´Equitable risk-sharing of forex rate while signing PPA´
KATHMANDU, June 19:Harnessing hydropower is a national priority. There´s no two ways about it. But on the subject of how to finance hydropower projects, the opinion is divided. Should we bring foreign in investment or can our own banks and financial institutions (BFIs) finance the projects?
Financing hydropower is a matter of concern not just for the developers and their financing partners but also of every electricity consumers as paying the amount based on the Power Purchase Agreements (PPA) in foreign currency to foreign investors ultimately affects the tariff rates that Nepal Electricity Authority (NEA) charges electricity consumers. NEA is at a disadvantage from PPAs in foreign currency, which has appreciated many times vis-à-vis the Nepali rupee.
The parliamentary Public Accounts Committee (PAC) has sought clarification from the Minister for Energy Radha Gyanwali and other officials for signing PPAs in foreign currency thereby putting the power utility in a position to face huge annual losses.
The clarification was sought 21 years after NEA started signing such PPAs, with the Upper Bhotekoshi Hydropower project, and which has so far signed similar deals with other four projects.
A deal with Lower Solu signed in November was one such PPA, but it was done in a risk-sharing model.
DO WE NEED FOREIGN INVESTMEN IN HYDROPOWER?
“We need an additional 8 million units (400 MW supply of electricity around round-the-clock) to clear the current load-shedding during ´dry months´ but we need a total installed-capacity of 2,000 MW run-of-river projects for 24-hour supply and that demands an investment of Rs 400 billion,” Sher Singh Bhat, the spokesperson of NEA, says.
The sector needs huge additional investment to meet energy demands, which is increasing by over 100 MW per year, for future needs. “Such huge investment is not possible without bringing in foreign investors,” Bhat says.
The 22 MW Sanima Mai Hydropower project, which will start generation in a few months, will be the largest hydropower developed by the Nepali private sector without foreign investment.
Subarna Das Shrestha, a former president of the Independent Power Producers´ Association, says Nepal needs foreign investment to generate enough energy to improve the economy as Nepali banks can not funnel their resources into hydropower, as they have to manage their investment portfolio and are also not confident enough about investing in hydropower as it takes time to receive returns.
“And foreign investors do not come when a minimum level of returns is not assured,” Shrestha, who is also one of the promoter of Sanima Mai Hydropower Project, says.
Statistics from Nepal Rastra Bank (NRB) say that Nepali BFIs invested only Rs 17 billion on the hydropower sector in Fiscal Year 2012/13. And even for a 10 MW project, they invested through a consortium of banks.
Former energy secretary Surya Nath Upadhyaya says that we need foreign investment for the large-scale projects and in the long run should collect Nepali money from institutions like Hydro Electricity Investment Development Company Ltd also for such big projects.
However, economist Bishwambher Pyakuryal has a differing view. He says that we foreign investment for the volume of energy required but we should start mobilizing the local small-savers and diverting the governments´ unspent budget for small hydropower.
Experts say that a plan of International Finance Corporation (IFC), the private sector lending arm of the World Bank, for Rs 50 billion in local-currency bonds will be of great help.
SHARING RISK
Former energy secretary Upadhyaya says that NEA should not be as liberal as it was with the developers Khimti and Bhotekoshi in the 1990s and can negotiate well with new foreign investors to settle for model allows sharing of risk equitably.
“It could pay in foreign currency for the loan payment period and only in Nepali currency during the profit-making period,” Upadhyaya suggests.
Gagan Thapa, a member the parliamentary Energy and Agriculture Committee, echoing Upadhyaya´s suggestion, stresses on skillful negotiating while signing of PPAs. “Foreign investment should not be accepted, as if we were a beggar, without ensuring our interests too.”
“We should employ several models for sharing the exchange risk or have third-party insurance for the risk,” he says, adding that paying in foreign currency during the pay-back period can be chosen as an alternative for the discussion.
However, Thapa thinks the government should play other key roles to promote foreign investment, like completing all the groundwork — survey, Detailed Project Report, Environment Impact Assessment, and land acquisition — and hand over the project, ready for construction.
Foreign investors often complain of bureaucratic hurdles, sluggish service, and poor ´doing business´ environment making projects overrun their costs.
Bhat wants the parliament to approve the much-awaited Electricity Regulatory Commission (ERC) bill at the earliest and pave the way for instituting a regulating authority to determine the PPA rates and electricity tariff.
All PPAs in foreign currency were as carry-over of Khimti Hydropower Project, Rajendra Kishore Kshatri, the secretary at the Ministry of Energy, says. “We are preparing to form a taskforce, that will also include energy experts, to suggest measures to take before decisions on PPAs with foreign investors,” Kshatri adds.
Bhisma Raj Dhungana, director at the foreign exchange department at NRB, says PPAs in US dollars will have an in-built increment system as the Nepali Rupee is getting weaker every year. He also suggests defining of why such PPAs are needed.
It is high time for the parliament to sort out the energy pricing mechanism by endorsing the related bills like the ERC Bill, Electricity Bill, and Land Acquisition Bill, plus the other bills related to investment for reform in hydropower sector.
Source : Republica
