The Future Battery of South Asia: Nepal Power Investment Summit 2016

There are a lot of people interested in ending load-shedding in Nepal and a lot of people interested in making money in Nepal’s hydropower sector once it gets off the ground.  For those uninitiated to the realities of living in Nepal, each part of the Kathmandu valley faces 12-14 hours, sometimes more, without electricity as the National Electricity Authority (NEA) attempts to share the load of this precious resource evenly among the area of the greater metropolitan area.  This is what is known as “load-shedding” here.  While Nepal currently produces only 840 MW of energy from all sources, it boasts of a potential of at least 40,000 MW from hydropower alone.   Neoventure and Nepal’s Energy Development Council organized the “Nepal Power Investment Summit 2016: Nepal—The Future Battery of South Asia.”  The event was sponsored by Aggreko, Norwegian Geotechnical Institute (NGI), DFDL Tax and Legal, Nabil Bank, NMB Bank, and the Hydroelectricity Investment and Development Company (HIDCL).  There were attendees from China, the U.S., Canada, Bulgaria, Norway, India, Bhutan, Slovenia, Czech Republic, Thailand, Vietnam, France, Austria, the U.K., and elsewhere.

Pre-conference Day

DFDL organized the first workshop of the conference.  David Doran, Audray Souche, Robert Fitzgibbons, all of DFDL, and Priyadarshani Sherchan, of Nepal’s Pioneer Law Associates, were the panelists.  The DFDL lawyers present various models of hydropower development primarily from the Mekong region, including Laos, Cambodia, Thailand, Vietnam, and Myanmar.  Ms. Serchan picked apart Nepal’s 2016 Energy Crisis Policy Paper and the recent Budget 2073 speech.  She was aided in this respect by several members of the audience which was filled with lawyers from Neupane Law Associates, Sinha-Verma Law Concern, and a sizable contingent from my own firm: Gandhi & Associates, as well as other specialists and interested parties in hydropower sector, such as the Norwegian Embassy.

The Laos model, which Mr. Doran was to present in more detail on the following day, is particularly interesting.  It evolved from an entirely private-sector approach with more than 90 percent of the energy from its early 1990s projects exporting to the Electricity Generating Authority of Thailand (“EGAT“).  Today, the Lao PDR is in a position to construct hydropower plants entirely for domestic consumption and no longer grants wholesale exemptions from Laotian laws and provides far fewer other concessions to international developers.

It was also here that I encountered my first of several Odd Hoftun connections.  Odd Hoftun, an engineer-missionary who grew up on a hydropower plant in Norway, first came to Nepal in the 1950’s to help UMN build a hospital in Tansen and then dedicated his life to hydropower development in Nepal.  In addition to helping to construct three hydropower projects of increasing size (the last was 60 MW), he helped establish the Butwal Power Company, its various spinoffs like the Hydro-Consult, and the Butwal Technical Institute which to this day remains the only apprenticeship-model school for Nepal’s young engineers to learn through hands-on experience.  I had recently read his biography published by the Martin Chautari publishing house (which itself was named partly after his son, Martin) shortly before the conference so I was able to recognize his fingerprints and legacy throughout the three days.  During the pre-conference workshop, I met Tim Lehane of Gilkes.  Mr. Lehane had helped Mr. Hoftun restore and assemble secondhand hydropower parts imported from Norway when hydropower projects had upgraded to newer technology.  The original, very serviceable, turbines at the Andhikhola Hydropower Project had first served duty powering Lillehammer before the 1994 Winter Olympics.

Unfortunately, no one from the Government of Nepal showed up for this workshop.  This would have added more richness to the interactions with the audience.  Throughout the conference there was a noticeable lack of government attendance in the many of the conference’s panels where government officers themselves were not speaking.

Day One

The conference was opened by the Right Honorable Prime Minister K. P. Oli.  Her Excellency U.S. Ambassador to Nepal Alaina Teplitz, who recently penned an excellent opinion editorial on Nepal’s economic development, also gave a few words.

During the first panel, the Chairman of the Water Resources and Agricultural Committee of Nepal’s Constituent Assembly Gagan Thapa made an important point about the current state of politics in Nepal.  While his own party is currently in opposition, hydropower development is one of the areas that all three of the major parties could agree on and should be vehicle for finding common ground and getting something done.

The first day of the conference was overall very positive, though much of the optimism was sucked out of the room by the last panel of the day which included a Statkraft veteran.  Statkraft was finally forced to pull the plug on the USD $1.5 Billion 650 MW Tamakoshi-3 hydropower project after sinking over $12 million into the failed effort.  Interestingly, it was not the major earthquakes of last year that forced its withdrawal from the export-oriented project, but the souring of political relations between Nepal and India.

Among the other panelists and presenters of the first day were representatives from the government of Bhutan, which like Nepal is surrounded on three sides by India and the north by tallest mountains in the world and China.  Bhutan currently boasts that 99 percent of their people are connected to their national grid (and claims that the ones that aren’t have solar panels).  Thought Bhutan has significantly fewer people than Nepal, there are some lessons there to be learned I am sure.   The country’s approach is markedly different from Laos, for example, because its official line is that too much international private sector development may affect Bhutan’s Gross National Happiness.   Another presenter made deft use of both Nicola Tesla and President Barack Obama quotes.

