Monday, March 2, 2015

Nepal Hydropower: Challenges and opportunities

Magnificent strides have been made in Nepal's hydropower sector but much more still needs to be done 


Sujata Awale
Kathmandu

Last year was a tremendous year for the hydropower sector in Nepal, which gained momentum with landmark agreements like the bilateral Power Trade Agreement (PTA), Project Development Agreements (PDAs) and regional energy cooperation pact among SAARC countries. Nepal also signed a bilateral Power Trade Agreement (PTA) with India in September, which allows both countries to import and export electricity. Furthermore, the SAARC Framework Agreement for Energy Cooperation (Electricity) endorsed at the 18th SAARC Summit in November opened the door for electricity trade between member countries and Bangladesh has also emerged as a promising market for Nepal to sell power to via India.

Implementation of agreements
“Nepal has endorsed vital agreements, however, there is still a gap on how to implement the signed agreements to trade the energy in regional countries,” said Rajendra Kishore Kshatri, Secretary of Ministry of Energy (MoE). Citing that there is a need to address contractual risk and its viability, he said, “We are formulating an ‘Electricity Act’ to address contractual risks for hydropower projects. Although the PDA will take care of the risk and other factors, we will be incorporating authority to investors to step in the projects, clauses to force majeure, termination right, application choice of law, partial government guarantee to boost the confidence of investors.”

Admitting that hydel projects are plagued with many problems, Kshatri said, “First and foremost, the attitude of the concerned people should be changed towards hydropower projects to solve these problems.” He further said that development of the country is only possible with the development of the hydropower sector and it should be prioritised.



He informed that they are planning to form a power supply agreement with Bangladesh. “There was a speculation that Nepal has to rely on the Indian market only to trade power and it can’t be competitive in terms of pricing. But now, with the agreement between Nepal and Bangladesh, it will pave the way for power trading with other regional countries too.” He said that other PTAs are also possible via India after paying wheeling charge.


Roadblocks to development

Stakeholders stated that investment risk, insufficient infrastructure development of transportation and transmission lines, unsolved land acquisition and right-of-way issues, unfavourable environment, political instability and elongated process to acquire permission and approvals for projects are stumbling blocks to further development of the hydropower sector. In this regard, Kshatri said, “It is true that we have not been able to solve the issue of right-of-way and land acquisition. To overcome these problems, there should be legislative regulatory norms.” He further added that there is a need to update policy and Acts in regard to adaptation to climate change, motivation for low impact hydel projects and work towards harmonising legal provisions with India for better business prospects.


Policy and priority
Hydropower projects being non-recourse finance, banks and financial institutions (BFIs) need to have bankable documents for risk allocation. Despite outstanding agreements, donor agencies and FDIs are still hesitant to invest in projects, as there is a lack of timely implementation of required policies.

“By spending one and a half years, we have developed bankable documents for investors in hydel projects. However, lack of implementation of policy, issues of incentives and delayed approvals make the process long and cumbersome for investors,” said Radhesh Pant, Chief Executive Officer of Nepal Investment Board. Citing that the government should fulfill obligations to create a favourable environment for investments and investors, he said, “Hydel projects automatically become the property of the government after the consensus period of 25 to 30 years. Hence, the government should regulate and supervise hydropower projects from the beginning.”



Pant said that there is a need to boost the confidence of financers with friendly policy incentives and approvals. Stating that development of South Asian countries is only possible through power and infrastructure development, he said, “SAARC countries need immense power supply and with the potential of 83,000 MW, Nepal can have a good market to supply power and achieve GDP growth.” With the regional cooperation agreements, SAARC nations can now depend upon each other for mitigating the shortage of power and related woes and expand the networks and market.


The road ahead

“The viability of any economy is related to the viability of the power sector. And therefore, financial action should be taken,” said Raghuveer Sharma, Chief Investment Officer, Infrastructure and Natural Resources at International Finance Corporation. According to him, the many countries are willing to go beyond the traditional contractual mechanism of power purchase agreements to create a new market. “India already has a market, now they are talking about the northeastern South Asia nations that are Nepal, Bhutan, Bangladesh and India,” said Sharma, adding that investors are ready to invest in hydel projects. He said, “The market for Nepal is South Asia mainly India, Bangladesh, Sri Lanka and Pakistan. To tap these potential markets, Nepali legal policy and regulatory frameworks has to harmonise with these countries eventually from India and Bangladesh.”


Talking about the problems that keep cropping up at the local level and the recent demands by locals over the Bhotekoshi Hydropower and Khimti transmission line projects, Sharma stated, “The government should always be willing to take civil defense action to overcome these law and order issues quickly. There is a also the responsibility of both the government and developers to foresee and take action to solve these problems.” According to him, the hydro sector has taken major strides but the road ahead will require joint effort from developers and the government to deal with legal and other issues and move ahead. 

Published on March 1, THT Perspectives


No comments:

Post a Comment