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  1. EIAS Briefing Seminar on “Prospects for Renewable and Alternative Energies in Nepal”in Cooperation with the Embassy of Nepal in Brussels (17th June 2014) Panel lecture on: Hydro potential in Nepal and Foreign Investment Opportunities Krishna Kanta Panthi, Dr.ing. Associate Professor Department of Geology and Mineral Resources Engineering

  2. Outline • Background • Hydropower potential in Nepal • Current status of hydropower development • Legal framework • Features of investment attraction • To do list as an investor • Risk elements on investment • Khimti Project – an example of foreign investment

  3. Background Time Magazine (22nd May 2014)

  4. World Hydropower Potential and Nepal

  5. Nepal and it’s topography

  6. Some facts on water resources in Nepal • Nepal possesses ~2.3% of world water resource • Has more than 6,000 rivers and rivulets • Annual average flow amounts to 7122 m3/sec • Annual average rainfall: 1500mm • Snow coverage: 15% of total land area • Natural storage in the form of glaciers, permafrost, glacial lakes. WECS, 2005 ICIMOD, 2013

  7. Hydropower Potential in Nepal • Estimated theoretical potential = 83 000 MW • Estimated financially attractive = 42 000 MW

  8. Current Status of Hydropower in Nepal • Total installed capacity (2013) : 709 MW • Nepal Electricity Authority : 478 MM • Independent Power Producers (IPPs) : 231 MW • Total available annual hydropower energy : 4.3 TWh • Largest IIP Project (Foreign investment) : 60 MW Khimti • Second Largest IPP Project (-do-) : 36 MW Bhotekoshi • Total Peak Load Demand : 1092 MW • Net Peak Deficit (2013) : 383 MW • Deficit resulting • Power cuts (max. up to 18 hours/day during dry period) • Power cuts (8 to 10 hours/day during monsoon period)

  9. HPP projects under construction • By Nepal Electricity Authority • Upper Tamakoshi : 456 MM • Upper Trisuli A : 60 MW • Chamelia HPP : 30 MW • Kulekhani III : 14 MW • Independent Power Producers (IPP) Projects • Upper Marsyangdi : 50 MW • Mai HPP : 22 MW • Others (1 – 20 MW) : ~ 90 MW

  10. HPP projects under planning • Power Purchase Agreement Signed (Yr 2013): • 28 projects (5 - 456 MW), total 928 MW • 86 projects (1 – 52 MW), total 674 MW • Survey License issued: • 109 projects of total capacity 7279 MW • 71 projects 1-25 MW capacity : 400 MW • 20 projects 25-100 MW capacity : 1336 MW • 18 projects > 100 MW capacity : 5543 MW • Generation License issued: • 92 projects of total capacity 2400 MW

  11. Demand Forecast by NEA Current trend shows a 10% demand increase per year, which will be even more in the future

  12. Assessment on Forecast • Nepal is not yet well industrialized. • Possible areas of industrialization with huge energy demand; • Cement production • Production of aggregates and sand in the south • Mineral water and food beverage • Mining industry • Tourism • Country is shaping it’s political course and moving in right direction. • Neighboring countries have huge market potential. • Therefore, the present forecast of 10%/year is too little. • I predict that the Peak Energy Demand in 10 years time will exceed 5 000 MW.

  13. Target set by the government and parties • Since country is in the transition and is mainly engaged to shape it’s political future, the government authorities have no as such clear plan and targets set for hydropower development. • However, the major political parties have their energy development vision such as; • Nepali Congress (NC) has a vision to develop 5 000 MW in 5 years after the constitution writing process is completed. • Communist Parties such as CPN UML and (United Maoist) have a target of 10 000 MW in 10 years. • All these plans are only realistic if county moves in the direction of political stability.

