The proposed Budhi Gandaki Hydropower Project located in Gorkha and Dhading districts in central Nepal has been touted as the solution to the current energy crisis. Its powerhouse will generate a whopping 1,200 MW of electricity that should make the dreaded load-shedding a thing of the past. The dam of the storage-type project will be 263 metres high, which will make it one of the tallest in the world
Budhi Gandaki also has a high price tag of $2.5 billion, which means the power purchase agreement (PPA) rate will have to be more than $0.14 per kilowatt hour (kWh) for the project to be financially feasible. The detailed project report (DPR) has not been reviewed by a third party, and this may raise questions about the reliability of the design. Experts, politicians and economists all think that Budhi Gandaki should be built with domestic funding, but it is highly unlikely that any institution will bankroll a project that does not provide attractive returns.
Because of the potential technological and financial challenges, it is necessary to look for an alternative approach to boost its financial attractiveness and reduce risks. A wise decision would be to utilise the current DPR and add a few features involving a nominal cost increment to produce significantly more electricity. Budhi Gandaki can be made more attractive by channelling water from the nearby Trishuli River to its reservoir. Water from the Trishuli can be impounded at the headworks of the existing Trishuli Hydroelectric Project and evacuated to the Ankhu River at the tailrace of the existing Ankhu Hydroelectric Project through a 26-km-long tunnel. There are a number of ways to implement the project.
This option can be designed at 1,500 MW by adding another 300 MW to the proposed 1,200 MW project to generate 5,980 GWh annually with an additional investment of $500 million. If enough investment is available, the Trishuli Diversion can be built at one go. The Trishuli Diversion project will not require additional loans or capital as it can be built with the revenue generated from the proposed 1,200 MW project.
Instead of the planned 263-metre-high dam, a smaller 203-metre-high dam can be built with an uplifting provision. The project can have an installed capacity of 600MW and produce 2,020 GWh annually. The project would cost around $1.9 billion which is around 25 percent less than the cost of the original 1,200 MW project. A smaller project means smaller construction time (six years as opposed to seven to eight years), less complexity and smaller possibility of time overruns.
In the second phase, the power generation can be almost doubled by installing a 600 MW electromechanical (EM) and adding water from the Trishuli River. This phase can be designed at 1,200 MW by adding 600 MW to generate over 4,300 GWh annually with an additional investment of less than $860 million. In the third phase, the height of the dam will be raised to 263 metres and the EM equipment will be upgraded to match the raised height. By injecting another $850 million, the total installed capacity of the project can be hiked to 1,800 MW and the project will produce 6,900 GWh annually.
Both the options would require more than $3 billion, and accomplishing the financial closure of such a huge investment will not be easy. The government can consider different financing options like public ownership development and public private partnership (PPP). Under public ownership development, financing will be by multilateral agencies. The project can be funded by international financial institutions such as the World Bank and Asian Development Bank. Another option is buyer’s credit loan agreement, which means the project could be made under an EPC contract and the contractor arranges 75-85 percent of the financing with the government providing the rest.
Under the PPP model, financing will come from the public and private sectors. A maximum of 20-25 percent of the project cost can be brought through equity participation of the government and the general public. Likewise, loans can be taken from the Employees Provident Fund and Citizen Investment Trust. The project can only be developed under the PPP model if public investors can get a good return on their investment.
In order to make the project attractive to potential investors, the PPA rate has to be very high or the government should support the project by providing tax and royalty rebates, subsidised loans and other incentives. With the Trishuli Diversion, the project’s financial internal rate of return (FIRR) is over 10.7 percent, so investments can be attracted from public investors without any difficulty. If the government can arrange a soft loan and provide a royalty rebate, the project will become more feasible; and it can be built and implemented in the same way as Upper Tamakoshi. There would be no dearth of investment for good projects with good returns.
Shrestha and Gautam are engineers; Sharma is a chartered accountant
Source : The Kathmandu Post