Nepal | July 08, 2020

EDITORIAL: Positive sign for FDI

The Himalayan Times
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This is the first time that Nepali banks have had an opportunity to invest heavily in a project of this scale

After repeated postponements, SJVN Arun-III Power Development Company has signed the financial disclosure of the India-backed 900 MW hydropower project with seven banks, including two Nepali ones. With the inking of the deal, one can rest assured that the project, based in Sankhuwasabha in east Nepal, will come online by 2023 as scheduled. Five Indian and two Nepali banks will invest a total of Rs 101.28 billion in the venture, with the Nepali banks chipping in Rs 15.35 billion. This apart, SJVN has been carrying out construction works – which has seen 30 per cent progress so far – through its equity investment worth Rs 27 billion. This is the first time that Nepali banks have had an opportunity to invest heavily in a project of this scale. The two Nepali lenders – Everest Bank and Nabil – will invest Rs 10.22 billion and Rs 5.13 billion respectively.

The investment does more than just earn interest on the loans for the banks. Over time, the investment should help them gain the technical knowledge and managerial skills to handle big projects. As of now, it is the largest hydropower undertaking in Nepal, but larger projects are in the pipeline, many in collaboration with multinational firms. They will require considerable funds and certainly rich experience in managing them.

Arun III is an export-oriented peaking run-of-river project, being developed on a build-own-operate and transfer (BOOT) model by the Indian public sector developer. Power will be exported through a 300-km-long 400-kVA high voltage transmission line to be built across the border to Muzzafarpur in India. The project is expected to contribute greatly to Nepal’s economy as it will receive 21.9 per cent, or 197 MW, of the generated energy free of cost during the concession period of 25 years, after which SJVN will hand it over to Nepal in 2048. During the concession period, the government will also receive Rs 330 billion in royalty, apart from the local share and free energy to the residents of the affected area.

Arun III is the largest government-to-government level foreign direct investment (FDI) from India. The inking of the financial closure of the project with the seven banks should send a positive signal to other investors to follow suit. The government is awaiting the financial closure of the 900-MW Upper Karnali Hydropower Project that GMR of India is developing, now that the Bangladeshi government has finalised the power purchase agreement for 500 MW with it. The two projects with huge FDI from India will help materialise power exchange between Nepal and India as well as Bangladesh. Arun III is scheduled to come into operation in another three years’ time, but the government must see to it that obstacles do not impede the progress of its construction. The project is facing hurdles in transporting construction materials and heavy equipment due to the poor state of the access road. Secondly, the government has the obligation to provide security at the site to both the equipment and the personnel involved in the project’s construction. The smooth construction of the project without a hitch should prod other would-be investors to put money in Nepal as a secure and safe destination.

Upgrade roads

Minister of Culture, Tourism and Civil Aviation Yogesh Bhattarai on Saturday said the ministry was trying to resume operation of the closed airports in the remote parts of the country. He said the government had devised a policy of resuming air services at affordable cost. There are more than 50 airports all over the country. But 17 of them, mostly in the remote areas, have shut down due to lack of passengers or construction of roads in the recent times.

The government has invested billions of rupees in blacktopping the closed airports. The investment made in the already closed airports is sure to go to waste unless air service is made regular and affordable. Private airlines are mostly focussed on the major trunk routes that generate good money, while ignoring the less profitable areas. The state-owned Nepal Airlines is also unable to provide regular services in all the remote areas by going on a financial loss all the time. So, it would be better to upgrade only those airports that are economically feasible. Instead of investing more money on the closed airports, the government should come up with a plan of upgrading the roads that may help bring economic prosperity to the remote districts.


A version of this article appears in print on February 10, 2020 of The Himalayan Times.

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