Country needs to take risks to attract FDI

Radhesh Pant (CEO- Investment Board Nepal)
Radhesh Pant (CEO- Investment Board Nepal)
Radhesh Pant (CEO- Investment Board Nepal)

The Investment Board Nepal (IBN), which looks over implementation of more than 500 megawatts of hydropower projects and investments exceeding Rs 10 billion in infrastructure and services sectors, achieved its first major success on September 19 with the signing of the Project Development Agreement on 900MW Upper Karnali hydroelectric project. The signing of the first PDA with GMR Energy of India has laid the groundwork for development of largest hydro project in the country. Rupak D Sharma of The Himalayan Times caught up with IBN CEO Radhesh Pant to discuss the significance of the PDA document and status of other hydro projects that IBN is overseeing.

The negotiations that started with GMR in April 2013 finally concluded earlier this month. How do you feel?

It feels great. The PDA document was prepared after holding extensive rounds of discussions with domestic as well as international technical and legal experts. So, finally, we have a fundamental tool to attract foreign direct investment (FDI). This document also serves the country’s long-term interest and is accepted worldwide. And since it was prepared based on consultations with various parties, we have a clear understanding on proposals that are acceptable and negotiable. This will help us conclude deals at relatively short time in the future. Above all, this document can be used for other projects as well and has generated lots of interest among international investors. So, we can consider it a stepping stone to attracting investment not only in the hydro sector but in other infrastructure projects as well.

PDA signing with GMR is being heralded as a major breakthrough in the hydro sector. But a detailed study on impact of the Upper Karnali project on downstream irrigation projects is yet to be conducted. When are you planning to carry out this study?

The Ministry of Irrigation will prepare terms of reference for the study, most probably after the Dashain festival. The ministry can conduct the study in collaboration with GMR or ask the project developer to do the study on its own. Whatever the case, the government won’t be obliged to accept the findings of the study. This study is important as no one has ever conducted a comprehensive analysis on the impact of the hydroelectric project on downstream irrigation projects. Once that is done, the project developer will have to make whatever investment to mitigate the impact on downstream irrigation projects, whether by building a re-regulating dam or through other measures. And whatever measures we take will set a precedent for other similar hydro projects.

You just gave an example of building a re-regulating dam to minimise impact on downstream irrigation projects. But many are saying there is no space to build such a dam. Is it true?

Yes, we do not have space to build a re-regulating dam, as another project is being built downstream the Upper Karnali site. But construction of a re-regulating dam is not the only option we have to mitigate the risk. There are other options as well. But before we discuss those let’s wait for the findings of the study to come. Once the facts are on the desk, we can take necessary action to address the problem.

So, you think this is not a major problem for project implementation?

What I don’t like to do is make comments based on market rumours or hearsay. Currently, different people are expressing divergent views on the issue, without knowing all the facts. This is only creating confusion. What we should do at this moment is make sure we get all necessary data and facts. Once we have those, we can deal with problems effectively.

Let’s change the topic. IBN started PDA negotiations with developers of 900MW Arun III and 880MW Tamakoshi III hydro projects around the same time as with the developer of Upper Karnali project. But it appears negotiations with the two other developers are moving ahead very slowly.

I hope we’d be able to sign PDA with the developer of Arun III in the next three months or so, as around 90 per cent of the negotiations is complete. With regards to Tamakoshi III, the prerequisite was signing of the power trade agreement (PTA) with India, as it is also an export-oriented project. Since Nepal and India have put the initials on the power trade pact, I hope it won’t take a long time to seal a deal with developers of Tamakoshi III project. Likewise, PDA negotiations with developers of Upper Marshyangdi hydro project will also move ahead quickly as it is being developed by GMR, the same company which is developing Upper Karnali project.

And what’s the update on implementation of 750MW West Seti hydro project?

The president of CWE Investment Corporation, a subsidiary of China Three Gorges Corporation, was here last month and he expressed willingness to implement the project. I’m told the company is in the process of getting final board approval. One of the reasons why we were not able to meet frequently with West Seti project developers was reshuffling of senior management staff at China Three Gorges Corporation, following the appointment of the country’s new president.

It is said the company now wants to conduct a study on domestic electricity demand. What is the purpose of this study?

They want to find out whether the domestic market has the potential to absorb 750 megawatts of electricity that they generate. We told them that it was not their problem because Nepal Electricity Authority (NEA) will buy it anyway, as it is a project which is generating electricity for the purpose of domestic use.

Have you held discussions with NEA and is it willing to purchase the power?

Yes, we have, and NEA has agreed to purchase the electricity. Besides, West Seti is a national pride project and things must move ahead quickly. This is a project being built under public-private partnership model, so everything is not in the hands of the government, as the private sector also needs to feel comfortable. What I want to tell you frankly here is that Nepal has no experience in deployment of large scale hydro projects, so it takes time for us to seal the deals. But all these rounds of negotiations with different project developers are helping us build our capacity. So, hopefully, in the next five to 10 years we’ll be able to gather ample experience and we won’t need the support of international experts.

Other major reasons for delay in project deployment are political wrangling and bureaucratic red tape, isn’t it?

One of the things we must do is change the way we think, as we cannot work with an old mindset. If we want FDI, we have to be forward-looking. Investors don’t invest just because they love a country. They always look for returns and security of their investment. We have signed PTA and PDA, which clearly show we are ready to do business. Now, let’s make appropriate amendments to our laws and make public service delivery system effective and efficient. Do you know a hydropower investor has to make rounds of around 30 different government ministries and agencies? This is absurd. Unless we change this, we cannot attract billions of dollars of foreign investment that we need to put the country in the league of developing nations.

And we all know domestic capital is not enough for this. So, let’s act now to develop the country. This is the only way to create jobs and improve the living standard of people. In this regard, the country may have to take certain risks. If the country cannot take risks, we should not even think about attracting FDI.

Source : The Himalayan Times