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Foreign investors continue to hesitate owing to lack of policy clarity

   November 27, 2019        376        Urjakhabar

Recently, the Independent Power Producers’ Association–Nepal successfully concluded the seventh edition of ‘Power Summit’ in the capital, where the government, private sector, foreign investors and companies expressed their interest to invest in Nepal’s hydropower sector. During the event, IPPAN also signed various agreements with Indian and Bangladeshi firms, among others, to boost investment in Nepal’s energy sector, as well as for power trade with neighbouring countries. However, the participants of the summit pointed out that Nepal must reform its existing policies related to the power sector. Against this backdrop, Umesh Poudel talked to General Secretary of IPPAN, Ashish Garg, to know more about the power summit and the opportunities for Nepal to trade energy with neighbouring countries. Excerpts: 

What were the major outcomes of the recently concluded Power Summit?

We have successfully spread the message that Nepal has a huge potential of hydropower electricity and will soon have energy surplus. The international participants — especially the Indian and Bangladeshi governments, not to mention investors — have expressed willingness to buy Nepal’s power in the near future. The theme for this year’s summit was ‘Powering the Asian Century’ and we believe the event disseminated positive message. We received overwhelming response for the event this year — with 764 registered delegates from 21 countries.

All the participants acknowledged Nepal’s pivotal role in helping its neighbours — India and Bangladesh — wean off from fossil fuel and increase the stake of clean power in its energy mix. Moreover, we managed to create an enabling environment for commercial trade of electricity. While the country has made good progress for necessary structure to handle the additional energy, we still need to work out the nitty-gritty for commercial trade of surplus energy.

Owing to the improvement in the investment climate, foreign investors have expressed keenness to invest in Nepal’s hydropower sector. But they continue to hesitate owing to lack of policy clarity, primarily related to the hedging mechanism.

Considering the country’s potential, the participants of the summit also agreed that Nepal could be the ‘natural battery bank’ to power up the entire South Asian region.

What were IPPAN’s expectations from Power Summit? Were they met?

One of the main objectives of the summit was to ensure the market for the surplus energy generated by Nepal in the near future. In this regard, the outcome of the summit far exceeded our expectations. The fact is, a lot of people are quite pessimistic about what will happen to the surplus energy that Nepal is expected to generate from next fiscal. Many tend to be sceptical about India’s eagerness to buy the surplus power from Nepal. So, I think we were able to put some of their concerns to rest through the summit. In fact, the Indian government gave us verbal assurances of a market for Nepali electricity, as did the Bangladeshi government.

Another major objective was to promote Nepal as an investor-friendly destination, especially in the hydropower sector.

The response we got from foreign investors during the summit has filled us with optimism that the sector will be able to attract massive foreign direct investment in the coming years.

How optimistic are you about Nepal actually being able to export its surplus power to India and Bangladesh?

I am highly optimistic because Nepal and Bhutan are the only two feasible options for power-starved India and Bangladesh to balance their energy mix and reduce their dependence on fossil fuels. Having said that, I have to admit that a lot of work needs to be done before trading of power can actually happen. Through the Power Summit, we managed to convey some important general information about Nepal’s hydropower sector. However, now much depends on how the government takes forward the crucial steps for power trade.

Also, the country should focus on attracting large scale investors from India and Bangladesh, which will automatically ensure the market for our surplus energy.

The agreements that we signed with various parties during the summit have paved a way for foreign investors to enter Nepal. Moreover, as you already know we recently established the Nepal Power Exchange Company, with an aim to facilitate negotiations with foreign investors in the hydropower sector. We are primarily eyeing Indian and Bangladeshi investors to benefit from the setting up of the company, but are certain it will enhance cooperation with interested investors from other countries too.

Nepal government inks power purchase pacts with power developers at a fixed rate for 30 years. In such a context, how will Nepal export energy to Indian market, where the price of energy fluctuates every day?

The Indian energy market is very complex and tough to penetrate. This is because many power developers in India tend to have short-term agreements with the government. The power traders quote their price every 15 minutes in the power exchange. Many power projects in India have been constructed without even signing power purchase agreement. Against this backdrop, we need to strive to promote our energy, which is renewable and non-polluting.

Unless we are able to create the value of our energy in India, it could be difficult to find a market for Nepal’s electricity there. And here is where the role of the government as well as the private developers comes in. We should jointly push to find a feasible solution to this problem.

But access to the Bangladeshi market will not be a problem if India permits transmission of power using its grid.

Experts have stressed on the need to highlight regional cooperation when Nepal promotes energy trading. What do you think the government needs to do to enhance the country’s power trade at regional level?

Firstly, government should capture the speed and spirit of energy cooperation with India and Bangladesh. The government apathy in ensuring the market for surplus energy has already cost us. At this point of time, we should have been able to finalise a bunch of agreements, but are still in the negotiation phase because of the initial delay. It’s quite shameful that the government knew well in advance that Nepal would be generating surplus energy, but it did nothing all these years. The last minute rush that we are facing now can result in us bagging an agreement that is not as beneficial for us or worse, generated electricity going to waste. As we have already established inter-governmental mechanisms with India and Bangladesh, joint steering committee and joint working group need to come to a conclusion about energy trade — including tariff rates, quantum of energy to be sold by specific year — without further delay.

The mechanisms need to clearly define the roles of the governments and private sector and push them to act. Similarly, our Electricity Act only has provisions of import and export of energy at government-to-government level. While Nepal Electricity Regulatory Commission has envisioned allowing private sector to engage in power trade as well, act needs to be amended before this can happen. If the provision is to be included, it would give a further boost to investment in hydropower sector as foreign investors will be able to invest in projects that will later on trade power with other countries in their own terms.

The Himalayan Times