Harnessing Nepal's Hydropower for Energy Starved South Asia

The world's second richest country in inland water resources with as many as 6000 rivers, rivulets and tributaries, Nepal can meet not just its own electricity needs, but also serve energy hungry neighbors like Bangladesh and India. Yet, Nepal's 30 million people and most of South Asia's 1.7 billion people remain starved of electricity.


At the recently held Spring Meetings in Washington DC, IFC CEO and EVP Jin-Yong Cai told Nepal Finance Minister Ram Sharan Mahat that IFC is keen to support hydropower projects that will generate enough electricity to cater to domestic demand and help the country earn much-needed foreign-exchange revenues from exporting power.


Nepal's own demand for electricity has been growing at nine percent annually and supply has simply not kept up. Nepalese citizens endure up to 12 to 18 hour power cuts every day. Businesses are hurting, students cannot study after dark and healthcare is hampered. This, when Nepal's perennial rivers and topography are ideal for developing hydroelectric projects. The country's hydropower potential is estimated to be upwards of 50,000 MW - actual electricity generation from hydropower in Nepal is currently 800 MW from 20 major hydropower plants and a number of small and micro hydropower plants.


An honest dialogue

A month before the Spring Meetings, in Kathmandu, stakeholders and decision-makers from Nepal and neighboring countries, diplomatic community, private sector, civil society, media, think tanks, donors, opinion shapers and multilaterals like IFC, World Bank and ADB joined a dialogue on Nepal’s hydropower development in an innovative format.


Starting from a reality check of what no power really costs Nepal and its citizens, there was a deep probing of the regulatory environment; challenges and constraints; the need for long-term, medium-term, and immediate roadmap for reforms; an analysis of the domestic market situation; the readiness to buy power from Nepal among neighbors; how Nepal can opt for responsible hydropower development; ways to attract domestic and international financing, to eventually supply sustainable and affordable power to households and industry while creating jobs. The dialogue cleared misconceptions about Nepal's role in the region and provided confidence to the newly elected government of broad based support for Nepal's energy sector once Nepal demonstrates its political will to provide the regulatory foundation for hydropower to flourish.


Referring to an unprecedented session where the Power Secretaries of Nepal, Bangladesh and India spoke about the regional power potential and needs, IFC Asia Pacific VP Karin Finkelston said, "We heard India and Bangladesh yesterday hungry for power, hungry to buy, and we heard Lao being the battery of Southeast Asia. I think Nepal can be the battery of this region and really start generating power for its own benefits and for the support of the rest of the region."


Signs of change

The response to the two days of debate and consensus-building was tremendous. Commitments were made to fast-track decisions, initiate quick wins while working on more complex problems through a medium-term and long-term strategic approach. Together, stakeholders zeroed in on specific issues that need to be tackled to unlock Nepal's hydropower potential, including:

  • amending the Electricity Act
  • reforming Nepal Electricity Authority
  • setting up bilateral mechanisms between power ministries of Nepal with neighbors
  • finalizing the terms of power purchase and project development agreements
  • designing fair risk-sharing arrangements between public and private parties.

As an immediate step, the Finance Minister declared clearing IFC's proposal for a local currency bond issue - true to his words, the Nepalese cabinet clearance came through in a matter of weeks. Nepal's government is now focusing its efforts on delivering a bankable Concession Agreement (called Project Development Agreement in Nepal). IFC and World Bank are leveraging this momentum to work with government, private sector, investors and other stakeholders to bring partnerships, collaboration and buy-in to kick-off the transformative agenda. A pipeline of 3000+ MW of hydropower capacity has been identified with willing private investors to add to Nepal’s power grid.

In a country where 1200 young people leave every day to look for jobs overseas, hydropower could pave the way to create jobs, enhance income levels and help people lift themselves out of poverty. The recent developments give hope to Nepalese people - there is now firm commitment, that the pace of reform will quicken, and Nepal will find the momentum it needs to kick-start growth for itself and offer a better quality of life to her people.

For more information, contact Minakshi Seth, IFC South Asia/Communications Practice Group