Generating electricity (and cash) for Nepalis
Nepal’s hydropower sector, already stymied by decades of construction delays and budget constraints, is seeing its flagship Nepal’s Water, Nepalis’ Investment initiative pushed back further due to this year’s destructive monsoon rains and the economic fallout of the COVID-19 crisis.
The initiative was part of the government’s ambitious masterplan to generate 15,000MW in ten years from 21 hydroelectric projects, and raise the income of Nepali shareholders in the process.
“Nepal will have an energy surplus and see its economy grow, while the projects will bring the public quick rewards and allow them to prosper as well,” said the Energy Minister while launching the initiative in March last year.
It was a bold target and a challenging task to sell shares to the public, but it was an attempt to make up for lost time on power projects delayed by the 2015 earthquake and the Indian Blockade. However, no one could have predicted that the country would face an even more serious crisis this year with the global pandemic.
While landslides and flash floods this monsoon as well as the COVID-19 lockdown have taken a year off construction schedules, the global economic downturn is also expected to reduce the public's ability to invest in shares and attract foreign joint ventures in the hydropower projects.
Even so, CEO Chhabiraj Pokharel of the Hydropower Investment and Development Company Limited (HIDCL) says the plan is to start construction on all 21 projects in the next four years so as to meet the intrim target of generating 3,500MW in five years.
Despite his optimism, only one of the projects, the Upper Trisuli-3 (60MW), which went into operation in November, has been commissioned in the past year-and-half since the initiative was launched amidst much fanfare by Prime Minister Oli.
The 111MW Rasuwagadi and 57MW Upper Sanjen are nearing completion, and have released shares to employees. Another project is halfway, but the other 14 have not gotten off the ground.
Even though many of these projects were delayed due to existing bureaucratic and technical hurdles, the government is blaming the COVID-19 crisis. Says Madhu Prasad Bhetuwal, convenor of the Nepal’s Water, Nepalis’ Investment initiative: “All the projects had been pushed back by six months already due to the COVID-19 crisis, and another six months because of the rainy season.”
Nevertheless, the government’s plan is to begin construction on Upper Arun (725MW), Kimathangka Arun (482MW), Phukot Karnali (492MW), Tamakosi-5 (96MW), Chainpur Seti (201MW), and Jagadulla (157MW) as soon as the monsoon is over. Of these, Tamakosi-5 is putting shares up for sale to the public, now that its engineering and design work is complete.
The modalities for the Rs33 billion Bheri-Babai Diversion Multipurpose Program are also complete. This project will irrigate 51,000ha in the eastern Tarai, while also generating 48.6MW of electricity. Five percent of the shares of this project will be open to local people, Karnali provincial government will have 20%, the project itself will have 26%, and the central government will have majority shares of 49%.
The government’s plan is that 51% of the Nepal’s Water, Nepalis’ Investment initiative will be funded by the government, while 49% will have the public’s investment. Of this, 70% will be loan financed, while 30% will be paid for by investment in equities. Of that 30%, a little more than half will be bought up by the government while 49% will be public.
Government agencies are also being directed to allocate funds for the initiative. The Employees’ Provident Fund, Citizens Investment Fund, HIDCL, Nepal Telecom, National Insurance Institute, Nepal Police, Nepal Army and the Armed Police Force have all been directed to invest Rs1-6 billion per year in the initiative.
The total cost of the 21 projects is estimated to exceed Rs700 billion -- which is equal to more than half the annual national budget of Nepal. Banks and financial institutions have a 10% ceiling on hydropower investment in their total portfolio, and this is enough to only fund 50MW production every year.
This means the most serious obstacle to the initiative will now be the funding crunch. This has been exacerbated by the fall in government revenue due to the pandemic, as seen in this fiscal year’s budget. The government could rely on foreign loans and multilateral creditors, but they are also affected by the global recession.
Normal hydropower regulations only allow for shares to be released once construction is half-complete. Under the provisions of the initiative, shares and IPOs (Initial Public Offerings) can be released once 10% of project funding is used.
Convenor Bhetuwal says construction of the 21 hydropower projects were deliberately staggered, keeping in mind the rise in nationwide energy demand. He adds: “Generating 3,500MW at once will lead to a glut in the market, may overwhelm consumers and waste energy, that is why projects are going into production in a phase-wise manner.”
This is a legitimate concern, because national demand for electricity has dropped during he lockdown, prompting Nepal Electricity Authority Director Kul Man Ghising to call out the government on its U-turn on encouraging demand for electricity consumption, including a hike on e-vehicle taxes.