Chilime Hydropower Company Limited (Chilime), incorporated in 1995, is promoted by Nepal Electricity Authority and owned by the local community also. Its model has been considered as one of the best way to generate wealth for the local people and assists in sustainable development. Kul Man Ghising, Managing Director of this public company, recently spoke to Siromani Dhungana of New Business Age on issues related to Nepal’s hydropower sector. Excerpts:
What is the progress of power projects being developed by your company?
We have four projects under Chilime Hydropower Company, namely Sanjen, Mid-Bhotekoshi, Rasuwagadhi and Bemdang. We have been developing all these projects through our subsidiary companies -- Sanjen Jalavidhyut Company, Madhya Bhotekohi Jalavidhyut Company, Rasuwagadhi Hydropower Company and Bemdang Khola. Mid-Bhotekoshi with an installed capacity of 102 MW in Sindhupalchowk district is being developed through Madhya Bhotekoshi. Sanjen is developing two projects–Sanjen of 42.5 MW and Upper Sanjen of 14.8 MW capacity in Rasuwa district. Rasuwagadhi Hydropower is developing a new project - 111 MW Rasuwagadhi Project in Rasuwa district. We have almost completed all pre-construction tasks including procurement process and taking EIA certificate and other clearances. All these projects will start construction by the end of the current fiscal year. Among these four projects, the progress of Sanjen is rapid. We have planned to complete all works of Sanjen project by 2016 and other projects by 2017.
The first project developed by your company is often cited as an ideal model for Nepal’s power projects. And more examples of such successful model were expected from your company. But none of the projects in the pipeline viz. Sanjen, Madhya Bhote Koshi and Rasuwagadhi are complete so far. Why this delay?
I do not think there is delay in the progress of projects. We have been working on all projects according to the project timeframe developed by the company. In Nepal, pre-construction works take almost 60 per cent of time required to develop hydropower projects. We have lengthy procedural formalities to complete before starting the actual construction.
We have already completed works that include getting approval from various ministries and government agencies, tunnel testing, infrastructure development at the site among others. Given the usual standard in Nepal, it should be considered as a great achievement for any hydro company to start construction work within three years of acquiring licence. Within three years, we have prepared Detailed Project Report (DPR) and other ground works necessary to start the construction of the project.
No project can be undertaken without financing. It was challenging to identify proper financing channels. We managed to arrange equity participation from our partners including Nepal Electricity Authority (NEA), Chilime and the public. But debt financing was really important and it is our achievement to have convinced Employees Provident Fund (EPF) to invest in our projects within a year.
Financing is not possible without reaching Power Purchase Agreement (PPA) with NEA and DPR is essential for entering into PPA. These are time-consuming processes. Hydropower companies have to go through many hurdles to enter into PPA in Nepal. Companies have been chasing NEA for years to get PPA approved. Process of getting environmental impact assessment (EIA) certificate is unnecessarily lengthy in Nepal. Government agencies compel hydro companies to wait for 2/3 years to acquire EIA certificate. That’s not all. Ministry of Forestry takes another 2/3 years to provide consent for chopping trees in project sites. It takes five years just to complete the process at the Ministry of Environment and Ministry of Forestry. These all pre-construction processes are unnecessarily lengthy in Nepal.
Adding to it, as a public company we have to follow lengthy procurement process that takes around one to two years to complete. Despite all these hurdles, we have been working aggressively to complete all projects in the stipulated time.
In Nepal, no project has been completed in less than 10 years of its initiation. Administrative hassles have been causing the delay in completing pre-construction works. Sometimes, I feel these are unnecessary hurdles. The government should focus on easing off these hassles, if it wants to propel hydropower development.
Some private sector power developers have also pointed out that Chilime is specially favoured by the government and the Nepal Electricity Authority in various respects, such as PPA rate and the choice of projects. What is your assessment?
As a public company, we have to face dozens of hurdles to develop a hydropower project. First, we have to face problem in public dealings during land acquisition. We follow transparent methods in public dealing and do not pick up influential persons to get them on our side andstart work. Even at the ministry, our projects are processed by taking more time than other private sector companies. The allegations that Chilime has got special privileges are completely baseless.
Developers often complain about the increasing demands of the locals in the project site. How is the situation in projects being developed by Chilime?
