Investment in hydropower lucrative

A development bank is taking charge of the financial management of the 34-MW Marsyangdi III Hydropower Project, and acting as a financial consultant for the project, apart from being the trustee.

"Ace Development Bank will take charge of the entire financial management of the project and will play the lead role of financial advisor, fund manager and trustee for the project being developed by Keton Hydropower Ltd, a subsidiary company of BPC," Siddhanat Raj Pandey, managing director and chief executive officer of Ace Development Bank, said.

He added that Ace will raise approximately $78 million needed for the project, from the domestic and international financial markets by using ‘suitable financial instruments'. Ace has designed ‘partially convertible debentures with embodied option' to raise the required capital. It believes that the instrument will be lucrative for both domestic as well as international investors to invest in. Such a model is the first of its kind in Nepal.

Ace's hydropower initiative focuses on timely and intelligent investment in the sector at a time when the country is passing through a severe energy crisis.

al Oil Corporation (NOC), the sole supplier of the petroleum products in the country, has been asking more money from the government and government has time and again refused to provide cash to bail it out. The government gave the cash-stripped NOC Rs 6 billion at different times but the NOC is still in loss.

Nepal's dependency on fossil fuel cannot be lessened without the development of hydropower. And the rising global oil prices have left us with no other remedy but to shift the dependence from fossil fuel to hydropower.

Chilime Hydropower Company became the model hydropower project in Nepal through mass participation and paved the way for more private players to enter into the business. It is the first hy- dropower company to be listed for share trading at the Nepal Stock Exchange Ltd (Nespe). However, the much-talked and appreciated Chilime model has not been replicated, as there are only three listed hydropower companies in the secondary market.

MW Tamakoshi is set to follow the Chilime model, Ace has planned a slightly different model to raise the funds needed for the Marsyangdi-III. It has planed ‘partially convertible debentures with embodied option' to raise the capital.

Ace's commitment to provide a one-window entire financial management facility to hydropower projects of any size is an example on how Nepali financial institutions can help the hydropower sector.

"Ace will pool a team of qualified professionals including hy dro-technicians, bankers and capital market specialists and build a network with domestic as well as international investors including global venture capital firms. Ace plans to meet the huge capital requirement of the domestic hydropower sector to some extent. "It will also be the first of its kind in Nepal's financial market," Pandey claimed.

Investment in hydropower plant is considered the best investment. But only three hydropower projects are listed and their shares are being traded. The group wise distribution of the traded shares and amount show that the trading of commercial banks occupies 47 per cent of the total volume. Finance companies, development banks, hydropower companies and insurance companies occupied 24 per cent, 13.47 per cent, 13.40 per cent and 2.04 per cent of the trade volume, respectively, during mid March to mid-April 2008, according to the Nepse.

Once the dam is built, hydropower projects provide dividends to the investors forever. Revenues from dams are considered inert as a lead weight. Projects can sell the power to utilities for long-term contracts, which might span 30 or 50 or more years. Meanwhile, the hydropower project can build a provision for inflation, check the utility's credit and then collect the perpetuity. Revenues from hydroelectric power plants are virtually free from the panic at Nepse or during recession.
By: Kuber Chalise, Source: THT