The Asian Infrastructure Investment Bank (AIIB)'s Board of Directors has approved a loan of up to $90 million for a hydropower project in Nepal.
Approving its first loan to Nepal since it was established in 2014, the China-backed institution said Nepal will receive $90 million for the construction of the 216 MW Upper Trishuli 1 hydropower plant in Rasuwa. The 216-megawatt run-of-river hydropower plant will be developed on the Trishuli river under a 35-year build-own-operate-transfer (BOOT) model.
“The AIIB’s investment will provide much-needed, long-term financing for a vital infrastructure project,” said the bank’s director general Dong-ik Lee. “We are confident that our investment will demonstrate the viability of Nepal’s sustainable energy sector to other potential private-sector investors.”
The Upper Trishuli-1 Hydropower Project will increase the country's power generation by almost 20 per cent, helping to reduce acute power shortages in Nepal, according to a statement from the multilateral development bank.
The Asian Infrastructure Investment Bank plans to disburse the pledged amount for the $647.4 million hydel plant from October 2019. The project – to be constructed by a joint venture of Daelim and Kyeryong, and operation and maintenance by Korea South-East Power – is financed with a mix of debt and equity funding. The total debt stands at $453.2 million and is entirely financed by foreign capital with funds from sponsors including International Finance Corporation (IFC), Asian Development Bank (ADB) and others.
According to IFC – a stakeholder and lender to the developer – the plant has a capacity to provide 40 per cent of Nepal’s expected annual output during the dry seasons including the peak winter demand months.
“We recognise that power supply shortages in Nepal have caused significant delays in the restoration of infrastructure and services impacted by the 2015 earthquake,” AIIB vice-president and chief investment officer DJ Pandian said, adding, “By investing in hydropower and encouraging further private sector investment in the country, we will help drive economic growth and poverty alleviation efforts.”
The hydel plant with three units – each churning out 72 MW of electricity – is expected to be commissioned in October 2024, though hydel projects have never been completed in time in Nepal.
The developer and the Energy Ministry signed a project development agreement (PDA) in December 2016. According to the agreement, the sponsors – a Korean consortium, local promoter and IFC – will be responsible for the design, engineering, financing, construction, completion, commissioning, ownership, operation and maintenance and transfer of the project.
The energy generated from the project – being developed by Nepal Water and Energy Development Company (NWEDC) – will be supplied to the Nepal Electricity Authority (NEA). The two parties signed a 30-year power purchase agreement (PPA) in January 2018. The state power utility has agreed to buy the energy under a take-or-pay arrangement.
The NEA – while signing a power purchase agreement (PPA) – also agreed to pay in US dollars for a period of 10 years or until the portion of the investment made with foreign loans is recovered by the developer, whichever comes first. “It will be exposed to a foreign exchange risk of around $300 million, if the exchange rate of the US dollar rises at the rate of 3 per cent annually,” according to the NEA estimation. “And in line with the estimate, the government had asked the developer to contribute $150 million to the fund which it refused to do.”
After the row over the hedge fund, the developer agreed to provide 17 per cent of the energy to the NEA for free after 14 years of commercial operation, if it agrees to absorb the risks for the stipulated time,” the NEA said, adding that unlike dollar billing for power purchased from other projects under the build-own-operate-transfer model, billing for electricity produced by the plant will be done in Nepali currency after 10 years of commercial operation which will result in financial benefit to the NEA whenever the dollar depreciates. “Also, the developer will absorb risks in equity which amounts to $194.2 million,” it said, adding that the NEA and the government will not be exposed to heavy risks, if the company does its financial closing and manage funds in time.
The Cabinet had accepted – just before the Investment Summit in March – the developer’s offer to provide free energy after 14 years of operation and asked the electricity authority to implement the agreement with the amended terms.
“As per the hedge fund agreement, the developer will contribute one-third of the amount and the electricity authority and the government will put up two-thirds of the required fund maintained by Nepal Rastra Bank,” said Prabin Raj Aryal, spokesperson for the Energy Ministry without disclosing the size of the hedge fund.
The electricity generated by the plant will be evacuated to the Upper Trishuli 3B hub over a 10-km 220 kV transmission line connected to the national grid.
Apart from the $90 million loan, the Beijing-based bank has also provided Nepal with $900,000 for the proposed Tamakoshi 5 hydroelectric project and $1 million for a power distribution system upgrade and expansion project from its project preparation special fund. The special fund helps eligible AIIB members to mobilise grants for preparation of various projects.
Nepal is one of the 22 signatory countries that signed a memorandum of understanding to establish the bank in 2014. In January 2016, Nepal was elected to the bank’s board of directors.