The first full day of the conference ended in a cocktail party sponsored by Dragon Capital. Dragon Capital has long been interested in Nepal’s clean energy development. One of their latest projects is a complete overhaul of Phnom Penh’s solid waste management. While supporting Cambodia’s in other areas of clean development it was an area they just could not ignore. Like many Asian countries including Nepal, the people litter freely, thoughtlessly throwing their trash wherever and burning it after it piles up too high. Dragon Capital has modernized Phnom Penh’s solid waste management system, replacing the Board of Directors of the management company and hiring a young woman to be its CEO. The new board banished the institutional practice of burning trash, installed GPS units in all of their trucks, and is building an entirely new landfill while taking steps to minimize the ongoing environmental degradation causes by the old ones.

I stuck around long enough to chat with representatives from Bauer and the CEO of InfraCo Asia, a member of the Private Infrastructure Development Group and already involved in providing funds to a couple of projects in Nepal. I also met several Norwegians from companies like the Norwegian Geotechnical Institute and Mulitconsult. I also had a very interesting conversation with the General Manager of Himal Power Limited which manages the Khimti Hydropower Plant with Statkraft.

The absence of local government in Nepal is felt strongly by the major hydropower projects.  The Khimti project is a resounding technical success, but not as profitable as perhaps first imagined.  Since Nepal has not held any local elections in nearly two decades, major development projects often choose to or end up having to take on added responsibility that would normally be the domain of local governments in many other countries.  As part of their corporate social responsibility, the Himal Power Limited (“HPL”) had originally agreed to provide electricity for 1,000 households in the area.  They willingly extended this to 9,000 households.  HPL also funded local schools and a medical outpost, which is now part of the Dhulikhel Hospital network.  When the local Village Development Committees (“VDC”) continued to approach the project with more development concerns, the project decided to create a fund of USD $100,000 a year for the ten closest VDCs (USD $10,000 for each VDC).  Representatives from each VDC make up the board which itself chooses which projects to fund.

But this past winter was a particular dry one.  When some local villagers ran out of water, they broke into the fencing surrounding the Khimti project and dropped a hose down the 40 meters deep intake shaft and began pumping water out.  When HPL approached the Chief District Officer (“CDO”) about about the security breach, government security a right guaranteed to HPL by the Power Development Agreement (“PDA”) signed with the government, the project manager was told no such security would be forthcoming and that HPL should try to find a compromise with the locals.  When HPC was finally able to get the Nepal Army, Nepal Police, CDO officers all to sit down together to talk about the security issue collectively, the government officers were only really interested in knowing why the USD $100,000 fund was not routed through them.  Eventually, HPL was able to find another source of reliable water for the locals, but at the cost of another USD $50,000.  Without a local government in place, the local VDCs effectively became wards of HPL, a private company.  Without the benefit of a local government to hold accountable, HPL provides not only its electricity, but also the VDCs basic healthcare, education, and water supply needs.  This underscores the importance of resolving Nepal’s federal structure as soon as possible and holding local elections regularly.

Day Two

Day two had its own high-level diplomatic support with Her Excellency Rensje Teerink, the European Union’s Ambassador to Nepal, chairing the talks on renewable sources of energy other than hydropower, such as solar, wind, and biomass.bbIt was during this session that Jimmy Carter’s infamous cardigan even made a cameo.  I later ate lunch with the ambassador and representative from the U.S. Government’s Overseas Private Investment Corporation (OPIC), Dragon Capital, and Environmental Resources Management (ERM).

Among the other sessions of the day were representatives of Indian power grid and power trading companies as well as regional players in the power trading sector.  The ultimate goal in Nepal is to be in a position to sell excess power during the rainy season and to buy needed power for shortfalls during the dry season when Nepal’s rivers run much lower.  Nepal has a long way to go to make this possible, but it would be great to be able to sell beyond India.

The last session was one of the most anticipated by the various suppliers of hydropower machinery and solutions.  It was also the most awkward.  Various managing directors of various projects in various stages of planning were each given exactly ten minutes to present what seemed to be the culmination of their entire livelihoods.  It was clear that many of the presenters, speaking in their third language, were not ready to pare down years of hydropower project experience and preparations into a brisk ten minute walk-through of their pet project’s major opportunities and challenges. Such as it was, they did their best to attract some much-needed funders and suppliers.  Each was able to collect several congratulatory handshakes from their peers and handfuls of business cards for their efforts.

Fittingly, the conference closed in darkness.  When the NEA closed the program with a vote of thanks to everyone who made the event possible, the conference room experienced one of the NEA’s infamous planned power-cuts: load-shedding.  It took over a minute for the back-up diesel generator set to kick on, so the first words of NEA’s closing speech were spoken in the dark and without the benefit of a microphone.