Foreign investments in Nepal’s Hydropower sector

With Nepal’s domestic power producers focusing on developing small-to-medium hydro projects, mainly because of lack of capital and technical expertise, there is a need for foreign investments in Nepal’s hydro sector. In the last few months, Nepal Government has successfully signed project development agreements (PDA) with two Indian companies regarding 900 MW Arun III and 900 MW Upper Karnali projects. Three George Corp., a Chinese company that is doing electromechanical work for Upper Tamakoshi (456 MW project), is also vying to get into Nepal’s hydro business through the West Seti project. Foreign investment in hydropower is definitely welcoming as the country is facing dire energy crisis. A research done for Britain’s Department for International Development suggests that four big hydro projects could earn Nepal a total of $17 billion in the next 30 years— this is not bad considering Nepal’s GDP last year was a mere $19 billion. However there are also some challenges mainly in building trust and cooperation, timely execution, electricity load management, and finding markets for surplus electricity. This post briefly summarizes these mega projects and also discusses the impact of foreign investment to Nepal.

Upper-Karnali_20110614082922

Source: Ekantipur

Nepal Investment Board (IBN) and GMR-Energy signed an agreement in September 2014 to build a 900 MW, $1.4 billion plant in Upper Karnali. The commercial operation of the project is expected to begin in September 2021 with financial closure to be completed by September 2016. GMR has also partnered with International Finance Corporation (IFC) in developing Upper Karnali project and two high-powered transmission lines. The Upper Karnali development project was agreed in principle in 2008 but delayed primarily because of political instability in Nepal. GMR is also in advanced stage of developing another big project, Upper Marsyangdi-2 (600 MW). Nepal Investment Board (NIB) and GMR signed the agreement with the aim of providing greater security to foreign investors in Nepal and also asserting foreign entities’ responsibilities to protect Nepal’s national interests. Similarly, India’s state-owned power company, Satlij Jal Vidyut Nigam, will construct a 900 MW Arun III hydro river project after signing the agreement in November 2015. The deal was completed during SAARC summit in the presence of Prime Ministers of India and Nepal and is expected to generate electricity from 2021.

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