[ Dr. Sandip Shah is the President of the Independent Power Producers' Association, Nepal  and Vice President and Country Director of the Norwegian company SN Power which has hydro projects in India, Peru, Chile, Philippines and Sri Lanka besides building Khimti of Nepal. He talked to The Kathmandu Post about private sector international interest in Nepal's hydro power development and the challenges.]
Excerpts:

Tell us something about the Power Summit that you were involved in organizing a couple of months back.
First Power Summit of 2006 was the first initiative from the private sector. Previously whatever hydro power issues were discussed it was only at the government level between Nepal and India. Lots of big projects were discussed — Karnali Saptakoshi, Pancheswore — but they always got mired in geopolitical issues. There was a lot of mistrust and misconceptions on both sides. Things did not really move. We looked at doable projects, maybe of 50, 100, 500 MW range which could be financed easily through multilateral funding and banks from Nepal and India.

The main issue in these big projects was water which is a very sensitive issue and involves flood control, navigation, irrigation, and land reclamation benefits. These are secondary benefits that are difficult to quantify. Whenever the two governments talked about cost and benefit sharing of the projects, the
projects got stuck.
There would be no water issues in these projects. There is a big market for electricity in India. At this Power Summit we discussed four high capacity cross-border transmission lines which can carry up to 3,000 MW each either way. The first one will be available in 2010. We have also had discussions on financial issues. Hydro power projects are very capital intensive with high risk and takes a long time to build. Hence, proper risk assessment, mitigation and securitization must be done.

What was the response like?
Response has been quite positive both from the private sector as well as from the government sector — both Nepal and India. It is not only the Indians we have here. We have Norwegians, South Koreans, Chinese, Germans, Australians.

What are the biggest risks?
The biggest risk is political stability. Besides this, security situation, technical risks, legal and regulatory framework, in-country risk in terms of financing, whether you would be allowed to convert and take out the invested money, are considerably high. On the repatriation of funds the laws are in place and working. But if we go for larger projects in the 500 MW range, there might be a constraint on the foreign exchange reserves although Rastra Bank has said this should not be a
problem. There are reserves due to the remittances.
The other thing is the infrastructure. There are no access roads to the better hydro power sites and there are no transmission lines. The developer has to build the access road and the transmission line which adds tremendously to the costs and results in delays in implementation of the project.
There is also more harmony required in the legal and regulatory framework. There are 32 acts and regulations one has to adhere to while developing a project. There are a lot of overlaps that need to be harmonised. The most critical thing we have seen is that the government has designated the Department of Electricity Development as the single window for power development. But we find that due to capacity constraints, they have not been able to function as a single window. This delays the whole process.

The government has come up with this target of producing 10,000 MW in ten years.
It is a welcome step forward. But you need to back your vision with plans, programmes, policies and implementation strategies which are not there yet. A 15- member high level political committee has been formed, but it needs more professional input. There are very serious developers in Nepal who are pursuing projects at different stages. There are projects of 2,800 MW worth in serious development. If all of that can come through by 2015 or 2018 — I will be very happy. So let’s say 3,000 MW, that is quite possible. With the current government machinery, 10,000 MW is not possible.

How does Nepal’s scenario in private sector hydro power development differ from other that in countries that your company is involved in?
Emerging markets, where we are undertaking projects, are always very challenging. Comparing with other countries where we are operating, Nepal’s political and security situation is still not very stable, financing is still a big risk. In countries like Philippines and India, politics is much more stable, their legal and regulatory framework is in place and implementation is at a much better level than ours. But Nepal is still attractive because of the potential market in India. Obviously, demand in Nepal will also increase, but India is
definitely the market for large-scale hydro projects in Nepal. It is an assessment of risk and rewards: with high risk there is high reward.

Editor writes: For readers who are interested to know more about Independent Power Producers’ Association, Nepal

Independent Power Producers’ Association, Nepal (IPPAN) was established in the year 2001 with the intention of encouraging the private sector to work in the area of hydropower in Nepal. It is a non-profit, non-government autonomous organization.

One of its main purposes is to act as a link between the private sector and government organizations involved in developing hydropower in the country so that Nepalese citizens can get the maximum benefit from the development effort.

Besides this, the organization also helps exchange technology, expertise, knowledge, financial and management information among the independent power producers in the country.

IPPAN is primarily a membership organization. The General Assembly comprises both institutional and individual members. The General Assembly elects the Board of Directors, which then formulates the plans and policies of the organization.
More info on IPPAN