We should not always blame locals for friction in the development of hydro projects. Local people do not always put irrelevant and irrational demands. Power developers should take care of their logical demands. They should maintain transparency in their deals. For a project to be sustainable, deprived people should also get project benefits. This is what we do in our projects. Providing benefits only to a handful of local people always creates trouble.. The activities which are not transparent and are aimed at appeasing a handful of locals are major reasons behind problems at the local level. Power developers should ensure that the project benefits locals through employment opportunities, infrastructure development among others. We have been doing all these activities at the local level and maintained transparency in our dealings. We have decided to float shares to locals on equal basis to create sense of ownership on the project among them.
One major problem cited in the development of hydropower in Nepal is the lack of capital. To address this problem, legal provisions have been reviewed and the developers have been allowed to raise money from the general public by issuing shares them even before the project construction starts. Why don’t the developers use this facility to raise fund?
There is a great possibility of rasing the capital through issuing shares to the general people. But, Security Board of Nepal’s (SEBON) regulation does not allows to issue shares to the general people without solving equity issue among the promoters. Private sector is not very much eager to submit equity details of all the promoters. Due to equity issue, it is not easy to float shares to the public from the private sector power developers. Majority of power developers do not want to issue shares to the public.
In the recent days, people’s attraction in buying shares clearly hints that we can generate capital by floating shares to the public. Even generating equity is not a big problem in Nepal. We have enough fund but our problem is how to manage fund. Trust on developers is also equally important before floating shares. All developers can not be as trustworthy as Chilime. If developers fail to make profit, people will not invest in shares of hydro companies in the future. This part also should be considered.
Some analysts suggest that developing hydropower projects in Nepal with an aim to export power to India will benefit Nepal because of the seasonal variation in the water flow and peak demand of electricity in Nepal and India. What is your opinion on this?
Due to seasonal hydrology, energy management is indeed a challenging task in Nepal. Currently, NEA is responsible to manage energy in the country.
Development of transmission line for interconnection is a must. Optimum utilization of hydro energy is not possible in the country without interconnection. All power generators should be connected in the national power grid to utilize hydro potential to its full capacity. Interconnection with India means getting connected with the entire South Asian region. It would be really good if we can develop cross-border or regional transmission line.
But first, we have to put optimum efforts to develop more power projects so that we can reach the level of a power surplus country. The demand of power will automatically go up in the domestic market too if we generate enough power. More factories will come up here if we can ensure sufficient power supply to them.
What other legal and administrative hurdles are there in developing a hydro project?
The government has failed to expedite procedure in hydro projects development especially the administrative procedures. It should remove all administrative hassles if it really wants rapid growth in the hydro power sector. We have already talked about the year-long procedural hurdles that exist in various government agencies.
There are some unnecessary and irrational taxes levied on hydropower projects in Nepal. Besides the royalty that the projects have to pay the government, Ministry of Forestry charges one per cent tax on power developers which does not match with government’s commitment of facilitating hydropower sector.
Power trading company is necessary to manage energy market in Nepal. We don’t have a reliable entity to manage electricity market. NEA is the entity which is signing PPA in Nepal. And this PPA is not based on scientific approach. PPA rates should be decided on the basis of several factors including condition of the project site. . It should be transparent and scientific if Nepal has to be a power surplus nation.
Similarly, the government should form a scientific pricing mechanism. The price of electricity should not be the same during peak and normal hours. It should focus its effort on all these aspects.
PPA in terms of dollar has been raised and the government should address this issue along with making the PPA bankable.
The balance sheet of NEA is not convincing to foreign power developers. Foreign investors cannot be assured of the safety oftheir investment when they have to sign agreement with a company that is in such huge loss. If the government cannot provide sovereign guarantee, it should provide payment guarantee. Additionally, in order to attract Foreign Direct Investment (FDI), the government should ensure security mechanism to boost confidence of foreign developers.
What challenges and opportunities do you see in Nepal’s hydro power sector?
Our nearest power market is India and there are potential investors in China. We can bring investors from China and use Indian power market. We can make a trilateral mechanism and develop trilateral business since we have resources, India has market and China has capital to invest.Investment in joint venture among these three countries will be mutually beneficial and can create unique opportunities for all. Chilime model is sufficient to generate power if domestic market is the only target. But, if we want prosperity from hydropower sector, we have to attract foreign power developers and for that we have to open avenues in foreign markets.