The Investment Board (IB) of Nepal is buoyed up by the signing of the Power Development Agreement (PDA) with India’s GMR for the development of the 900MW Uppere Karnali hydroelectricity project. IB’s Chief Executive Officer (CEO) Radhesh Pant thinks the PDA has opened the doors for the development of other hydropower projects in the pipeline as investors are now looking at Nepal with renewed interest. In an interview with Akhilesh Tripathi of New Business Age, Pant shared, IB’s achievements so far, the progress of other projects in its hand and its future plans. Excerpts:
It’s been about three years since you were appointed the CEO of Investment Board. How do you assess the Board’s performance over this period?
It’s not been exactly three years. It’s been about two years and eight-nine months. Given the situation, I think we have performed extremely well. There is always room for improvement. I was the first employee of the Board. Now, including the regular consultants, we have about 30 people. Now we are working very closely with the ministries in various sectors. Over this period, we have institutionalized the Investment Board. Recently, we have completed and signed the Project Development Agreement (PDA) for the Upper Karnali Hydroelectricity Project that is bankable. This can be replicated in other sectors also, especially other PPP (public-private-partnership) projects.
If you look at the last two and half years – most of it - we had either a caretaker government or election government. During these governments, major decisions would not have been taken anyway. In any situation, setting up a new institution is not an easy task. Now we have a stable government which has already led to the signing of the PDA. Now going forward, you will definitely see much more action. We want to be an apolitical, professional and transparent body which has the trust of large-scale investors. We want to have a process in place which is fair. We do not want to be influenced by any political party. The challenge now is to be competitive with other countries to attract large-scale investments. We need to introduce radical changes for this. We have to make the environment conducive. We have to fulfill the requirements of serious investors.
One of the major aims of the Investment Board is to create investment friendly environment in the country for both domestic and foreign investors. What has been done in this regard?
A lot of work has been done in this regard. For example, one of the first projects that we did about a year and a half ago was with IPPAN (Independent Power Producers’ Association, Nepal). We sat together with officials to streamline all the laws of the hydropower sector. We hope that the recommendations will be incorporated when the new laws are drafted. One of the toughest issues for hydropower and other big projects is land acquisition. We along with the ministries concerned are sitting with the National Planning Commission to finalise and enact the law on land acquisition, resettlement and rehabilitation. We don’t have a law for this so far. Similarly, we have revisited our own law, i.e. the Investment Board Act and have tried to make it more streamlined with other laws. Hopefully, in the near future, the Investment Board Act will also change.
Today, we have a coalition government which has a two-thirds majority in parliament. This has sent a very positive message to the investor community. I think, even the domestic investors are excited by this. Another thing is that the new constitution is coming. Now with the Power Trade Agreement with India and PDA with GMR concluded, I think these are the game changers for Nepal. Now I think investors are looking at Nepal with some interest. There is a lot of possibility in Nepal because hardly anything has been done here. We need about two trillion dollars to exploit our 83,000 MW of hydropower potential. Similarly, looking at our infrastructures, we do not have railways, we do not have tunnels and we do not have fast track roads. Similarly, our airports need to be improved. We need to do a lot in infrastructure development. We need investment in these areas too.
The PDA of the Upper Karnali project was finally signed in a sudden manner after much hassle. What contributed to such sudden development?
A lot of work regarding the PDA of Upper Karnali and other projects had already been done. So I wouldn’t say it was signed all of a sudden. We had prepared nine principles for the PDA. These principles secure the interest of Nepal. Any developer would have to abide by those nine principles. Then we had to do risk allocation because for any project to be bankable, the risks have to be allocated between the developer and the government. We had to look at international precedence. Ninety-five percent of the work of the PDA with GMR had been completed during Khil Raj Regmi government. Actually, the document was ready for signing during Indian Prime Minister Modi’s last visit. It was delayed by few days because of some minor issues. But eventually, it was signed. In case of Upper Karnali, I think we have done a good job because most of the risks are with the developer.
This PDA has been billed as a template for other projects. How much hopeful are you that this template will be useful also for other big projects in the pipeline?
It could work as a template. But honestly speaking, every PDA will be different. The commercial aspect of other PDAs will be totally different. Upper Karnali is a very good project because we are getting 12 per cent free electricity and 27 per cent equity. As per our calculation, for every rupee that GMR makes out of Upper Karnali, Nepal will get one rupee and 30 paisa. Out of seven slices of profits, we get four and they get three. Upper Karnali is going to be an exciting project so far because we have not done a 1.5 billion dollar project. The best thing is after 25 years, this project will be completely ours. The basic structure of the Upper Karnali PDA could be used for the other PDAs as well. However, as I said earlier, every PDA is going to be different, especially the commercial aspect. For example, the Upper Tamakoshi where we have to build a 16-kilometer long tunnel.
