Nepal’s
first power investment summit highlighted the gap between what
investors want and what the government talks about but seriously lacks
in implementation
Sujata Awale
Kathmandu
Nepal’s first
power investment summit ‘ Nepal Power Investment Summit 2016’ concluded
with the realisation and declaration that Nepal requires USD 20 billion
to develop 10,000 MW on grid hydropower projects within the next 10
years.
At the summit organised by Energy Development Council and
Neoventure, the government announced that Nepal needs as much as USD
five billion in order to invest in high voltage transmission line
projects and substations to be completed within 2035. According to the
government, altogether 3,800 MW hydropower projects are waiting
investment, including projects such as Budhigandaki 1,200 MW, Nalsingad
410 MW, Tamor 762 MW, Andhikhola 180 MW, Tamakoshi V 87 MW, Upper Tamor
415 MW and Tamakoshi III 650 MW among others.
Despite all these
facts that Nepal needs investment and has huge potential for investment
opportunities, investors pointed out that they are facing difficulties
in making decisions to invest. They stressed the need for
investment friendly policies, one- window system for necessary permits
and approvals and improving Nepal’s ‘ Ease of doing business’ ranking.
Conducive environment
Lengthy process that stretches out for years to
get necessary approvals to initiate hydropower projects is one of the
major roadblocks. Moreover, lack of coordination among
authorities to get approvals is another challenge. “ In Nepal, there is
no single authority responsible for providing necessary approvals. There
is uncoordinated approach between authorities and that makes the whole
process tedious and lengthy,” said Allard Nooy, CEO at Infraco Asia,
Singapore. Talking about their experience with financing, he said, “
When we initiated Kabeli A ( 38 MW) project, we faced insufficient
liquidity in local banks in order to obtain dead financing in projects. This is why we have to turn to multilateral agencies. However, the
situation has changed and local banks now have liquidity but the risk of
finance is still present.”
Nooy stressed on the need to have sufficient
background information on construction cost, geological conditions and
overall operational cost. He said, “ As investors, developers and stock
investors, we require sufficient and reliable data that provides us
detailed information about higher risks of overruns or others factors to
project in lifetime costing.”
He suggests the government have a more
collusive policy framework to implement hydroelectric projects in the
country and break down barriers between various different authorities. “
It is important to have one agency to coordinate with Ministry of
Finance, NEA, Department of Electricity Development, Ministry of
Environment and other responsible bodies for public private partnership
and foreign direct investments ( FDIs).” According to him, working on an
Energy Policy and transparency on tariff setting is must to attract
investment and develop the sector.
Nooy said that Nepal should
realise they are competing with other nations and that the more
difficult it is to get projects approved here, lesser the appetite there
will be for FDIs. He is of the opinion that the government must plan
for building transmission line projects and substations as ultimately
generated power needs to be supplied. “ Access to the project site and dealing with local people also emerges as challenge while implementing the project,” he added. He further said, “ One should not forget that private sector is
spending significant development capital in terms of structuring
projects. And time is money for investors.”
On the other hand, according
to him, no restriction on foreign investment and foreign ownership
unlike other countries, improved liquidity status in local banking
institutions and requirement of hydropower projects are positive signs
to invest in Nepal.
Returns and incentives
Lucrative returns and
incentives are required for developers to invest in Nepal. Zachary
Smith, CEO at Radiance Renewable Technologies said that foreign
investors look for lower political risks, ease of doing business, long
term incentive packages and policy that bridges between investors and
locals to better understand the environment. According to him,
the government policy has to be precise and clear and also have a
framework that allows flexibility in order to allure investors.
He also stressed that the government provide updated background
information to easily analyse the risk. Citing that good economic
incentive is key to attract investors, he said, “ The government should
provide long term i ncentives to mitigate risks for long term investors
otherwise there will be the risk of inviting wrong kind of investors.”
Nepal has some of the finest policies. However implementation through Parliament is weak and the biggest challenge for the government. At the summit, Prime Minister KP Oli stressed his commitment to
creating a favourable condition for FDIs. However, it is yet to be seen
how committed this government is about bridging these gaps in the
development of the hydropower sector.
“ It is well known fact
that Nepal has huge hydro potential which is not something new. The job
of the government should be implementing policy to bridge the gap
between investors and locals,” said Smith. He further said that the
government should plan to mitigate financial risk by introducing PPA in
dollar denomination for the first couple of years so that investors
could recover their equity. According to him, long term vision is
required to invite investors in the country.
Commitment in action not talk
While the government is tall in promises about creating a
conducive investment environment, Statkraft a Norwegian investment
company has given up on developing Tamakoshi III ( 650 MW) project a few
months ago. The decision came as a result of a thorough about
commitment of the assessment of all aspects of the project, including commercial, technical and regulatory factors. The company got survey license in 2007 and completed feasibility
studies, environment impact assessment and other required studies in
2011. The project started to negotiate with the government for Project
Development Agreement in 2011, however it could not conclude the
negotiations and decided to quit the project.
“ Lack of viable
power off take option, lower electricity price forecasts, insufficient
transmission capacity for power evacuation and absence of necessary
policies and regulatory framework for operational power sales are to
blame,” said Dr Sandip Shah, Vice President and Country Director Nepal
for Statkraft. He further said, “ It also reflects the increased
bureaucratic hurdles for foreign investments, a fragile political
situation and a geo- political situation leading to a non- conducive
project development environment.”
According to Dr Shah, the project
incurred a USD 10.7 million loss in the project. When asked about commitment of the government to create a favourable environment for
investment, he said, “ In 2006- 07, the government promised us the same
commitment to a favourable environment and we were ready to invest.
However, no real improvement has been felt till date.” He further said, “
Implementation of signed policy’s and agreements is the weakest part of
the government,” adding that “ Due to lack of proper coordination
between various ministries and the Investment Board of Nepal, we could
not conclude our PDA and had no option than to give up the project.”
Citing that 2014 was positive year for hydropower sector, he said, “ Two
projects got PDAs, PTA was done with India and Nepal signed the SAARC
Framework, however even after two years also the government has not been
able to introduce regulatory regime to implement those commitments.” He
further said that the government needs to revise the regulatory
framework in order to make the investment process easy. He said that the
investors should focus on domestic supply rather than export oriented
projects.
(The article was published on The Himalayan Times, Perspectives, June 5, 2016)
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