IPPToday #261: ADB and IFC to finance US$650 million hydropower project in Nepal
- Asian Development Bank (ADB)
- International Finance Corporation (IFC)
- Daelim Industrial Co. Ltd
- Korea South East Power Company Limited
- Kyeryong Construction Industrial Co. Ltd.
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The Asian Development Bank (ADB) has approved financing for the 216 MW Upper Trishuli 1 hydropower project in Nepal, which involves the development of a run of river hydroelectric power plant on the Upper Trishuli river, about 70km north of Kathmandu, for a total cost of US$650 million.
In addition, the International Finance Corporation (IFC), of the World Bank, has disclosed that requested financing for the project is set to be considered by the Board in September.
The project sponsors are Daelim Industrial Co., Korea South East Power Company and Kyeryong Construction Industrial Co. Their special purpose vehicle (SPV), Nepal Water & Energy Development Company (NWEDC), has been awarded a 35-year concession agreement with the Government of Nepal’s Ministry of Energy, Water Resources and Irrigation to build, own and operate the project over the duration of the concession.
IFC is a 15% shareholder in the SPV through a US$4.25 million equity investment made in 2013 through IFC InfraVentures, an early-stage project development fund, giving support to the sponsors in structuring the project and meeting environmental standards.
Scheduled to be commissioned in October 2023, the expected 1,456 GWh net annual output of Upper Trishuli 1 will increase Nepal’s domestic power supply by approximately one-third compared to today’s levels. The electricity generated will be sold to Nepal Electricity Authority (NEA), the national utility, for domestic supply under a 30-year power purchase agreement (PPA).
The ADB is providing US$90 million to the project, while the IFC is proposing to invest an A Loan of up to US$90 million and equity of up to US$12.5 million from its own accounts, including its existing equity investment through IFC InfraVentures and up to US$12.5 million from IFC acting in its capacity as implementing entity of various donor facilities.
IFC is also the mandated lead arranger for mobilizing parallel loans and is acting as implementing entity of various potential donor-funded blended concessional finance facilities for co-investment alongside IFC, presumably to be disclosed once financially is officially approved.
NWEDC's website states that Proparco and DEG, the development finance institutions of France and Germany, respectively, are also providing financing for the project, as well as undisclosed international commercial banks. Together with the ADB and IFC, these financiers will cover 70% of the total cost of the project, presumably around US$455 million.
Once this financing is secured, Upper Trishuli 1 will represent the largest Foreign Direct Investment in Nepal to date.
One of the main objectives of its development is to combat the large power deficit facing Nepal, which results in daily load shedding. The project will reduce this shortage and generate a significant amount of power during the dry season (December to May) - 40% of its annual output - reducing the need to import power.