Since its establishment in 2011, Investment Board Nepal — a government body which oversees implementation of hydro projects of 500 megawatts or more and other projects with investment of Rs 10 billion or more — has signed agreements on development of 900MW Upper Karnali and 900MW Arun-3 hydroelectric projects. It has also granted

permission to a Chinese company to develop 750MW West Seti Hydroelectric Project, approved foreign direct investments worth billions of rupees for establishment of at least three cement factories  and hired a firm to conduct feasibility study on establishment of a chemical fertiliser plant in the country. Despite these initiatives taken by the IBN, work on many projects seems to be moving ahead slowly. Rupak D Sharma of The Himalayan Times caught up with IBN CEO Radhesh Pant to discuss problems being faced by projects undertaken by the

Investment Board

The Investment Board Nepal (IBN) achieved its first major success in September 2014 by signing Project Development Agreement (PDA) on 900MW Upper Karnali hydroelectric project. Since then the project developer has not been able to submit a report on the project’s impact on downstream irrigation projects. What is causing the delay?

GMR Energy of India, the developer of Upper Karnali project, was working with the Department of Irrigation to assess the impact of the project on downstream irrigation projects. But because of earthquakes of April and May, and supply disruptions, GMR has not been able to finalise the report. We are hopeful about the company submitting the report soon.

Will the delay in report’s submission postpone the project’s financial closure?

No. The report’s submission and financial closure are entirely different issues. So, we are hopeful that the project developer would be able to complete all the works regarding financial closure within the deadline of September 2016. However, if the current situation persists, it will be difficult for the developer to complete that task within the deadline because the earthquakes and supply disruption have affected pre-construction projects. Yet, we have asked the developer to meet the deadline.

Why would internal problems affect the financial closure because the developer is mobilising most of the funds to build the project from abroad, isn’t it?

A company has to deal with multiple foreign lending institutions before reaching the financial closure. But the internal problems have created hurdles for many of these international institutions to come to Nepal and conduct technical due diligence. This is the same with other project developers, because the fuel crisis has affected almost every sector, including transportation.

Amidst these problems, Statkraft International, a Norwegian company, has pulled out of 650MW Tamakoshi 3 hydroelectric project. Why did the company decide to abandon the project?

Initially, Statkraft was planning to develop Tamakoshi 3 hydroelectric project to supply electricity to the domestic market. But at that time, there were doubts over Nepal Electricity Authority’s ability to purchase all the electricity produced by the project, especially in the wet season when power generation surges. Amidst this uncertainty, the government signed Power Trade Agreement with India (which provided Nepal access to the vast Indian power market). This deal helped the company to spring back into action. Then Nepal was struck by massive earthquakes. Initially, it was said the quakes had severe impact on the Tamakoshi River. Subsequently, ground stability tests were conducted. The findings of the study, however, did not show what many had feared. Despite this, the company decided to leave the project. But the company’s latest decision is not restricted to Nepal, as Statkraft is planning to pull out of entire South Asia. However, the company probably wouldn’t have abandoned the project, had the country been serious on implementation of Nepal-India power trade deal. To implement the agreement, we need to do a lot of work, from formation of a regulatory body to establishment of power trade companies. But none of these tasks were performed by Nepal. At the same time, India also did not do anything to implement the deal. Besides, nothing has happened since the South Asian countries signed the SAARC Framework Agreement on Energy Cooperation (in November 2014). While delays on these fronts dampened the investor’s spirits, slow-paced works in implementation of reforms in Nepal’s energy sector also dissuaded the company.

There was a rumour that Statkraft was unable to get a good price for electricity that it was intending to sell in India. And this was the reason for the pull out. Is this true?

I’m not aware of such a problem. I had heard that the company had roped in Tata Power of India to build the project. However, I do not know much about the deal between the two companies. But whatever one says, the company’s decision to pull out of entire South Asia was the primary reason for the departure from Nepali project. Also, continuous delay in introduction of reforms in the energy sector put a damper on developer’s interest. For years, we have been talking about transformation and restructuring, without delivering anything. Obviously, if the government fails to fulfil what it says, the risk perception goes up, because investment is all about trust and confidence. So, focus has to be on creating an investment-friendly environment.

