Nepal | April 03, 2020

Construction cost of hydro projects up with dollar strength

Himalayan News Service

Kathmandu, September 21

Hydropower developers are nervously wringing their hands as the appreciation of the US dollar has raised the cost of building their projects.

“The cost of developing hydropower projects being developed by Nepal Electricity Authority (NEA) and independent power producers (IPPs) has gone up significantly along with strengthening of the greenback as the cost of equipment has surged,” said Kul Man Ghising, managing director of NEA, explaining the rise in the construction cost of the projects.

Apart from the inadvertent rise in construction cost, NEA is also having to shell out more money to buy electricity from the projects with which it has inked dollar-denominated power purchase agreements (PPAs).

Such hydropower projects include Bhotekoshi and Khimti. NEA pays 5.9 cents per unit to the two hydropower projects.

The 10 hydropower projects being constructed by NEA’s subsidiary companies at present will generate 1,017 megawatts of electricity and the 107 projects being developed by IPPs will generate 2,356 megawatts of electricity.

Likewise, NEA will start construction of hydropower projects with total installed capacity of 2,920MW of electricity and the IPPs will develop projects with installed capacity of 1,658MW within this year.

“Based on our rough estimate, the construction cost of a hydropower project has already gone up by 20 per cent when compared to the beginning of the year due to the devaluation of the Nepali rupee,” said Shailendra Guragain, president of Independent Power Producers’ Association – Nepal (IPPAN).

According to Guragain, the government should take the difficulty being faced by the power producers into consideration and provide some subsidies. “We are in double trouble as the banks and financial institutions have also hiked the
interest rates on loans,” he said.

The Nepali rupee has weakened by over 13 per cent since the beginning of this year, as per the exchange rate of Nepal Rastra Bank. “The developers usually ink PPA with NEA with 10 per cent margin,” said Guragain, adding the current depreciation of the Nepali rupee has already mounted the loss for hydropower companies.

A version of this article appears in print on September 22, 2018 of The Himalayan Times.

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