  14. Existing legal framework for investment • Nepal began liberalize it’s economy after 1990. • Some by laws and acts related are: • Industrial Enterprise Act 1992 • Electricity act 1992 • Foreign Investment and Technology Transfer Act 1992 • Electricity regulation act 1993 • Hydropower Development Policy 2001 • Read the details of these act at: http://www.nea.org.np/acts-regulations.html

  15. Features of the acts on HPP • Generation License • 35 years for domestic project • 30 years for export oriented projects • Handover the Project at working condition to the GoN upon expiration of ‘Generation License’ without any cost. • Water right is guaranteed • No nationalization • Foreign currency facility and repatriation Energy Royalty (domestic) Up to 15 years After 15 years 1-10 MW 1.75% 10% 10-100 MW 1.85% 10%

  16. Features of investment attraction • 100% exemption of corporate tax for 7 years from the date of Commercial Operation and 50% for next 3 years for HPP projects commissioned middle 2019 (discussion on extension up to 2023 are under way). • Ministry of Energy and Investment Board recently recommended a VAT discount of 10 Million NRs (US$ 100 000) per mega watt, no custom duty on cement, iron items. Ministry of Finance is positive on the proposal. • No VAT on Electro-mechanical Equipment, spare parts and steel penstock pipe import. Only 1% custom duty on plant, machineries.

  17. Features….. • Facilitate in obtaining land, lease of government land • Security service if demanded by the investor • Share to the local people up to 10% • Free electrification to few local households (20 kWh/month) within few hundred meters of the project area.

  18. To do list as an investor • Obtain ‘Survey License’ from the Department of Energy (DoED) for maximum 5 years period – review the project • Self identified project (first applicant basis) • Competitive bidding of government studied project • Study the project using your consultant and conduct ‘Environmental Studies’ • Upto 50MW: only Initial Environmental Examination (IEE) • Above 50MW: Environmental Impact Assessment (EIA) • Renew license every year by paying annual fee (5 years)

  19. To do list as an investor • Apply for Project Development Agreement (PDA) with the Government of Nepal (GoN), which defines criterions (obligation) for both GoNand the investor and insures the interest of both parties. • Projects < 500 MW, handled by Ministry of Energy • Projects > 500 MW, handled by Investment Board of Nepal (a body directly under the Prime Minister) • PDA can be made for both domestic and export oriented projects.

  20. To do list as an investor • Carry out Power Evacuation Study and Connection Agreement with Nepal Electricity Authority (NEA). • Negotiate for Power Purchase Agreement with Nepal Electricity Authority (NEA). Remember; • Small projects (under 25 MW) have PPA in local currency at fixed unit rate and negotiated price in larger projects. • NEA is not in position to take Foreign Exchange Risk. • ‘Dual Currency Agreement’, Payment in foreign currency until loan repayment period and in local currency onwards. • Obtain ‘Generation License’ from the Government of Nepal • Arrange finance (Financial closure) • Construct and operate until License expires

  21. Risk elements on investment • Political risk • Political instability due to conflict between different ideology. • Misuse of youth for political gain. • PPA agreement with NEA • Financial situation of the NEA – guarantee from the GoN • Management and agreement issues – make sure that you are guaranteed with an agreement for long term!

  22. Case example: Khimti HPP (60 MW)

  23. Khimti project features • Total Project Cost : 140 Million $ • Annual energy production : 350 GWh • High Head (Gross) : 680m Gross Head • Total Tunnelling : 12.8 km with underground PH • PeltonTurbines : 5 units with 12MW each • Construction completion : 2001 (after defect liability) • Type of contract : Turn key • Type of PPA with NEA : Take or Pay basis • Currency of payment : US$ • Loan payback period : 11 years (IMF and Asian Bank) • Approx. annual revenue : 30 MUS$ / year

  24. Schematic Layout Upper & Lower Shafts441m + 470m Intake + Desilting Concrete 18,000 M3 Surge Shaft Khimti River Tailrace 1470m Access Tunnel 890m 3 2 1 4 Headrace tunnel 7923 m 4 Adits, 6 Faces 5 Tama Koshi Underground Powerhouse 6700M3

  25. The project continues to help local communities

  26. Thank you!