Locally constructed projects vs. foreign/multilateral funded projects

In a quest to find out how foreign investors work, I managed to find out some striking statistics that completely blew me away. Here is a comparison of “Locally constructed projects vs. foreign/multilateral funded projects.”

Project	Naugarh Gad	Lower Modi	Kabeli A	Kabeli B-1
Location	Darchula	Parbat	Pancthar	Pancthar/Taplejung
Capacity	8.5 MW	10 MW	37.6 MW	25 MW
Type	RoR	RoR	Peaking RoR	RoR
PPA Rate	NPR. 4 and 7	NPR. 4.80 and 8.40	NPR. 4.80 and 8.40	NPR. 4.80 and 8.40
Total Energy	51.93 GWh	61 GWh	206 GWh	141.7 GWh
Energy per MW	6.1 GWh	6.1 GWh	5.5 GWh	5.7 GWh
Investors	Nepali Investors	Nepali Investors	Nepali and Foreign Investors	Nepali Investors
Financed by	NPR. 985 million by Nepali banks	NPR 1.25 billion by Nepali banks	NPR 4 billion loan by IDA, NPR 600 million grant by IDA, NPR 1.93 billion loan from IFC and NPR 1.93 million loan from Canada Climate Change Program (CCCP)	NPR 2.8 billion by Nepali banks
Total Cost	NPR. 1.35 billion	NPR. 2.114 billion	US $ 108 million or NPR 10.8 billion	NPR 4 billion
Cost per MW	NPR. 159 million	NPR 214 million	NPR. 287 million	NPR 160 million
Status	Expected to come in operation within a month	In operation since 2012	Expected to come in operation by 2018	In construction phase; expected to come in operation within three years

The influx of foreign investors, particularly in hydropower development is welcoming. But after looking at the above table, I have to rethink.

Kabeli A is developed by Butwal Power Company and InfraCo Limited of Singapore (74% stake). It is funded by World Bank group. Except Kabeli A, all other projects in the above table belong to Nepali investors and developed by local resources. The projects are in operation, near to operation and construction phase.

Findings.

The foreign/multilateral funded project does not produce any extra ordinary amount of electricity. In fact, it generates the lowest energy per MW.

The Power Purchase Agreement is done with NEA so the PPA rates are similar. Interestingly, it is the most expensive project. The project cost per MW is almost double compared to locally constructed projects.

(I have not included Upper Tamakoshi Hydropower Project by the way which has a per MW cost of less than NPR 100 million. This would completely blow foreign funded project out of the water.)

However, the project is feasible even at this project cost (I must say). This is due to the interest rate. IFC normally charges 4 percent.

Why their projects are so costly?

Getting loan from IFC is not easy. No Nepali developers will ever think of getting IFC’s loan. Their so called ESG (Environment, Social and Governance) standard is pretty complex. In order to maintain the standards prescribed by these multilateral organizations, international designers, contractors and consultants have to be hired. And these people and companies do not come cheap. These are the main components which add additional cost.

 In simple, multilateral organization have no faith in local expertise at all.

Are their projects better than local ones?

Local developers have a proven experience of operating projects for decades. In addition, I would like to take an instance of Upper Bhotekoshi.

Upper Bhotekoshi with a capacity of 45 MW was first developed by American company called Panda Energy (now they have sold their stakes to Nepali investors). The project suffered a huge damage during last year’s landslide. If international standards are set so high, why couldn’t they predict it? Slope Stability Analysis could have predicted it. Also, this project is badly hit by the earthquake that struck two weeks back.

So the point is; except natural calamities, almost all projects (foreign and local) are doing well.  

There is a huge criticism about the way multilateral organizations are operating in developing countries like ours. Their projects cost are always at the higher side.

One of the elements is the expectation from locals. Locals demand for irrational compensations when such organizations are involved. But more than that, the main reason for escalated cost is the compliance with technical, environmental and social aspects for which they prefer international companies and consultants.

World Bank has claimed that the project design of Kabeli A reflects the lessons learned from hydropower projects worldwide, including those in the Himalayas where similar conditions exist. According to World Bank “The lessons suggest avoiding delays in project preparation and implementation, improving social and environmental management, enhancing sediment handling capacity, and improving the long term sustainability of the project”.

Whatever their reason is, the main objective of hydropower project is to generate electricity as far as I know. If locals have proved the cost effective way of constructing hydropower projects, then why not support them?

Local developers are paying interest rate of 10 to 12 percent and still making project at lower cost. But even with 4 percent interest rate, Kabeli A is one of the most expensive projects in Nepal. Remember, two projects of 37.6 MW each can be constructed with Kabeli A’s cost.