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WASHINGTON, D.C., Feb. 12 -- The International Finance Corporation (IFC) has signed agreements to invest US$31 million in the Khimti Khola run-of-the-river hydropower project in Nepal, which is expected to increase the country's electricity generation by 25 percent. The project represents an important breakthrough, being the first one developed under Nepal's new legislation which allows private investors to participate in developing the country's hydropower resources. Hydropower potential is Nepal's biggest natural resource and a vital component of its development strategy. The World Bank Group has assisted the Government to strengthen the institutional and regulatory framework to encourage private sector participation in power generation. "IFC is very pleased to be associated with this first independent power generation project in Nepal, which is a milestone for the country," said Mr. Assaad Jabre, Director of IFC's Infrastructure Department. "It has proven that a well-structured power project can attract long-term development capital to a sector requiring substantial investments. The financing model will be of great significance for similar projects in the future." Mr. Jabre added, "As far as the developmental impact of the project is concerned, Nepal's economy is also likely to benefit greatly from the low cost and reliable supply of power." This run-of-the-river hydropower plant diverts water from the lower 10 km reach of the high gradient Khimti Khola River and discharges it at a power house located on the much larger Tama Koshi River about 1 km upstream of the confluence of the Khimti Khola with the Tama Koshi. Sensitive vegetation, wildlife, and fisheries resources are not located in the project area, and the powerhouse and tunnel will be underground. Erosion control measures will be implemented at spoil sites and cleared areas during construction, and deposited soils will be stabilized and revegetated. A fish ladder at the intake weir will permit continued fish migration, although studies of fish migration and fish resources reveal that the fish population is not large in this high gradient stream. The project also includes an extensive community development program which has been developed in consultation between local residents and the project sponsor.
The project will meet the environmental regulations of His Majesty's Government of Nepal and the guidelines of the World Bank Group. IFC will monitor compliance with these regulations and guidelines. The project company, Himal Power Limited (HPL) will build, own, and operate a 60 megawatt (MW) power plant in the central region of Nepal, about 100 km east of Kathmandu. HPL will sell the electricity to the Nepal Electricity Authority (NEA), with which it has entered into a 20-year Power Purchase Agreement. Fifty percent of the plant will be transferred to NEA after the 20-year period, and the entire plant will be transferred free of charge to NEA after 50 years. IFC's financing consists of a loan of up to US$28 million for its own account. IFC will also provide a subordinated loan of up to US$3 million, convertible to the share capital of HPL and amounting to about 7 percent of the total equity/quasi-equity. The total project cost is about US$140 million. Other lenders to the project are the Asian Development Bank, Nordic Development Fund, Eksportfinans (Norway), and the Norwegian Agency for Development Cooperation. HPL is owned by three Norwegian companies, Statkraft, ABB Kraft and Kvaerner Energy, together with the Nepali Butwal Power Company. Statkraft is the largest investor with a 73 percent stake in HPL. As Norway's largest producer of hydroelectric power, Statkraft is one of the world's leading hydropower plant developers. ABB Kraft is involved in the design, manufacture and installation of power plants. Kvaerner Energy is among the largest turbine manufacturers in the world. The Butwal Power Company is the only existing private power company in Nepal with experience in hydropower development. IFC is a member of the World Bank Group and is the largest multilateral source of equity and loan financing for private sector projects in developing countries.
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