Empowering Nepal’s Hydropower Sector: IFC’s Transformative Impact on Sustainability, Economy, and Gender Equality

As recently as 2016, people in Nepal had to endure up to 18 hours of power outages, which was both disruptive and exasperating. Things have changed today. Thanks to hydropower plants generating more domestic power and judicious management of power supply, rolling blackouts are a distant memory.

Nepal is already exporting surplus electricity to India and looking at the prospect of selling over 10,000 MW (Megawatts) to India and Bangladesh in the next decade. This would dramatically change Nepal’s economic prospects—turning electricity into its top export item—earning an estimated $3 billion revenue annually. In addition to this, the country could earn up to $10 billion by 2045, according to a study on Nepal’s regional electricity exports.

IFC has been instrumental in helping Nepal in its pursuit to harness hydropower sustainably. IFC’s support for two transformative projects—the Khimti Khola and Upper Bhotekoshi hydroelectric power projects—in the 1990s contributed significantly to creating an encouraging climate for private investment. Additionally, between 2016 and 2023, IFC’s Nepal Environmental and Social (E&S) Hydropower Program—backed by the governments of Norway, Australia, and Japan—supported Nepal’s government, the private sector, financial institutions, and other stakeholders to create a framework for sustainability and a pool of local human resources to implement international good practices.

The program benefitted 67 hydropower with a cumulative capacity of 3919 MW, including projects in the pipeline. This included sector-wide capacity building activities to adopt good international practices potentially influencing 17 projects generating an additional 2382 MW.

In addition, the program also facilitated the financial closure of projects producing 631 MW of electricity, directly and indirectly, while improving the bankability of several projects. The support is expected to contribute towards the production of 3.1 million MWh (Megawatt hour) of renewable energy per year. Furthermore, it improved project practices and designs, shaping the electricity bill through the Independent Power Producers’ Association of Nepal (IPPAN) to enable increased private sector participation. In terms of environmental standards, the program is expected to reduce greenhouse gas emissions by 281,430 mt (metric tons) per year.

“IFC’s project contributed toward creating a sustainable ecosystem with regard to optimizing Nepal’s hydropower, essentially ‘green gold’, by supporting regulatory improvements, building capacity in the public and private sectors, taking initiatives to increase women’s participation in the energy field, and addressing E&S risks in the hydropower sector,” said Martin Holtmann, IFC’s Country Manager for Nepal, Bangladesh, and Bhutan.

One of the program’s milestones was the national Hydropower Environmental Impact Assessment (EIA) Manual in 2018. This comprehensive guide, led by the Ministry of Forests and Environment, prioritized good international E&S practices for hydropower projects in Nepal. Key components of the manual included guidance on robust baseline data collection and sampling methodologies, meaningful stakeholder engagement, gender considerations, biodiversity, and technological innovations in biodiversity assessment and monitoring, among others.

IFC has also helped transform the gender dynamics in the hydropower sector in Nepal through its program. According to an IFC study, women account for only 10% of all employees in the sector and continue to be underrepresented at all levels of the energy industry.

To help change this in its drive for sustainability, in September 2020, IFC began working with a group of 19 companies operating within Nepal’s hydropower sector. Three years later, the changes are remarkable. Businesses are investing in leadership trainings for women and increasing their representation in senior leadership and in boardrooms. The initiative led to a significant 19% increase of women in leadership roles with a 7% increase in board positions, and a 12% increase in managerial roles.  Fifty-three percent of the companies formed women-led committees, while 106 policies, benefiting 1,075 women and men in the workforce, were enhanced for gender- and family-friendly environments and effective identification and management of gender-based violence and harassment risks.

“Our partnership with private companies is creating an impressive pathway to certainly having more women in the power sector but also in leadership positions,” said Kate Lazarus, IFC’s Lead for Environmental and Social Governance (ESG) Advisory in Asia Pacific. “These companies are not only meeting milestones in gender equality but surpassing them boldly.”

GAME CHANGER

IFC’s E&S Hydropower program also played a vital role in building capacity and empowering individuals and institutions involved in hydropower development. By equipping government officials at the federal and provincial levels with expertise to effectively review EIA reports, the program helped bridge the gap between national and international requirements, promoting the use of sound E&S standards across the sector.

 “Earlier, I lacked confidence when reviewing relevant documents. I knew about the laws and regulations set by the government but had little exposure to the technical guidelines. After the training, I feel more confident,” said Salina Kadal, an Assistant Forest Officer at the Ministry of Forests and Environment.

 While policy changes are key, addressing the challenges for developing a sustainable hydropower sector in Nepal requires a multi-pronged approach. For example, factoring in the hydropower cascades—combined impacts of multiple hydropower projects—which can have cumulative E&S effects. To minimize such impacts, in 2020, IFC introduced cumulative impact assessments (CIAs) in the Trishuli River Basin. This is where IFC, along with the Nepal Water and Energy Development Company, has been developing the 216MW Upper Trishuli-1 hydropower project. IFC also provided support to this flagship project by commissioning experts and a national indigenous people’s organization to support the development and implementation of an Indigenous Peoples Plan, in addition to supporting the introduction of novel approaches to topics such as environmental flows, sediment transects, and managing the E&S performance of contractors, a key area of concern.

 The CIA, including a management plan, aimed to balance river flows and community well-being, among others, while drawing future lessons to benefit other river basins across Nepal. Consequently, a multi-stakeholder group of aquatic scientists implemented key recommendations from the CIA, including the development of the Trishuli Assessment Tool Field Manual, a guide for practitioners, government officials, and developers in monitoring biodiversity using innovative techniques like environmental DNA.

Furthermore, in 2018, the Nepal Rastra Bank (NRB) established primary Environmental and Social Risk Management Guidelines, with the support of IFC. In 2022, these guidelines were revised to encompass climate risks and introduced specific checklists and a risk rating tool for high-risk sectors, including hydropower. The NRB has mandated the obligatory application of these guidelines, including the sectoral Environmental and Social Due Diligence Checklist and Risk Rating Tool, for all loan disbursements by commercial, development, and microfinance banking entities.

Able guidance and timely initiatives can often be good catalysts.

Several companies, including Urja Developers, Butwal Power Company (BPC), and NRN Infrastructure have taken bold steps to promote gender balance and create leadership opportunities, key to the sector’s sustainability. Applauding IFC’s Powered by Women initiative, Usha Khatiwada, CEO of NRN Infrastructure and Development Ltd., said, “I have successfully advocated to bring in female leaders as representatives on the Board of Directors and key committees within NRN Infrastructure and Development, and a human resources policy has been prepared as guided by the PbW series and brought to implementation, which is a great achievement to ensure a respectful workplace.”

 In another example, highlighting their progress, Swasti Aryal, Senior Planning and Monitoring Officer at BPC, said they are championing gender diversity by appointing more women in key leadership positions. That is not all, IFC’s publication Local Shares has played a crucial role in educating communities and policymakers about the opportunities and risks associated with investing in hydropower projects.

 “IFC’s efforts have made a significant impact in promoting sustainable practices and fostering a more inclusive industry,” said Ashish Garg, vice-president of IPPAN. “We appreciate IFC’s dedication to advancing environmental and social standards, which we hope will continue to contribute to the overall growth and development of Nepal’s hydropower sector.”