AIIB joins IFC, ADB in financing earthquake-hit hydro plant in Nepal

The Asian Infrastructure Investment Bank has joined the World Bank’s International Finance Corporation and the Asian Development Bank in backing the earthquake-hit Upper Trishuli-1 hydropower project in Nepal, a country that suffers from acute power shortages.

AIIB said in a statement that the 216MW run-of-river plant, located about 70km from the capital Kathmandu, would cost $647.4 million.

Dong-ik Lee, director general at AIIB, told Infrastructure Investor that the bank would provide a senior loan of up to $90 million, thereby enabling the project to reach financial close and construction works to resume later this year. The loan is the Beijing-based development finance institution’s first investment in Nepal, which is an AIIB member.

“This has been a very good experience for the Nepalese government, and it should be an example for overseas investors in years to come,” Lee said.

According to a 2018 project summary by the scheme’s developer, Nepal Water and Energy Development, the plant will be the country’s largest foreign direct investment and will increase its power supply by a third.

Early construction works were hit in 2015 by a 7.8-magnitude earthquake that killed almost 9,000 people in the Himalayan country.

According to the summary, the project had to be redesigned to adapt to the new landscape and to increase its seismic resistance. Investors were also engaged in post-earthquake relief and reconstruction works.

“The sponsors have become very respected in the local community,” Lee said. “They decided to stay and keep developing the project after the tragedy, until reaching a point in which they are comfortable enough to make a final commitment to the project.”

The AIIB stated in its project summary that families affected by the project would have the right to purchase up to 10 percent of its shares at par value, and that “eligible households” would be provided with 20 kW/h of free power every month.

NWEDC signed a 30-year PPA with the state-owned Nepal Electricity Authority in 2018. The agreement included a provision for split feed-in-tariffs: one for the rainy season and another for the dry.

“The PPA follows a very standardised structure from a typical commercial-based project financing, which wasn’t the case with previous ones,” Lee said. “It can be a model to follow for future projects [in Nepal].”

In its project summary, AIIB said the project would be developed under a 35-year build, own, operate and transfer model that the bank signed with the Nepalese government in 2016, including a five-year construction period.

AIIB said that debt investment for the project would amount to $453.2 million. According to NWEDC’s website, the debt investors – aside from AIIB, ADB and IFC – comprise France’s Proparco, Germany’s DEG, the Netherlands’ FMO and the Korea Development Bank.

Equity investors will contribute $194.2 million through NWEDC, which is majority-owned by Korea South-East Power. The company’s minority investors are Korean industrial conglomerate Daelim, construction company Kyeryong the IFC and a Nepalese investor.

According to NWEDC’s website, Daelim and Kyeryong will act as engineering, procurement and construction contractors, while Korea South-East Power will manage the plant once it becomes operational.

NWEDC did not reply to a request for comment.