Ending years of delay, Nepal Water and Energy Development Company (NWEDC) on November 1, 2019 secured a financing agreement amounting to USD 453.2 million with nine international banks and financial institutions including International Finance Corporation, Asian Development Bank , CDC Group, Asian Infrastructure Development Bank, Netherlands Development Finance Company, Export-Import Bank of Korea, PROPARCO Development Finance Institution and OPEC Fund for International Development for the construction of the Upper Trishuli-1 Hydropower Project. This sum is the largest amount of FDI pledged for any project in Nepal till date and the 216MW run-of-river (ROR) hydel project is now being regarded as a viable model for future foreign investment in the Nepali energy sector.
Upon its commissioning in 2024, Upper Trishuli-1, will sell the electricity to Nepal Electricity Authority. Min Young Kim has been the Managerial Director of NWEDC since July 2018 and under his leadership the Upper Trishuli -1 project has seen speedy progress. In an interview with New Business Age, he talks about the company’s plans to start the construction of the projects, major features of Upper Trishuli-1, prospects in Nepal’s energy trade with neighbouring countries, among other issues. Excerpts:
Financial closure has been reached for the 216MW Upper Trishuli-1 Hydropower Project after a long delay. Meanwhile, the Nepal Water and Energy Development Company (NWEDC) has just started its work on the project. How far are we into the project?
Our financing agreement with nine international banks for the Upper Trishuli-1 (UT-1) Hydropower Project on November 1, 2019 was really a big milestone in taking the project forward. This is a loan agreement and the project’s financial closure will only conclude after the central bank’s approval of the loan agreement. The real financial closure will come in the first drawdown of the lenders’ money. Getting through the financial closure of UT-1 will depend on the decision of the Nepal Rastra Bank (NRB). We are grateful to the Government of Nepal, Ministry of Energy, Water Resources and Irrigation (MoEWRI), Ministry of Finance, Nepal Electricity Authority and all the other stakeholders who directly and indirectly supported this project. Now, we are focusing on finalising the engineering, procurement and construction (EPC) contractor for UT-1.
What has been completed so far?
The construction of camp facilities and the 5.3 km access road were already completed before April 2015. But the infrastructures were destroyed by the devastating earthquake. The access road and Bailey bridge have been repaired and accommodation and site facilities have been completed.
The cost of the project is said to be higher per MW as compared to other similar projects. What are the reasons for this cost hike?
Hydropower projects are unique and specific in terms of cost characteristics. In my opinion, one hydropower project can’t be replicable and comparable to another one. Lower or higher costs cannot solely be based on the per megawatt cost factor. UT-1 is designed on Q50 discharge with installed capacity of 216MW having 39 percent dry season energy which is very important from NEA’s perspective. UT-1 is in favour of NEA’s concern about wet season energy spill after the Upper Tamakoshi Hydropower Project goes online. If the project goes beyond its completion time, the cost overrun would be obvious. In the case of UT-1, all the project components are underground which is costlier to complete on time by experienced professional international contractors and consultants as well. On the other hand, we are trying our best to reduce the cost of the project. We do not believe in cost inflation.
Promoters of hydropower projects repeatedly complain about problems related to land acquisition, forest clearance and the overall ground work. How have NWEDC’s experiences been like so far?
In the beginning, we had also heard about the time that was needed to get forest clearances and Environmental Impact Assessment (EIA) related matters done. However, we completed land acquisition, forest clearance and other environmental related clearances on time for UT-1. We are thankful to the government, MoEWRI and Ministry of Forest and Environment, national park and wildlife conservation authorities for providing us the timely clearances.
What measures or initiatives have you taken to maintain good relations with the local community?
We’ve found locals of the project area to be very positive towards UT-1. We are continuously in contact with the local government, local political parties and social workers. We have supported earthquake and flood victims, and infrastructural development at the project affected area through our CSR activities. We have supported the project affected rural municipality’s construction of a village road in Gosaikunda and one Bailey bridge at Hakubesi. Also, we are planning to implement more CSR activities jointly together with the Korea International Cooperation Agency (KOICA). We are planning to provide an ambulance to the rural municipal authority along with constructing a school building and a primary health post. We have already sponsored three Hakubesi based school teachers for more than a year.
