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Panel lecture on: Hydro potential in Nepal and Foreign Investment Opportunities

EIAS Briefing Seminar on “Prospects for Renewable and Alternative Energies in Nepal” in Cooperation with the Embassy of Nepal in Brussels (17 th June 2014). Panel lecture on: Hydro potential in Nepal and Foreign Investment Opportunities. Krishna Kanta Panthi, Dr.ing .

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Panel lecture on: Hydro potential in Nepal and Foreign Investment Opportunities

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  1. EIAS Briefing Seminar on “Prospects for Renewable and Alternative Energies in Nepal”in Cooperation with the Embassy of Nepal in Brussels (17th June 2014) Panel lecture on: Hydro potential in Nepal and Foreign Investment Opportunities Krishna Kanta Panthi, Dr.ing. Associate Professor Department of Geology and Mineral Resources Engineering

  2. Outline • Background • Hydropower potential in Nepal • Current status of hydropower development • Legal framework • Features of investment attraction • To do list as an investor • Risk elements on investment • Khimti Project – an example of foreign investment

  3. Background Time Magazine (22nd May 2014)

  4. World Hydropower Potential and Nepal

  5. Nepal and it’s topography

  6. Some facts on water resources in Nepal • Nepal possesses ~2.3% of world water resource • Has more than 6,000 rivers and rivulets • Annual average flow amounts to 7122 m3/sec • Annual average rainfall: 1500mm • Snow coverage: 15% of total land area • Natural storage in the form of glaciers, permafrost, glacial lakes. WECS, 2005 ICIMOD, 2013

  7. Hydropower Potential in Nepal • Estimated theoretical potential = 83 000 MW • Estimated financially attractive = 42 000 MW

  8. Current Status of Hydropower in Nepal • Total installed capacity (2013) : 709 MW • Nepal Electricity Authority : 478 MM • Independent Power Producers (IPPs) : 231 MW • Total available annual hydropower energy : 4.3 TWh • Largest IIP Project (Foreign investment) : 60 MW Khimti • Second Largest IPP Project (-do-) : 36 MW Bhotekoshi • Total Peak Load Demand : 1092 MW • Net Peak Deficit (2013) : 383 MW • Deficit resulting • Power cuts (max. up to 18 hours/day during dry period) • Power cuts (8 to 10 hours/day during monsoon period)

  9. HPP projects under construction • By Nepal Electricity Authority • Upper Tamakoshi : 456 MM • Upper Trisuli A : 60 MW • Chamelia HPP : 30 MW • Kulekhani III : 14 MW • Independent Power Producers (IPP) Projects • Upper Marsyangdi : 50 MW • Mai HPP : 22 MW • Others (1 – 20 MW) : ~ 90 MW

  10. HPP projects under planning • Power Purchase Agreement Signed (Yr 2013): • 28 projects (5 - 456 MW), total 928 MW • 86 projects (1 – 52 MW), total 674 MW • Survey License issued: • 109 projects of total capacity 7279 MW • 71 projects 1-25 MW capacity : 400 MW • 20 projects 25-100 MW capacity : 1336 MW • 18 projects > 100 MW capacity : 5543 MW • Generation License issued: • 92 projects of total capacity 2400 MW

  11. Demand Forecast by NEA Current trend shows a 10% demand increase per year, which will be even more in the future

  12. Assessment on Forecast • Nepal is not yet well industrialized. • Possible areas of industrialization with huge energy demand; • Cement production • Production of aggregates and sand in the south • Mineral water and food beverage • Mining industry • Tourism • Country is shaping it’s political course and moving in right direction. • Neighboring countries have huge market potential. • Therefore, the present forecast of 10%/year is too little. • I predict that the Peak Energy Demand in 10 years time will exceed 5 000 MW.

  13. Target set by the government and parties • Since country is in the transition and is mainly engaged to shape it’s political future, the government authorities have no as such clear plan and targets set for hydropower development. • However, the major political parties have their energy development vision such as; • Nepali Congress (NC) has a vision to develop 5 000 MW in 5 years after the constitution writing process is completed. • Communist Parties such as CPN UML and (United Maoist) have a target of 10 000 MW in 10 years. • All these plans are only realistic if county moves in the direction of political stability.

