Public Private Partnership in Hydropower Development:

Prospects for Nepal’s Development

Bikram Acharya bikramac@gmail.com

Contents

1. Introduction and Background

2. Hydropower Policy

3. The Case of Chilime Hydropower

4. Implication to Other Hydropower Projects

5. Conclusion

1. Introduction and Background

Objectives

• Review of Hydropower Policy in Nepal

• Review of Successful Project Practiced until date

• Possibility of implementation to other projects

A brief on Nepal• Area 147,181 Sq. km

• Population: 26.67m (2011 census)

• GDP: 18.8 billion USD (2011 World Bank)

• Some 6000 rivers with annual discharge of 174 billion m3

• 83 GW theoretical potential of hydropower

• 45 GW economical potential of hydropower is from 114 surveyed projects

• 740MW of installed capacity

Hydro –electricity 92%

Thermal/Imports 8%

• Electrification Ratio 43.6%

Current Energy Status of Nepal

Source: NEA,2011

Why firewood dominates fuel source?

Cheapest source of Energy and Easily available from forest

Lack of infrastructure, and electricity source

Around 10% growth rate

Plant Capacity

Year

Pharping 500KW 1911

Sundarijal

600KW 1936

Panauti 2.4MW 1965

Kulekhani

60MW 1982

Total 688 MW 2010

Why is Nepal Behind?Constraints•Political:

Autocratic regimes and their effect on bureaucracy for a long time Political instability, frequent change of political regimes; (1950, 1962, 1989,

2006) Lack of political will Maoist insurgency from 1995 to 2006 Overall security situation

•Technical: Poor infrastructure high sedimentation Logistics Maintenance

•Economic: Low electricity tariff that do not match costs Poor financial health of Nepal electricity authority Local people’s unjustified demand and expectations

First Hydropower built in 1911

Why Hydropower in Nepal?

• Perennial rivers originated from the Himalaya and steep gradient of the country’s topography

• One of the sustainable, clean, and renewable energy sources

• A most prominent base for direct job creation and long-term economic benefit

• The best solution to displace fuelwood which currently serves as the main source of energy

2. Hydropower Policy

Hydropower Policy of Nepal

• Acts and Policies:Hydropower Act 1992 Hydropower policy 2001 (amended in

2006)Interim policy 2010 (inclusion of Vision

2020)

Policy contd…• Major Provisions

Government land to be available on lease throughout the license period

1% customs duty

No import licenses/sales tax

Energy Royalty:

1.85% (10-100 MW)

2% (above 100MW) until 15 years

10% after 15 years

License upto 35 years with exclusive right of water use

• Social Inclusion and empowerment Sharing of Hydro Royalty

10% of the royalty to the local government 10% share ownership to Project affected local people

Environmental and social management plans

Vision 2020 Hydropower

Private Sector Promotion Program: Bright Nepal Campaign

No license up to 3 MW and waivers of EIA for up to 50 MW.

During construction, Tax exemption for companies that use > 50 % local raw materials in hydro electricity projects, until mid April, 2019.

VAT and customs duty exemption : construction materials, machinery, equipment, tools and spares

In operation, income tax is fully waived for the first 7 years and reduced by 50% for the next 3 years

Policies to address local demand for shares & social mitigation.

Comparing policy with neighbor

Item Nepal India

Customs duty 1% 5% (exempt for mega projects

Excise Duty 1% 16%

Average Generation per MW

6-7GWh per MW 4-5GWh per MW

Repatriation Policy 100% allowed 100% not allowed

Cost of Licenses Govt. fees negligible

Govt. fees around 44k USD per MW is floor price

Roads & Transmission Lines

Network is poor Network is better

3. The Case of Chilime Hydropower

Chilime Hydro Power (CHP)• Constructed and owned by Chilime

Hydropower Company Limited

• Located at 133 km north of Kathmandu at the right bank of Bhotekoshi River in Rasuwa District

• The electricity generated from the power plant is purchased and distributed by NEA (PPA concluded on June 25, 1997)

• Delivers power via a 38 km long 66 kV single circuit transmission line to Trisuli Power House Switchyard

• The plant has started its commercial generation on 24th August 2003

• Annual availabe energy to NEA is 132 GWh

People-Public-Private Partnership: 4P-Model

Source: Chilime,

Equity Structure

Source: chilime.com.np

46 million USD raised from domestic population within 4 days

Performance of the Plant

• The plant is able to generate more energy than contractually supplied to NEA, the excess energy is sold to NEA at higher prices.

• The plant load factor of the CHP Hydropower Station is calculated to be 77.5%. The plant outage was kept at minimum level with an availability of 96.8%.

• In 2011 the total revenue was approx 14 million USD, an increase of 8% over previous year figure 82% was from bulk electricity sales to NEA, 18% from other income sources.

Corporate Social Responsibility

• The company sponsors local projects related to drinking water, education, health, employment generation, irrigation, roads and other areas

• Educational Collaboration with academia: established a turbine testing lab at Kathmandu University

• Opportunity for the local population to obtain 24% of the shares of any new projects under Chilime

• Promoting entrepreneurship: Technical and financial support to develop Bemdang Khola SHP (1 MW), promoted by the local population is one of such initiatives undertaken by the company

• Tree Plantation : More than 80 thousand planted per year

• Credit Facility to support local purchasing of the Chilime Shares

What made Chilime successful

• Local investment: They encouraged local people to invest

• Participation: participation of public sector and citizensPeople act as White Knight for any kind of

hindranceProtect them in terms of security (vulnerabilities

from vested interest groups like political interference)

4. Implications for the for other Hydropower projects

Arun Valley: Where Upper Arun Project site is located

Regional Hydropower Projects

• Koshi River and its tributaries

• Bagmati River and its tributaries

• Gandaki River and its tributaries

• Seti River and its tributaries

• Karnali River and its tributaries

• Mahakali and its tributaries

Outcome

• People in the project affected area have more sense of matters and the sharing of ownership to project affected area.

• People acceptance and security of project• Empowerment of people (financial, infrastructure,

education, health)• Large power projects are possible from the local

investment

Conclusion

• Favorable investment environment provided by Government with “Vision 2020” can meet the growing energy demand.

• People centric PPP: Empowering peoples along with countries economy

• Potentially feasible to be applied in other hydro projects both in Nepal and other developing countries.

THANK YOU