IFC, Partners Lend $450m to Support Major Hydro-Electric Plant in Nepal

The plant will increase Nepal's electricity supply by one-third from today’s levels and provide clean, reliable power to some 9 million people.

IFC
Namche Bazar, Namche, Nepal. Photo by Kalle Kortelainen on Unsplash.

IFC, a member of the World Bank Group, and a consortium of other lenders today finalized a $453 million debt financing package that will support the construction of a landmark hydroelectric plant in central Nepal.

The plant will increase Nepal’s electricity supply by one-third from today’s levels and provide clean, reliable power to some 9 million people, part of a larger effort by IFC to create markets and fight poverty in the country, according to a statement.

IFC is the lead arranger of the debt package, which includes eight other lenders, and is one of the largest foreign direct investments in Nepal’s history. The financing is being provided to the privately-owned Nepal Water and Energy Development Company.

The firm will develop and operate a 216-megawatt, run-of-the-river hydroelectric plant on the Trishuli River about 70 kilometers north of Kathmandu.

Officially known as Upper Trishuli-1, the project’s financing structure, competitive tariffs, and use of internationally accepted contract standards is expected to set a standard for future hydropower projects in Nepal.

“This project is a game-changer for Nepal,” said Barshaman Pun, Nepal’s Minister of Energy. “Not only will it power hundreds of thousands of homes and businesses, but it will also serve as an of example of how private companies can help Nepal expand its hydropower sector and attract much needed foreign direct investment.”

Nepal’s rivers, fed by runoff from the Himalaya Mountains, could support 43 gigawatts of electrical generation capacity. But less than three percent of that has been developed. As well, the country has suffered from blackouts and brownouts, hampering businesses and making life difficult for residents.

“There is no question that Nepal has the potential to be an energy powerhouse,” said Bo-Seuk Yi, the CEO of the Nepal Water and Energy Development Company. “To realize that promise, Nepal can enlist the help of private companies, which have the capital and expertise to make major projects a reality.”

The new hydroelectric plant is expected to be completed in 2024. Along with providing clean, reliable power to millions, it will set new environmental and social-impact benchmarks and enhance benefits for local communities.

Furthermore, a cumulative impact assessment of existing and planned hydropower projects has been completed for the Trishuli basin, which will help guide sustainable development in the watershed.

“This project represents a significant milestone in the development of Nepal’s hydropower potential as it has been able to attract meaningful private sector participation, particularly from international investors,” said Mengistu Alemayehu, IFC Director for South Asia.

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IFC and a consortium of Korean and Nepali partners, in collaboration with the Government of Nepal, have spent over seven years developing the Upper Trishuli-1 project, which is a prime example of IFC’s ability to create markets through upstream project preparation work over many years in low-income countries.

The Nepal Water and Energy Development Company’s key owners are Korea South-East Power, Daelim Industrial, Kyeryong Construction Industrial, and IFC.

IFC is providing $190 million in financing, including $95 million of equity and loans from its own account, and $95 million as the implementing entity for other funding sources.

The Multilateral Investment Guarantee Agency, another member of the World Bank Group, will provide $135 million in guarantees to cover political risk for the sponsors.

Other financiers include the Export and Import Bank of Korea, the Asian Development Bank, the Asian Infrastructure and Investment Bank, the Korea Development Bank, CDC (the United Kingdom’s development finance institution), FMO (the Dutch Entrepreneurial Development Bank), the OPEC Fund for International Development, and Proparco. – BusinessNewsAsia.com

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