Risks for Investment in Hydropower Sector in Nepal; Developers’ Perspective Power Summit 2008 Kathmandu, Nepal September 24th 2008 Presented by: Dr. Sandip Shah IPPAN

Benefits of Private Development Precious, new money to country Technology transfer Promotes local industry Provides opportunity for small and large contractors to gain knowledge and earn money Taxes, royalties and revenue to GoN & local governing bodies Funds for community projects – CSR Demonstration of environmentally and socially responsible development Employment and training for technical staff Reducing burden on GoN More efficient form of development process Support to economy at micro, macro and national level 2

Barriers to Investment Lack of Political Stability Policy Stability Legal and Regulatory Framework Geopolitics of Region Security – physical & investment Institutional Setup “Single-Window” Policy Market for generated power Power Evacuation Contractual/Commercial Aspects Level Playing field for IPPs Financing Payment Guarantees Merchant Supply Nepal is still not on the investment map of the World!!! 3

Risks Risks for hydropower project development in Nepal: – Technical Risks: Hydrological Geological & Geotechnical Floods – GLOF Construction Risks: – Delays – Strikes – Flooding Operational Risks: – Equipment – Sediment – River Flows 4

Risks Risks for hydropower project development (contd.): – Contract Performance Risks: Country Risk Political Risk -CEN Policy Risk Legal & Regulatory framework Sanctity of Contracts Security of Site & Investment Payment Risk – Credibility of buyer – Payment guarantees Foreign Exchange Risk Currency Conversion & Repatriation 5

Risks Risks for hydropower project development (contd.): – Regulatory Risks – Power Evacuation Risk Congestion ROW – Labor Laws – Environmental Risk – Social Risk – Reputational Risk 6

Risk Assessment For every risk, there is an associated Return!!! Perception of Risk Weightage to different risk elements Management / Mitigation of Risks – Measures to alleviate the risk Structural Improvements/ changes – increased reliability Fire protection systems Early Warning Systems Emergency procedures Security arrangements Comprehensive CSR Program – Insure against the risk Insurable risks Non-insurable risks 7

Necessary Conditions for Increased Investments Power Sector Reforms is essential Power Sector Reforms is essential Rationalize legal framework – Unambiguous, non-overlapping, non-discretionary Institutional clarity Proper incentives due respect Strong, independent regulation Credit Rating of Country and Off-taker(s) “Single-Window” Policy more effective Independent Market/System Operator Open, Non-Discriminatory Access to Grid Market-oriented Power Trading Level Playing Field 8

Conclusions For realizing the  “42,000MW” potential & to promote private-sector participation, policies need to be rationalized Although GoN and donors promote private development, a lot of effort still needs to be done – History of Donor-driven economy Time to realize that private sector is the vehicle for economic growth Modality for development could be public-private partnerships Market needs to be developed! If we do not act now, we will miss on the opportunities available in the emerging markets in the neighborhood! 9

November 17, Thank you!