Role of Private Sector in the growth of Power Infrastructure in South Asia. Mukunda Paudyal, Joint Secretary, Investment Board, Government of Nepal

Transcription

1 Role of Private Sector in the growth of Power Infrastructure in South Asia Mukunda Paudyal, Joint Secretary, Investment Board, Government of Nepal

2 Outline of Presentation 1. The case for Private Investment in Energy Infrastructure 2. Private Sector investment in power in Nepal 1. Trend 2. Challenges 3. Key enabling factors 1. Energy cooperation in South Asia 2. Interventions needed 3. Cross Border Trade Investment Board Nepal context

3 Contribution of Traditional Fuels Bangladesh Bhutan India Nepal Sri Lanka Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka 3 Energy Sector in South Asia Traditional Fuel Use 120% Energy Access 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% Source: ADB 2012

4 Increasing Energy Deficit in Nepal Only ~2% of total energy in Nepal is met by commercial electricity Energy deficit in Nepal in was 19.6%, mostly in the dry season, but peak deficit was much higher The cost to society of unmet demand for commercial electricity is well documented As a state we have an obligation to fulfill that demand

5 The case for Private Investment in Energy Infrastructure The state has competing demands on limited resources For example if Nepal is to meet its unmet electrical energy demand of , it would need: 450 MW USD 900 mil (not including the delivery costs) To put that in context, this is around 20% of Nepal s budgetary expense Private investment will be critical in meeting future demand and the State must play a facilitating role

6 Increasing trend of Private Investment in Nepal s energy Sector NEA and NEA Sub-Projects MWh 4,473,732 10,316,789 IPP projects MWh 1,619,978 13,263,978 Total MWh 6,093,710 23,580,767 IPP Contribution to total Energy Generation % 27% 56%

7 Hydropower Projects in the active development Project Capacity Developer Status Arun III 900 MW SJVNL PDA Negotiations underway Upper Karnali 900 MW GMR PDA Negotiations underway Tamakoshi MW SN Power PDA Negotiations underway West Seti 750 MW CWEI, GON Development Upper Marsyangdi 600 MW GMR PDA Negotiations underway Upper Tamakoshi 456 MW NEA - Subsidiary Construction in-progress Upper Seti 140 MW NEA - Subsidiary Development Likhu IV 120 MW Bhilwara Ready for construction Tamor 450 MW Sanima Hydro DPR finalization Upper Trishuli 216 MW NWEDP DPR finalization Kirne 67 MW SN Power Waiting for PDA, PPA Budhi Gandaki 600 MW NEA DPR Chameliya 30 MW NEA In construction Rahughat 35 MW NEA In Construction Kulekhani-III 14 MW NEA In construction Chilime Projects 270 MW NEA, Public Various stages Total 6,200 MW

8 Challenges Political consensus in Nepal on how its hydropower resources are to be developed Geopolitics of the Region Acceptance of electricity as a tradable commodity Transmission Financial health of Electricity Board and Discoms Power Trade Agreement

9 Addressing the Challenges Establishment of a high level, empowered Investment Board as one window facilitator for large scale projects Political engagement at all levels underway GON is committed to the Harmonization of hydro power related laws Project Development Agreement Negotiations underway to ensure bankability of projects Nepal has been raising the need for a comprehensive Power Trade Agreement with India at all bilateral meetings

10 Regional Trade in Power is Key System Operational Benefits from Complementarity in energy demand and energy resource endowments Optimal utilization of resources from economies of scale ; Reduced spinning reserves Improved energy security and reliability in the system Reduced environmental impact and climate change imperative Economic and Financial Benefits from: Substantial benefit to smaller exporting economies Increased revenues from trade and industrial activities, enhanced industrial productivity Significant relief from energy constraints to rapid economic growth National Benefits Implications of trade to energy security Reduction of supply costs SAPP (South African Power Pool)` could realize 45% savings in costs for meeting the same demand if the regional plan is adopted versus the sum of the national power development plans to meet the same demand Cash flow implications the make or buy choice in an environment with competing demands on limited resources

11 Existing Level of Trade Bhutan exported of 5,586 GWh in FY Afghanistan imported 78% of is energy from Central Asia Nepal s import from India of 694 GWh (17.85% of its total supply) in Pakistan s import of about 25MW of power from Iran

12 Evolution of Trading Arrangements Bilateral trading between neighboring countries Bhutan - India Bilateral trade involving third transit country Nepal- Bangladesh Trade among synchronized national power systems Multilateral trade within a regional pool mechanism

13 Barriers to Regional Integration among SAARC Member States 1. Political and Security barriers Political rhetoric for Regional Integration has not translated into Political Will and action Managing individual countries energy security - mindset that regards energy trade as reducing energy security Public opposition based on nationalistic fervor 2. Infrastructure Constraints Lack of electrical interconnections and gas pipelines across borders ( except Bhutan-India, Nepal-India, Afghanistan-Central Asia)