What is the present status of other projects in IB’s hand? And what are IB’s priorities at present?
One of these projects is Arun III which I think we can get done soon. I have set the target of the next three months. The reason is after the PDA template was ready, we started negotiations with all four major hydropower projects that are being handled by the Board. The idea was to see which project will adhere to the nine principles first? It also helped us to learn what is doable and what is not. Upper Karnali moved forward first. Negotiation for the other projects too have moved forward – almost 90 percent work have been completed. So, I think the PDA of Arun III will be signed over the next three months. The negotiations for Upper Marshyangdi, too have moved forward. IFC (International Finance Corporation) has already signed a joint development agreement for this project. IFC is coming in in the Upper Karnali as well. It will buy certain percent equity.
The other project is Tamakoshi III where the Norwegians or Statcraft (previously SN Power) is involved. The developers of this project first wanted the PTA with India to be signed. They too are excited now as the PTA with India has been signed. Then there is the West Seti project. In the case of this project, we recently had quite fruitful meeting with the Chinese. They have already completed the financial and technical evaluation of West Seti. Then there is the Solid Waste Management Project; we have already completed inspection (of the site). Perhaps this project will be awarded during the next board meeting. Then there is the Agriculture Fertilizer Plant project. In this project, we have asked for EoI (Expression of Interest) to see whether it’s viable. Similarly, for the airport (International Airport at Bara), we are working very closely with the ministry. It’s very likely that we will combine the Tribhuvan International Airport and the second international airport.
IB was expected to serve as the real one-window for big investors. How successful do you rate IB in this?
Now, we are serving as one window for our clients. Hopefully, over the next 10-15 years every ministry will have a department here (at IB). For the time being, we get requests from the developers and we run around different ministries to get approvals. We do the running around, not the developers.
FDI inflow has not been satisfactory despite the establishment of IB. What are the hurdles?
We did not have a stable government for nearly two years after the IB was established. There was no parliament. That means no new laws would be endorsed. Because of this, the investors did not have trust. Now there is an elected government with the people’s mandate. That’s why now I see a lot of excitement in investors.
Some ministries don’t seem to be happy with IB executing certain projects. They are demanding that those projects be handed over to them. Their argument is IB doesn’t have the expertise to implement those projects. What do you say about this allegation?
My say is very straightforward. IB is not there for a competition. The job of IB and the ministries is basically to complement each other. I see IB as the commercial face of the Government of Nepal for large-scale projects – Rs 10 billion and above. For hydropower, it’s 500MW and above. IB’s role is basically to negotiate a PDA which is also known as concession agreement. Our Act says our role is to draw the investment in which means from PDA signing to financial closure. Until financial closure, IB will take the lead. Once the investment is in, IB’s role will be monitoring only. Because the monitoring of the implementation of the contract has to be done from somewhere. This is one area where we have been lacking. That’s why previous projects have been costlier. Talking about expertise, you don’t need to be a rocket scientist to negotiate PDAs. IB has basically two major concerns. One is investors promotion and services. We need to do this continuously. The other is public-private partnership in large-scale projects given to IB by the law. For example, the upper Karnali project. We will be involved in this project for the next two years or so. Once the financial closure is done, the concerned ministry will take this up. Our role will be only monitoring. I think the ministries have realized it by now. That’s why we got enormous support from the ministry for the signing of the PDA for Upper Karnali.
IB was established for the fast-track clearance of large-scale projects. Fast track means either bending or skipping certain laws and processes. Instead of bending or skipping those laws, don’t you think those laws should be changed or amended? What has IB done in this direction?
As I said earlier, we are looking at changing several laws. For example, the Investment Board Act, Electricity Act, BOOT Act etc. We are looking at changing those laws. I am sure you have heard that new laws are coming out. We have spent a lot of time to make sure that one law does not negate or contradict the other laws. We have redrafted the Investment Board Act. I hope it will soon be taken to parliament for endorsement. We are working with DoI (Department of Industry) and FDI approval has become much easier than before.
What are the difficulties and challenges faced by the Investment Board?
The biggest challenge is to get the project done. If one project gets implemented and if people can see its impacts with their own eyes, then that will change a lot of things. Then other projects will go forward. For IB to be successful, we have to make these projects happen. We have to show to the people that the project which they have heard about for long are actually possible.
Talking about challenges, do you see the political will to back you?
I think I see it now.