Basically, our focus is on education, health, sanitation related CSR activities. Besides, we have separate E&S plans for the people of the affected area. We are fully committed towards implementing CSR plans jointly by working together with locals. UT-1 is the first project in this region which successfully acquired the Free Prior Informed Consent (FPIC) of the local residents in the project affected area. FPIC is the process of securing a social license to operate the project as per the guidelines of the International Finance Corporation (IFC) and Asian Development Bank (ADB). I don’t think we will encounter any disturbances in the future when moving ahead with the construction of the project.
One major attraction of the project is said to be high firm power. How much firm power is expected from this project?
The project will produce a total energy of 1456.4 GWh per year; 564.36 GWh in the dry season and 892.04 GWh in the wet season. Of the project’s total power production, it will be 39 percent in the dry season and 61 percent in the wet season. In the dry season, the installed capacity of UT-1 will be 104MW which is almost equivalent to Kulekhani I, II and III which are three storage-type hydel projects built in Nepal so far. So, UT-1 is very useful for NEA. It is also because the project is near the load centre in Kathmandu.
Can UT-1 be converted into a semi-reservoir hydel project so that it can help to manage peak hour energy demand?
UT-1 is the best in terms of dry energy as its ‘Q’ factor (Q50) is higher than other Q40 projects in Nepal. The energy it will produce will be as good as storage e-type projects as per the criteria announced in the MOE guidelines. However, as Upper Trishuli -2 Hydropower Project has also been planned just upstream of our project, UT-1 can’t be converted into peak-run-of-river (PRoR) and storage-type project.
Korea South-East Power Company (KOEN) is known for the speedy completion of the Gulpur Hydropower Project in Pakistan. Do you think you can have the same momentum when building the UT-1 project?
KOEN started the 102MW Gulpur Hydropower Project (102MW) in Pakistan and the 216MW UT-1 project in Nepal at the same time. The physical progress of Gulpur is about 98 percent as of now which is a very good achievement in itself. Gulpur is expected to be commissioned on January 2020. We will try to maintain the same momentum to construct the project in Nepal also.
What was it like working in Pakistan?
We received the full support of the government of Pakistan for the development of the project. There were no risks related to hedging. Besides, fixed revenue from the project was made certain; the government ensured 70 percent of the revenue.
Some observers are sceptical whether your company will actually put money in the proposed hedge fund.
What are you planning? Will your company contribute to it? And what will be the percent of the company's contribution?
The hedging mechanism was one of the concerns of the lenders of our project. In the case of UT-1, it has already been agreed with NEA that NEWDC will contribute one-third of the foreign exchange risk variation. However, to address the concerns of the lenders in terms of repayment and cash flow situation, the company will contribute by providing 17 percent free energy from the 14th to the 26th year of the project’s commercial operation date (COD). Actually, hedging is an additional burden to developers.
Nepal does not have a satisfactory experience in hydropower development undertaken by foreign developers. How can we be sure that there will be no such complaints with your team?
After the signing of the power purchase agreement (PPA), we felt this huge responsibility to demonstrate our performance. FDI is needed to develop Nepal’s abundant hydro resources. Development and economic prosperity of the country can be achieved through the mobilisation of internal and external capital. A number of examples of the world’s fast-growing economies show the importance of FDI in the economic development of any country. The Nepal government’s recent policies to encourage foreign developers to invest in hydropower and reformation of regulation in favour of FDI are also positive development in this area.
As the PPA has already been signed and the financial agreement too has been completed for this project, it is time for you to consider your next project. What new projects are you considering?
KOEN is looking to have more investment in overseas hydropower projects. After UT-1, we will look for a good project to start from the feasibility stage. Investment for the development of clean and green energy is now a global priority. KOEN will also focus on the same.
How do you view Nepal’s prospects in trading power with its neighbouring countries?
We are very optismistic about this. In fact, South Asia is a potent market for energy trade. Countries like India and Bangladesh need electricity. So, our future focus will not only be on the domestic demand in Nepal, but we will also explore the potential to export energy from here.