Approving its first loan to Nepal since it was established in 2014, the China-backed institution said Nepal will receive $90 million for the construction of the 216 MW Upper Trishuli 1 hydropower plant in Rasuwa. The 216-megawatt run-of-river hydropower plant will be developed on the Trishuli river under a 35-year build-own-operate-transfer (BOOT) model.
“The AIIB’s investment will provide much-needed, long-term financing for a vital infrastructure project,” said the bank’s director general Dong-ik Lee. “We are confident that our investment will demonstrate the viability of Nepal’s sustainable energy sector to other potential private-sector investors.”
The Upper Trishuli-1 Hydropower Project will increase the country's power generation by almost 20 per cent, helping to reduce acute power shortages in Nepal, according to a statement from the multilateral development bank.
The Asian Infrastructure Investment Bank plans to disburse the pledged amount for the $647.4 million hydel plant from October 2019. The project – to be constructed by a joint venture of Daelim and Kyeryong, and operation and maintenance by Korea South-East Power – is financed with a mix of debt and equity funding. The total debt stands at $453.2 million and is entirely financed by foreign capital with funds from sponsors including International Finance Corporation (IFC), Asian Development Bank (ADB) and others.
According to IFC – a stakeholder and lender to the developer – the plant has a capacity to provide 40 per cent of Nepal’s expected annual output during the dry seasons including the peak winter demand months.
“We recognise that power supply shortages in Nepal have caused significant delays in the restoration of infrastructure and services impacted by the 2015 earthquake,” AIIB vice-president and chief investment officer DJ Pandian said, adding, “By investing in hydropower and encouraging further private sector investment in the country, we will help drive economic growth and poverty alleviation efforts.”
The hydel plant with three units – each churning out 72 MW of electricity – is expected to be commissioned in October 2024, though hydel projects have never been completed in time in Nepal.
The developer and the Energy Ministry signed a project development agreement (PDA) in December 2016. According to the agreement, the sponsors – a Korean consortium, local promoter and IFC – will be responsible for the design, engineering, financing, construction, completion, commissioning, ownership, operation and maintenance and transfer of the project.
The energy generated from the project – being developed by Nepal Water and Energy Development Company (NWEDC) – will be supplied to the Nepal Electricity Authority (NEA). The two parties signed a 30-year power purchase agreement (PPA) in January 2018. The state power utility has agreed to buy the energy under a take-or-pay arrangement.
The NEA – while signing a power purchase agreement (PPA) – also agreed to pay in US dollars for a period of 10 years or until the portion of the investment made with foreign loans is recovered by the developer, whichever comes first. “It will be exposed to a foreign exchange risk of around $300 million, if the exchange rate of the US dollar rises at the rate of 3 per cent annually,” according to the NEA estimation. “And in line with the estimate, the government had asked the developer to contribute $150 million to the fund which it refused to do.”
After the row over the hedge fund, the developer agreed to provide 17 per cent of the energy to the NEA for free after 14 years of commercial operation, if it agrees to absorb the risks for the stipulated time,” the NEA said, adding that unlike dollar billing for power purchased from other projects under the build-own-operate-transfer model, billing for electricity produced by the plant will be done in Nepali currency after 10 years of commercial operation which will result in financial benefit to the NEA whenever the dollar depreciates. “Also, the developer will absorb risks in equity which amounts to $194.2 million,” it said, adding that the NEA and the government will not be exposed to heavy risks, if the company does its financial closing and manage funds in time.
The Cabinet had accepted – just before the Investment Summit in March – the developer’s offer to provide free energy after 14 years of operation and asked the electricity authority to implement the agreement with the amended terms.
“As per the hedge fund agreement, the developer will contribute one-third of the amount and the electricity authority and the government will put up two-thirds of the required fund maintained by Nepal Rastra Bank,” said Prabin Raj Aryal, spokesperson for the Energy Ministry without disclosing the size of the hedge fund.
The electricity generated by the plant will be evacuated to the Upper Trishuli 3B hub over a 10-km 220 kV transmission line connected to the national grid.
Apart from the $90 million loan, the Beijing-based bank has also provided Nepal with $900,000 for the proposed Tamakoshi 5 hydroelectric project and $1 million for a power distribution system upgrade and expansion project from its project preparation special fund. The special fund helps eligible AIIB members to mobilise grants for preparation of various projects.
Nepal is one of the 22 signatory countries that signed a memorandum of understanding to establish the bank in 2014. In January 2016, Nepal was elected to the bank’s board of directors.
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