It is also said introduction of heavy fees, such as PDA negotiation fee of $1,500 per megawatt, has raised eyebrows of investors. Is that true?

Given the size of the project, the fee that we have started collecting is not that huge. If we can fulfil our commitments and create an investor-friendly environment, investors won’t hesitate to pay those fees. The problem here is that every new government sets new priorities and introduces new policies. This frustrates investors.

But the new constitution is not likely to allow any single party to form a government, which means the country will be led by coalition governments for some time to come. Also, frequent change in the government is likely to be a fixture. Against this backdrop, how can a country pursue development goals?

Over the years, we have talked a lot. Now it’s high-time to show the world that we can deliver on our promises. The IBN has always focused on delivery and we will continue to do so. In this regard, we have been providing updates on projects undertaken by us to the political leadership. We even call second-rung political leaders and tell them about our projects. During these interactions, we try to feed facts to leaders. This is important because many here rely on hearsay. And unfortunately, many of our leaders listen to them. At the IBN, we first look at the interest of Nepal. For this, we communicate with every politician, including leaders at local level. We also hold discussions with locals and tell them how a project we are planning to implement will benefit them. We also try to educate the private sector and the civil society about our works. Of course, the IBN faces difficulties while performing these tasks and many people do not agree to what we say. But again if there is no difference in opinion, the world would be a very boring place to live in. So, whenever we reach out to locals and politicians, we try to settle those differences, because the ultimate wish of every Nepali is to see a prosperous Nepal. And to fulfil this wish, we need investment, for which everyone has to work accordingly. This would ultimately create jobs and restore people’s confidence.

Coming back to Tamakoshi 3 hydro project, what’s the government planning to do with it?

We will now have to identify an appropriate public-private partnership model to develop the project.

We’ll also discuss the issue with all stakeholders, including locals. We’ve already started to work on these

issues. We’re planning to table a proposal on this at the board in the next few weeks.

There has also been delay in formation of a special purpose vehicle (SPV) for implementation of 750MW West Seti Hydroelectric Project, isn’t it?

Yes, there has been delay in formation of SPV from Nepal’s side. To create the SPV, Nepal Electricity Authority (NEA) has to sign a joint development agreement with the Chinese company, which is developing the project. Hopefully, our board of directors will resolve this issue soon. Despite this delay, around 20-25 Chinese engineers are currently working at the site and conducting various tests. This shows the Chinese developers are very interested in building the project.

The Cabinet has already instructed NEA to sign the agreement, isn’t it? So, why hasn’t the pact been signed?

The country is in a transitional phase. So, issues of accountability and ownership have now been thrown to the back seat. In West Seti’s case, Cabinet has already asked NEA to sign the joint development agreement, but other implementing agencies have failed to work accordingly. So, unless concerned government agencies and officials are held accountable for the delays, nothing is going to change. Also, the government changes once in a while. And with the change in the government, secretaries also change. For instance, country has seen seven or eight tourism ministers since the establishment of the IBN. Under such a scenario, how can we develop airports?

But IBN’s board is led by the Prime Minister himself. Why can’t you raise the issue during the board meeting?

The IBN takes the lead till the time project developers reach financial closure. But to play the lead role, we need support of different government bodies. And as I told you earlier these bodies have not been able to function in a responsible manner. Also, the IBN is a relatively newer institution. And whenever new institutions are created, officials start raising questions over rationale behind establishment of such institutions. This creates disconnection. But I hope things will change in the future.

Lastly, would you like to add anything?

Until now, we were waiting for the promulgation of the new constitution. The Constituent Assembly has delivered that as well. Yes, there are some issues that need to be resolved to fully implement the new constitution, and I hope they will be resolved soon. Against this scenario, we cannot make any excuse for failing to pursue development goals. We have done enough of politics. The focus should now be on economic transformation. And for this, everybody has to play their roles in a responsible manner. With regards to the IBN, we have a handful of projects at the moment. We are looking into solid waste management project and are conducting studies on development of monorail project as well. Monorail is an expensive project, so we have to look into various aspects, such as cost and return on investment, before finalising it. Recently, the Cabinet has also asked us to look into wind energy sector. We have started collecting data on this, and are conducting studies on available technologies and financing modalities. Also, we will be providing inputs to frame an appropriate policy on development of wind energy sector.