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UT-1 Financial Closure Concludes, Largest FDI in Hydro Power

   November 1, 2019        504        Urjakhabar

Kathmandu– IFC, a member of the World Bank Group, and a consortium of other lenders finalized a $453 million debt financing package that will support the construction of a landmark hydro electric power project in central Nepal.The project 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 creat markets and fight proverty in the country.

IFC is the lead arranger of the debt package, which includes eight other lenders, and is one of the largest foreign direct investment 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 216MW , run of river hydro electric in 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 hydro power projects in Nepal.

‘This project is a game changer for Nepal,’ said Barshaman Pun, Minister of Energy, Water and Irrigation, ‘ Nor 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 hydro power sector and attract much needed foreign direct investment.’

Nepal’s rivers, fed by run off from the Himalaya Mountains, could support 43 Gigawatts of electrical generation capacity. But less than 3 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 power house,’ saod 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 hydro electric project is expected to be completed in 2024, Along with providing clean, reliable power to millions, it will set new envirenmental and social impact benchmarks and enhance benefits for local communities. Furthermore, a cumulative impact assessment of existing and planned hydro power projects has been completed for the Trishuli basin, which will help to guide sustainable development in the watershed.

‘The project represents a significant milestone in the development of Nepal’s hydro power potential as it has been able to attract meaningful privatesector participation, particularly from international investors,’ said Mengistu Alemayehu, IFC Director for South Asia’, ‘It also shows the unprecedented resilience and commitment by the government, the sponsors, and other stakeholders against all odds over the years, including a major earthquake. We expect this project to become a model for expanded investments in developing Nepal’s hydro power sector to meet the growing domestic demand and export to the neigboring countries.’

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 creat 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 entry 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 ok Korea, the Asian Development Bank (ADB), the Asian Infrastructure and Investment Bank, the Korea Development Bank, CDC (The United Kingdom’s development finance institution), FMO (The Dutch Enterpreneurial Development Bank ) , the OPEC Fund for International Development, and Proparco.

Because of its unique development impact, pioneering features, and demonstration to private investors, the project also includes support from the International Development Association’s private sectors window, a global facility of concessional funds to support high-impact private sector investments in lower-income countries, the Finland-IFC Blended Finance for Climate Program, and the Climate Investment Funds.