be offered to individuals and companies at a stage from where construction can be started. “We have not been able to offer projects to potential developers who are coming to us. Once such a mechanism has been created, we can prepare at least two-three projects for genuine investors,” Kshatri said.
Source: The Kathmandu Post
