87 Hydropower Projects yet to Manage Financial Resources despite Signing PPA 

February 13: Even though 87 hydropower projects have signed the Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA), it has been found that the construction of those projects has not progressed due to a lack of investment. The NEA has signed agreements with these projects under the ROR, PROR, ROR (Cascade) and PROR (Cascade) models.

According to the Department of Electricity Trade, the target is to generate 1,875 megawatts of electricity from 87 hydropower projects. However, the projects have failed to raise financial resources through PPA. The deadline of construction of 24 hydropower projects in PPA has already expired. If electricity had been produced from those project at the specified time, 433 megawatts of electricity would have been connected to the national grid.

Independent Power Producers Association of Nepal (IPPAN), an organization of private sector businessmen involved in hydropower production, recently said that this sector is not a national priority and banks are not showing much interest in investing, so it is difficult to raise financial resources.

Ganesh Karki, the vice president of IPPAN, said that the problem arose after Nepal Rastra Bank's (NRB) previous policy of mandating banks to invest 10 per cent capital in hydropower was removed.

Banks have not shown much interest in investing in the hydropower sector after the NRB's policy of mandatory investment was removed. To increase the production of hydropower in the country, NRB had to bring a binding policy on investment, said Vice President Karki. He complained that after the policy revision of Nepal Rastra Bank, banks have concentrated their investments in areas other than hydropower.

Mohan Kumar Dangi, vice president of IPPAN, said that before investing, banks study the entire project and also look at the benefits from it and the previous record of the operator.

“Even though the construction of some projects has been completed, they do not have access to the national transmission line. Banks have backed away from investing in such projects," he said. 

Dangi also advised all construction companies not to enter into PPAs for hydropower projects that cannot be connected to the national transmission system.

Prabal Adhikari, Director of the Electricity Trade Center under Nepal Electricity Authority, said that they believe that the effects of the Covid crisis and lack of liquidity in banks may be behind the inability to gather financial resources. He said that the authority has requested the companies constructing the project collect investment as soon as possible and start the construction work. 

"If the investment is not collected within the specified time, the provision in the PPA will be scrapped," he told New Business Age. In such a situation, he said, the authority will proceed with the process of taking action against companies that are unable to raise financial resources for the construction of hydropower projects.