  14. Existing legal framework for investment • Nepal began liberalize it’s economy after 1990. • Some by laws and acts related are: • Industrial Enterprise Act 1992 • Electricity act 1992 • Foreign Investment and Technology Transfer Act 1992 • Electricity regulation act 1993 • Hydropower Development Policy 2001 • Read the details of these act at: http://www.nea.org.np/acts-regulations.html

  15. Features of the acts on HPP • Generation License • 35 years for domestic project • 30 years for export oriented projects • Handover the Project at working condition to the GoN upon expiration of ‘Generation License’ without any cost. • Water right is guaranteed • No nationalization • Foreign currency facility and repatriation Energy Royalty (domestic) Up to 15 years After 15 years 1-10 MW 1.75% 10% 10-100 MW 1.85% 10%

  16. Features of investment attraction • 100% exemption of corporate tax for 7 years from the date of Commercial Operation and 50% for next 3 years for HPP projects commissioned middle 2019 (discussion on extension up to 2023 are under way). • Ministry of Energy and Investment Board recently recommended a VAT discount of 10 Million NRs (US$ 100 000) per mega watt, no custom duty on cement, iron items. Ministry of Finance is positive on the proposal. • No VAT on Electro-mechanical Equipment, spare parts and steel penstock pipe import. Only 1% custom duty on plant, machineries.

  17. Features….. • Facilitate in obtaining land, lease of government land • Security service if demanded by the investor • Share to the local people up to 10% • Free electrification to few local households (20 kWh/month) within few hundred meters of the project area.

  18. To do list as an investor • Obtain ‘Survey License’ from the Department of Energy (DoED) for maximum 5 years period – review the project • Self identified project (first applicant basis) • Competitive bidding of government studied project • Study the project using your consultant and conduct ‘Environmental Studies’ • Upto 50MW: only Initial Environmental Examination (IEE) • Above 50MW: Environmental Impact Assessment (EIA) • Renew license every year by paying annual fee (5 years)

  19. To do list as an investor • Apply for Project Development Agreement (PDA) with the Government of Nepal (GoN), which defines criterions (obligation) for both GoNand the investor and insures the interest of both parties. • Projects < 500 MW, handled by Ministry of Energy • Projects > 500 MW, handled by Investment Board of Nepal (a body directly under the Prime Minister) • PDA can be made for both domestic and export oriented projects.

  20. To do list as an investor • Carry out Power Evacuation Study and Connection Agreement with Nepal Electricity Authority (NEA). • Negotiate for Power Purchase Agreement with Nepal Electricity Authority (NEA). Remember; • Small projects (under 25 MW) have PPA in local currency at fixed unit rate and negotiated price in larger projects. • NEA is not in position to take Foreign Exchange Risk. • ‘Dual Currency Agreement’, Payment in foreign currency until loan repayment period and in local currency onwards. • Obtain ‘Generation License’ from the Government of Nepal • Arrange finance (Financial closure) • Construct and operate until License expires

  21. Risk elements on investment • Political risk • Political instability due to conflict between different ideology. • Misuse of youth for political gain. • PPA agreement with NEA • Financial situation of the NEA – guarantee from the GoN • Management and agreement issues – make sure that you are guaranteed with an agreement for long term!

  22. Case example: Khimti HPP (60 MW)

  23. Khimti project features • Total Project Cost : 140 Million $ • Annual energy production : 350 GWh • High Head (Gross) : 680m Gross Head • Total Tunnelling : 12.8 km with underground PH • PeltonTurbines : 5 units with 12MW each • Construction completion : 2001 (after defect liability) • Type of contract : Turn key • Type of PPA with NEA : Take or Pay basis • Currency of payment : US$ • Loan payback period : 11 years (IMF and Asian Bank) • Approx. annual revenue : 30 MUS$ / year

  24. Schematic Layout Upper & Lower Shafts441m + 470m Intake + Desilting Concrete 18,000 M3 Surge Shaft Khimti River Tailrace 1470m Access Tunnel 890m 3 2 1 4 Headrace tunnel 7923 m 4 Adits, 6 Faces 5 Tama Koshi Underground Powerhouse 6700M3

  25. The project continues to help local communities

  26. Thank you!

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