14 Barriers / Constraints to Regional Integration among SAARC Member States 3. Legal and institutional barriers Policy inconsistency among member states - changes in one country have implications in another Absence of solvent utilities Utilities as vehicles of social policy, high theft/non payment and system losses Ownership structures and Contracting Practices Primarily state owned not conducive for export-import opportunities Lack of sustainable commercial and contractual arrangements ad hoc political agreements such as in Bhutan are acceptable in the nascent stages of trade Slow rate of sector restructuring

15 Interventions Needed only a few Further strengthen public support for treating energy imports as enhancing energy security Harmonize the Legal and Regulatory Frameworks Promote alternative financing mechanisms for developing regional energy trade and cooperation - initiatives that enable private sector participation Nam Theun 2 and Muzzafarpur-Dhalkebar are truly innovative models to replicate Adopt energy policies in SMS need long term alignment and accelerate energy sector reforms Joint Government, Regulatory, TSO, Grid level understanding for promote Cross Border energy trade

16 Cross Border Trade IBN Context

17 Cross Border Trade IBN Context IBN is mandated with the implementation of 4 export (India) oriented projects with a total capacity of 3,050MW There are substantial regulatory, contractual and technical obstacles to viable cross border electricity trade between Nepal and India Failing to resolve these issues will make it difficult, if not impossible to finance hydropower projects exporting to India A Power Trade Agreement between Nepal and India is absolutely essential to ensure viability of these projects

18 18 Challenges in Nepal India Cross Border Trade Nepal - India PTA must resolve the following uncertainties Regulatory Uncertainty : Past GoI policy of levying INR2 (~US$0.04) per kwh import duty makes Nepali exporters uncompetitive to Indian buyers uncertainty remains Although GoI appears to have agreed to exempt some projects currently under development in Nepal but this remains an uncertainty in the minds of the investors Contractual Uncertainty Unclear if HPPs in Nepal exporting to India will receive the same open access to the power trading market, transmission capacity or to the regulated tariff accorded to Indian HPPs Single Buyer/Trader in India: current perception is that only state owned/backed electricity trading companies (PTC India and NTPC ) are allowed to buy or sell electricity from Nepal. Investors fear this may affect their competitiveness negatively. Transmission and Technical Barriers Enabling environment for the construction of Crossborder Transmission Facilities Coordination mechanisms providing for appropriate rights of way, design specifications and operational protocols

19 India must lead the way The sheer size of India s power market relative to other SAARC countries India s geographic location With the exception of Pakistan-Afghanistan, no trade is possible between any two countries in the region without India s involvement India s dominant role in the geopolitics of the region and others in the region must do their part to effect necessary reforms and

20 Role of Donor Agencies Donors play an important role in developing regional trade through providing financing, Technical Expertise and Neutral Advisors NBI World Bank and African Development Bank NT2 WB, ADB, SIEPAC Inter-American Development Bank Play a key role in helping regions recognize, adopt and mitigate environmental and social impacts Donors must avoid imposing ambitious regional trade agenda and allow members in the region to evolve at their own pace Donor financing concessional loans and grants, can distort the market allowing tariffs to be set a sub-economic levels and crowding out the private sector, eventually making the necessary adjustments painful and unpopular

21 Financing Options Investment Context and Risk Ratings Cross border projects are considerably more complex and carries more risk for project sponsors From a financing perspective, energy trade project risk can be classified into two broad categories: Political Risk legal, regulatory Project Risk - technical, commercial, financial Private participation will be challenging, but not impossible, particularly for high risk countries Initial projects involving high risk countries will most likely be funded by Government, donors, multilaterals, on grant or concessional loans

22 Potential Funders and their products Donors Technical assistance for the highest risk projects Grants and soft loans for medium risk projects IFIs National Utilities Private Sector Public and private sector windows Technical assistance Private sector funding via Foreign Currency Loans, Equity Funding Lack of credit ratings and relatively weak balance sheet limits funding options Will have to depend on state funding or indirectly by donor and bilateral/multilaterals Developer Risk Equity Contractors risk capital in the form of equity and supplier credit through ECAs VC, Private Equity, Market Lenders

23 Providers of Risk Mitigation Products Event Specific Payout when a given event triggers a loss PRI and PRGs PRGs provided by World Bank and ADBs of the world, but their exposure is normally counter guaranteed by host government of the country of investment PRI, provide by MIGA, protects against adverse regulatory actions, but proving the occurrence of triggering event can be challenging General default Guarantees Credit enhancements such as partial credit guarantees Normally covers the back end years of loans Objective is normally to increase tenors

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