“It’s very important that the structural reforms are aligned with international best practices”

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The Power Summit 2019 was held at Soaltee Crowne Plaza in Kathmandu on November 21st and 22nd. Organised by the Independent Power Producers Association of Nepal (IPPAN), the summit focused on cross border power trade and connectivity as well as other relevant topics pertaining to Nepal’s power sector.

Linda Broekhuizen, chief investment officer at FMO, the Dutch development bank, was present at the event. FMO is the largest shareholder of NMB Bank, Nepal.

Sarthak Raj Baral of New Business Age caught up with Broekhuizen on the sidelines of the event to talk about the summit, Nepal’s energy sector, FMO’s partnership with NMB Bank, among other topics. Excerpts:

How has your participation in the Nepal Power Summit 2019 been? How have you found this summit as a platform to initiate dialogue and discuss issues about Nepal’s energy sector?
We are one of the main sponsors of the event, and the reason for that is that we are quite active in the hydropower sector, and we expect to do more. Also, we are an investor in NMB Bank, which invests in the hydropower sector.

We see that the sector has a lot of potential, not only for Nepal but also for other countries in the region. It was good to see that India, Bangladesh and Bhutan were also present at the summit. We were also happy to see so many government representatives but also businesses and financial institutions. So, this event was not only good for knowledge but also very good for networking and to meet people.

How do you view the structural reform initiatives undertaken in the Nepali energy sector in recent years?
We think it’s very important that the structural reforms are aligned with international best practices. We know it’s the target of the Nepali government to develop 15,000 megawatts in the next ten years. In order to get there, it’s crucial that there is more Foreign Direct Investment (FDI) because the local banks cannot finance all the projects. So, to attract international investors, it is very important, both for the government and developers, to look at international best practices. For example, governance in general as well as a more robust governance regarding the allocation of hydropower concessions to developers.

The governance should be transparent, and that there can be competitive bidding as well. We find it very positive that the ministry of energy is developing legislation to allow competitive bidding.

The other topic of importance is the environmental and social best practices and international standards that should be integrated into the project from the beginning. Then there are health and safety standards for job creation, biodiversity and how it is managed upstream and downstream, and the involvement of local communities in the project; that they can also be the co-owners of the project. Since the project is close to their homes, and they will be impacted, it is important that they are a part of the project development.

Energy is one of the major areas of investment for FMO. What are the significant accomplishments of FMO in this regard?
FMO, as a development bank works in Africa, Asia and Latin America. A major part of what we finance is renewable energy – hydropower, wind and solar energy. We have grown this portfolio over the past years, and it’s good to see that renewable energy is growing so fast. And if we look at the pollution here in this region, it’s very important to have more renewable energy. I have seen some NASA pictures taken from space and there is a lot of pollution, particularly below the Himalayas.

For the long term perspective, renewable energy is a crucial part of the policy and strategy, not only for Nepal but for other countries in the region as well. What we see is that renewable energy has become more affordable in many countries. New technologies also help a lot in further developing renewable energy. We also do off-grid solar energy in areas which we call ‘the last mile,’ for instance, rural areas where it’s hard to connect to the grid. We have seen growth in off-grid energy solutions as well. We like to look at new technologies, for instance, energy storage, batteries, and how we can better work with that in combination with solar energy.

FMO is part of the Dutch Fund for Climate and Development (DFCD). Will your bank support NMB to get funds from this programme to promote clean energy in Nepal?
This is a very unique fund, indeed. We launched it formally last week. It’s a USD 160 million fund which we do in partnership with three partners – WWF (World Wildlife Fund), SNV Netherlands Development Organisation and Climate Fund Managers. With that fund, we look at developing new projects for climate mitigation but also for climate adaptation. We really look at the landscape approach; it’s not only an individual project. The projects can be innovative or at an early stage and not immediately bankable but with a lot of potential. And if NMB Bank has those kinds of innovative initiatives that comply with the Fund’s criteria, we can definitely look into it.

NMB Bank has stated its aim of investing in large hydropower projects and renewable energy. How is FMO assisting NMB in this regard?
We are looking at opportunities to co-finance with NMB. If there are transactions that are too big for the local banks, then we could see if FMO can join and if other international investors can co-invest. We also look at sharing the best practices with NMB for environmental, social and governance standards. We like to support our clients such as NMB; to see if we can bring our knowledge and network to the table. To give you an example, just before this summit, we organised a workshop for bankers, developers and central bank employees to talk about environmental, social and governance standards.

It was a very interactive workshop. We looked at some of the challenges, opportunities and risks related to implementing those standards. We also support NMB with capacity development.

Besides energy, how is FMO supporting NMB Bank in other areas of investment, including small and medium enterprises (SMEs)/micro SMEs and corporate sector?  
We definitely look at how the NMB Bank can further develop SMEs, very much from a technological perspective as well. We also provide support for the bank to look at how they can further digitise and what new products they can implement. Last week, we had a big Fintech conference in Singapore. There, one of the employees of NMB Bank also participated in a workshop that we organised with INSEAD Business School. That training brought together many of our clients from different countries. NMB bank was there to look at how Fintech and new technologies can be implemented in the Nepali context.

Is there anything else that you would like to add?
We also have a board member in NMB Bank. We have a board member who comes from the Netherlands, who used to work as the chief risk and finance officer of FMO and so he comes here regularly to share his knowledge and experience.

We have also invested in the Lower Solu Hydropower Project, where we work very closely to implement international standards and best practices. We have invested in the Dolma Impact Fund that has invested in hydropower and energy projects. And we are a part of the Upper Trishuli -1 Hydropower Project as well.

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