IFC MAKING PROJECTS EXPENSIVE

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    Cost of four hydropower projects where the International Finance Corporation (IFC) under the World Bank is investing seems to be comparatively higher.

    Per MW cost of the projects, where the IFC is to make equity and loan mistake, has been found to be up to Rs 280 million even as the prevailing rate is Rs 160-180 million depending on the nature of project. The IFC has already signed agreements for loan and equity investment in 216 MW Upper Trishuli 1, 900 MW Upper Karnali, 600 MW Upper Marsyangdi and 30 MW Kaveli A. It will make equity investment of 15 percent in Trishuli and 10 percent each in the second and third projects, and has signed loan agreement of Rs 7.86 billion for Kaveli A.

    Per MW cost of projects falls as the size of the project rises. A 1 MW project generally costs around Rs 180 million while per MW cost of the bigger projects falls gradually with increase in size. Per MW cost of projects with installed capacity of 900, 600 and 200 MW is estimated to be 100-120 million. But per MW cost of Upper Trishuli 1 being developed by Nepal Water and Energy Development Company is Rs 280 million. This cost, determined by the company two years ago, is almost the double of other completed, under-construction and to be constructed projects.

    Nepal Water has put cost of the 216 MW at US$ 590 million (over Rs 59 billion). Project cost of Trishuli 1 seems to be almost 40 percent higher than other projects. Nepal Water has proposed with the Nepal Electricity Authority (NEA) to sign power purchase agreement (PPA) in US dollar. It has proposed 6.9 cents for per unit of electricity to be generated in the first year, and proposed hike for 10 times at an annual rate of three percent. It can rise to over 10 cents after the 10th hike.  Korea South East Power Company Limited has 50 percent stake in the project, Delim 15, Kerung Construction 10, IFC 15, and ZPower 10.

    GMR Energy Limited of India has estimated the cost of Upper Karnali to be Rs 116 billion but the IFC estimates it to rise to Rs 140 billion. The project cost should have been less than Rs 90 billion, according to experts. Per MW cost for the project will rise to Rs 160 million if the total cost were to rise to Rs 140 billion. Upper Karnali is considered a cheap and attractive project like Upper Tamakoshi whose per MW cost is just Rs 80 million. Similarly, per MW cost of Kaveli is also Rs 266 million. The cost of Upper Marsyangdi, to be developed by GMR and with equity investment of IFC, also looks set to be high.

    Risk of raising cost

    The IFC lends to projects at commercial rates. It has lent to Kaveli at five percent. Rising exchange rate of dollar and a higher interest rate raises the total project cost by a few percentage points.

    The IFC raises cost citing different safety measures against the risks of political instability, lack of policy clarity, and foreign exchange rate. Nepal will not be affected much from Upper Karnali and Upper Marsyangdi projects, both of which are export-oriented projects. But the other two projects are for domestic consumption and increase in cost affects the PPA to be signed with the NEA which will ultimately affect the tariff charged from consumers.

    The NEA has been saying that it suffered huge losses due to high PPA with Khimti and Bhotekoshi projects. Inflating the cost is beneficial to the developer as both its investment and liability will be lower.

    Source : Karobar Daily