HIDCL’s right share proposal

Hydroelectricity Investment and Development Limited (HIDCL) has notified Nepal Stock Exchange (NEPSE) regarding the issuance of its 100% right share.

When this news was circulated, I quickly opened its website and downloaded its financial.

Details	Rs. (billion)
Paid up Capital	10
Loan and Advance	1.27
Investment	0.55
Cash & Cash Equivalents	9.49
Net Income	0.63
Staff Expenses	0.016
Staff Bonus	0.07
Interest Income from Bank Deposit	0.89
Interest Income from Loan to Business	0.079

Source: Unaudited Financial Statement for the third quarter ended on 30^th Chaitra 2074 (13^th April 2018)

The major objective of this company when established was to mobilize funds for investment in generating, transmitting and distributing hydroelectricity. With this objective, it started its operation from 11^th July 2011. After seven years of operation, HIDCL is not able to keep up with its initial objective. Instead of investing in hydroelectricity, the company seems to be sitting on a big pile of idle cash. Only Rs. 1.27 billion has been invested in hydro loans. 

Although it has recorded net profit of Rs. 626 million at the end of the third quarter, it is mainly due to the interest income from Bank Deposit. The company has deposited Rs. 9.49 billion in Fixed Deposit of various banks.

After looking at its financial, my reaction to 100 percent right share is “utterly non-sense”.  Does it want another 10 billion to deposit in Fixed Deposit account?

Companies like HIDC putting their money into the fixed deposit and enjoying bank interests should be stopped right away. Such trend needs to be corrected in such a way that HIDCL should finance the project by themselves, not that they put the deposit at banks and bank finance the projects.

One may argue that they have selected few hydropower project such as 101 MW Tamakoshi-5, 725 MW Upper Arun, 450 MW Kimathanka Arun and 307 MW Jagadulla Khola and so on. But, only god knows when these projects will do PPA. And, what will be the financial model? For mega projects like these, financial closure will be very challenging.

One of the major blunders it did was the cap of Rs. 200 million for project up to 25 MW. Six years ago, 25 MW project was quite huge for Nepali standard, and putting a cap of Rs. 200 million made it impossible to lend all of its money to hydropower sector. Practicality was lacking when its strategy was formulated.

P.S. The mistake of HIDCL should be a learning experience for new comers such as Nepal Infrastructure Bank. Practicality and market appetite should be reflected when strategy is made.