BLOG
September 24th, 2014
Via the Financial Times, a report on Nepal’s newly launched hydropower-based growth plan:
Nepal is to start exploiting the untapped hydropower resources of its Himalayan rivers by signing the biggest foreign investment deal in its history to build a $1.4bn project on the upper Karnali River.
Investment Board Nepal signed the agreement with Indian infrastructure group GMR for the 900-megawatt dam and tunnel system, which is expected to be the first of at least four such big projects exporting electricity to India as well as helping to end local power shortages.
The projects are similar to those being launched in the Himalayan kingdom of Bhutan to the east, where hydropower is also emerging as the backbone of the local economy.
After years of Maoist guerrilla warfare and political turmoil, Nepalis elected a new government last year and Sushil Koirala of the Nepali Congress party was installed as prime minister in February. The Karnali deal was agreed in principle six years ago but was stalled by the uncertainty in Kathmandu.
Nepal’s hydropower potential is estimated to be about 80,000MW, of which only 700MW has been exploited. The country is one of the world’s poorest and suffers from long power cuts and a lack of exports, relying instead on remittance income from workers abroad and on tourism. Firewood accounts for three-quarters of the energy consumed, according to the Investment Board.
“It’s a major change for Nepal in that it’s actually opening up this hydropower on a large scale,” said Peter Young of Adam Smith International, which is advising the Nepalese government and financed by British aid. “It should transform the government’s financial position as well as dealing with the electricity shortage.”
Under the “build, own, operate and transfer” contract, the plant’s builders will give Nepal a 27 per cent free equity share in the project and provide Nepal with 12 per cent of the electricity output, also for free, before transferring the project to Nepal at the end of the 25-year operating-life concession. Construction of the project is due to be completed by 2021.
Mr Koirala said the Karnali agreement would encourage further hydropower investments and help alleviate poverty. The projected total benefits to Nepal of the first four big hydropower plants reach about $17bn – close to the country’s annual gross domestic product – and include royalties, free energy, tax income, dividends, import duty and the value of the projects to be transferred.
At net present values, according to Adam Smith, the four projects are worth $6.5bn-$8.7bn. “This is an important breakthrough for the country – that it’s finally managed to exploit its hydropower,” said Mr Young.
Bhutan, again with Indian help and with India as a market, has taken a lead over Nepal in hydropower plants, with 1,500MW of capacity already completed. The country plans to increase capacity to 10,000MW within six years, although ministers admit the target is unlikely to be reached.