The talk of the country- Upper Tamakoshi! Will it make a difference in the hydropower sector?

Fri, Oct 26, 2018 11:13 AM on Corporate, Exclusive, IPO/FPO News, Latest, Stock Market,

It is of no doubt that the topography of Nepal is blessed with diversified landscapes, mountains, forests. Our topography is often considered to be the foundation of Nepal's economic development. Moreover, in context of freshwater resources, as Mr. Kulman Ghising rightly said: " The ranking as of where do we stand is not easily quantifiable but we have enormous hydro potentiality keeping the demographic landscape into consideration."

If we dig into facts and figures, as per WEPA (Water Environment Partnership in Asia), it has been estimated that Nepal has more than 6000 rivers. Among these, 1000 of which are longer than 10km and 24 of these lengthen more than 100 KM. (Source: WEPA)

Thus, when it comes to countries like Nepal, sales of water resources in the form of hydropower can be a good source of revenue. 

As per Independent Power Producers' Association, Nepal (IPAAN), Nepal has electricity generating potential of 40,000 MW. However, Nepal has not been able to reach its potential with the energy produced by existing hydro powers. As per the NEA's annual report of FY 2074/75, Nepal's total installed capacity is 1074 MW including both NEA and IPP(Independent Power Producer).

There is a lot to work on hydropower sector to achieve country's electricity generating potential. Thus, every year many new hydropower projects introduced in the different parts of the country and that is helping our country to grow.

One of the most talked hydropower project is Upper Tamakoshi Hydropower Project, it is one of the biggest hydropower made solely on Nepalese capital with capacity above 450 MW. The government of Nepal had declared the project as the "Pride of Nepal". It has been constructing 456-MW hydropower project. It has a paid-up capital of Rs 10.59 arba.

One of the special features of Upper Tamakoshi hydropower is that it can produce the electricity of same potential irrespective of the season due to its peaking run-off nature. Currently, the demand for electricity in Nepal is has been fulfilled through import from India. However, after Upper Tamakoshi, it will further ease the load pattern of electricity demanded.

Now, Upper Tamakoshi is opening its doors to all the general public by issuing 1.58 Crore IPO from 15th Kartik.

Is it good to apply for upper Tamakoshi IPO?  

The issue of Upper Tamakoshi was followed by several allegations such as operational loss, operation time gap, increased cost of hydropower and many more.

We can relate such rumors with this phrase of the song:

"सोचे जस्तो हुन्न जीवन, सम्झे जस्तो हुन्न जीवन।
जस्तो भोग्यो उस्तै हुन्छ, देखे जस्तो हुन्न जीवन।"

Nothing huge has ever happened without the plan and with exactly according to a plan. Upper Tamakoshi is a dream project in the context of Nepal as it generates more than 90% of the electricity that all the existing 12 major hydropower stations under NEA are producing.

Thus, it was quite predictable, being the first of its kind, Upper Tamakoshi hydropower construction plan won't execute exactly according to plan.

In one of the interviews undertaken by ShareSansar with Mr. Kulman Ghising, the team inquired about the costing of the project. In reply, the increase in cost was attributed to reason such as IDC. For instance, in the initial phase, the cost was estimated to be around Rs 47 arba. However, this amount excluded IDC (Interest during Construction) cost. Later, the cost was estimated to be around Rs 35 arba to 37 arba. However, even this was only base cost excluding IDC cost. When it comes to IDC, the cost is at a very higher range. The IDC cost stands at Rs 1 crore per day. Previously, estimated cost was only the base cost. Had the IDC cost been included previously, the cost would have increased by 10 to 15 arba reaching to 50 arba. Besides, the incidents of earthquake, issues related to management, contractors, Nepalese currency devaluation in terms of USD, owners all might have contributed in the delay of the project so, the IDC cost has been escalated. The more delay in the execution of project, the higher the IDC cost. IDC cost of the project is solely 40% of the total project. Besides, NRs devaluation has also led to a straight currency exchange loss of 7 arba.

Usually, general public wrongly interprets financial accounts of hydropower companies. It is given that the hydropower companies in the country are seen to be in loss until these companies start selling electricity. If hydropower companies lose even after two to three years of operation then that will be a matter of concern. However, if companies are in huge loss before their operation and the reason is something that we are well known then investors should be prepared about such losses.

The other concern of investors is that Upper Tamakoshi has negative reserve and surplus of around Rs 2 arba. However, Upper Tamakoshi can sell an electricity of worth Rs 9 arba when it comes into full operation. On the other hand, company has other liability like royalty, interest, debt etc. irrespective of all these expenditures, company will change negative reserve to positive in the near future.

Investment in Upper Tamakoshi IPO could be an ideal decision. However, if we expect the stock to give a return of 200%-300% just after listing or in next one year then it is better not to invest. The price of the stock is absolutely uncertain in a short period but in the long run stock price usually goes up. Market moves in bull and bears; in bear's price of every stock goes down and in a bull market, things turn upside down. Stocks of Upper Tamakoshi hydropower is long run a horse for investment purpose.