1 Experiences in Hydropower Development in Nepal An International Perspective Einar Stenstadvold Executive Vice President Asia, SN Power

2 SN Power is placed in the intersection of two global megatrends Growth in emerging markets Demand for renewable energy

3 Mission ”To become a leading hydropower company in emerging markets, contributing to economic growth and sustainable development”

44 Business objectives and strategy  Established in June Jointly owned by Statkraft (50%) and Norfund (50%)  Business objective: To invest in clean, renewable energy projects on commercial basis in selected emerging markets  Long-term investment strategy  Capitalizes on its owners’ technical and financial strength and international hydropower experience  Transfer of Norwegian hydropower expertise

55 SN Power presence Established in Asia and Latin America India Nepal Sri Lanka Bhutan Peru Chile Brazil Philippines Vietnam Laos Mozambique Zambia

66 Portfolio & ambition Operating plants Construction Total Pipeline Net Portfolio 2008 (equity) MW GWh 5X Ambition MW TWh

77 Himal Power Limited (HPL) Experience  The overall experience has been good  Profitable project  Good and stable hydrology  High plant availability  There have been challenges  Silt and operational conditions  Legal and political instability  Security situation  Local community development crucial to success

88 Project Development Situation Opportunities  Many physically good projects in Nepal  Strong long-term market possibilities  International companies interested to invest in Nepal  Requires strong international hydropower and peaking power experience to develop the potential in the long run Challenges  Long term political stability  Financing: FDI/ Country rating risk  Ineffective “one window policy”  Two-step (survey and generation) licensing procedures  Time consuming Environmental Impact Assessment process  Future challenge: Division of resources in Federal Nepal

99 Project Development & Licensing Situation Project Development  Sanctity of Contracts – not honored  Weak Implementation of Policies, Acts and Regulations  Inconsistency among various line ministries Licensing  Licenses not awarded in stipulated time  Real developers not incentivized  Trading in licenses is in vogue  Royalty and Tax level not competitive in the region

10 Human and Institutional Resources Situation Positive:  Hydropower: a national priority  Low cost level  Good quality hydropower institutions Challenges:  Investment-unfriendly labor laws  Frequent labor disputes  Shortage of qualified hydropower, legal and finance professionals at all levels  Limited manufacturing and construction capacity

11 Conclusions  Our portfolio in Khimti River Basin can be increased to about 150 MW  Development of 640 MW Tamakoshi 2&3 has begun, with construction to start in  We are looking at other possibilities in Nepal  We believe in integrated river basin development for: Operational efficiency Optimum utilization of water resources Optimum utilization of Logistic and resources

12 Conclusions  Nepal is an emerging economy coming out of a very difficult and unstable political situation  SN Power (through HPL) has lived with Nepal through the insurgency and wants to live with Nepal into a brighter future  SN Power believes in Nepal and is already taking part in the 10,000 MW Vision  Many challenges ahead in meeting this Vision  SN Power ready to work with the Government of Nepal to overcome these challenges and to contribute to the Vision