Failure of Power Development Fund: Govt, WB mull funding projects through HIDC

KATHMANDU, AUG 12 -

After failing lend even a single penny to hydropower projects developed by the private sector through the power development fund (PDF), the government and the World Bank are discussing the possibility of financing such projects through the Hydroelectric Investment and Development Company (HIDC).

PDF is a part of the Power Development Project (PDP) which was formed in 2003 to finance the private sector power developers after the World Bank cancelled its plans to finance the Arun III Hydroelectric Project in 1995.

With PDP’s term ending in December, the two sides are discussing on how to utilise the funds allocated under PDF. Both the World Bank and government officials confirmed that the talks are underway to finance power projects through HIDC which started operations from July 30.

“We are holding talks on carrying out an institutional review of HIDC to find out whether it is capable of financing private sector power projects,” said a World Bank source. “A decision will be taken after the review.”

HIDC was formed to finance power projects above 25MW capacity with an aim address the power crisis in the country that is hitting hard the normal life and the industrial sector.

Kailash Raj Pokharel, under secretary at the foreign aid coordination division of the Finance Ministry, also confirmed the talks. However, there have not been direct talks between the World Bank and HIDC so far, according a HIDC board member.

WB has allocated $35 million under the fund and the International Finance Corporation (IFC) was supposed to provide $25 million. However, the resources have not been used so far. PDF functions under the Department of Electricity Development (DoED).

When the fund invited private sector power producers, only a few developers expressed interest in borrowing resources from the fund. As projects below 10MW capacity were not qualified to receive funds, only a single project above 10MW capacity, Kabeli Hydropower project, was shortlisted. A senior DoED official said stringent conditions put forth by the World Bank were mainly responsible for PDF’s failure.

Moreover, the plan to finance Kabeli, being developed by the Butwal Power Company (BPC), has not moved ahead due to the difference between the government and BPC over the interest rate.

The government has fixed the interest rate on such lending at 10.5 percent, but the project has demanded to lower the rate to 5 percent. The government has formed a taskforce to review the interest rate. Kabeli is to receive 40 percent of its total funding requirements from PDF.

If Kabeli does not receive the funding by December, HIDC is likely to take the responsibility of financing the project. “If the fund’s resources remain unspent, we have a tradition of repatriating the resources,” said the WB source. “But we want the money, meant for PDF, to stay in Nepal for financing hydropower projects at a time when the country is facing acute power crisis.”

The HIDC board member also said the company is unlikely to face resource crunch to fund power projects as donors are increasingly getting interested in investing in Nepal’s power sector through HIDC. The company currently has Rs 6.7 billion.

Source: http://www.ekantipur.com/2012/08/12/business/failure-of-power-development-fund-govt-wb-mull-funding-projects-through-hidc/358637/