India's Essel leads seminal Nepalese hydro project

The run-of-the-river Lower Solu project is a breakthrough for the private sector in Nepal, and could pave the way for further investment.

Essel-Clean Solu Hydropower Private Limited, a subsidiary of the Indian conglomerate Essel Group, has teamed up with a consortium of banks, Kathmandu-based developer Clean Developers Private Limited, and law firm Clifford Chance for its $142 million financing of an 82-megawatt (MW) run-of-the-river hydroelectric power plant in Nepal’s Solukhumbu District.

The Lower Solu Project is the largest private sector energy project and the first private financing in Nepal undertaken by both international and domestic lenders.

Dutch development bank Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden (FMO) led the bank consortium, which includes: DEG-Deutsche Investitions-und Entwicklungsgesellschaft; The OPEC Fund for International Development; GuarantCo; Prime Commercial Bank Limited; Nepal SBI Bank Limited; Jalvidhyut Lagani Tatha Bikas Company Limited; Prabhu Bank Limited; and Siddhartha Bank Limited.

Clifford Chance Bangkok partner Joseph Tisuthiwongse, who led the transaction, said “There continues to be a large number of hydropower projects in South Asia as economic and demographic growth requires greater, more reliable and sustainable sources of clean energy in the region. This landmark project will not only lead to the generation of greater power in Nepal but may well constitute a precedent for future transactions.”

Linda Broekhuizen, chief investment officer of FMO, said: “Lower Solu is a unique project that fits well with FMO’s strategy to promote green investments and private sector development in Nepal. The project is first of its kind and a cornerstone of the development of the energy sector in the country. By providing access to energy to around three million people, Lower Solu will have a crucial long-term development impact.”

Chetan Sharma, president finance and strategy of Essel Infraprojects, said:  “The project finance structure is very unique, where for the first time international lenders have joined hands with Nepalese banks. We look forward for further investments in Nepal.”

Ashish Garg, executive director of Clean Developers Private Ltd, said: “This financing is unprecedented and shall benchmark the next era of private sector led hydropower development in Nepal. With majority Nepalese equity, energy for domestic consumption and involvement of such a large team of foreign investors, it is historic for Nepal.”

Nepal has one of the largest untapped hydropower resources in the world, estimated at over 80,000MW. Despite its great potential, Nepal has one of the world’s lowest electricity consumption rates. Severe power shortages – with power cuts of up to 18 hours a day in the dry season – are a serious bottleneck to sustainable economic growth in the country.