Eneregy (Power)

Hydro-Electric Power

Nepal is well endowed with enormous hydro-power resources. This comparatively cheap source of power provides a distinct advantage for Nepal to embark on a program of rapid industrialization. By the end of 1997/98 hydro power generation reached 261.918 MW in the country. In order to meet increasing demand of power steps will be taken to consolidate and strengthen existing generating facilities with a view to increase efficiency in production and distribution of energy. Medium size hydro-power projects such as Khimti (60MW), Indrawati (5MW), Upper Bhotekoshi (36MW) have already been taken up by the private sector. Other major projects on which preliminary studies have been undertaken include (Chisapani) 10800 MW, Upper Arun 335 MW, PAncheshwor 6480 MW, Lower Arun 308 MW, and Upper Karnali 300 MW hydro electric projects. Another major project West Seti Hydel project (750 MW), is being taken up by a private sector (SMEC West Seti Hydroelectric Corporation). This is being developed as an export oriented project. The Project Agreement and the Export Agreement between SMEC and HMG/N have been concluded.

Nepal has roughly 83,000 MW of hydropower potential, half of which is ecnomically feasible for development.Less then 1% of this capacity has been developed, while the demand for clean,renewable energy in Nepal, northern India, and southwest China is expected to at least double over the next decade. Demand for power in Nepal is outstripping supply by 25 MW or 10% per year. The domestic energy demand, currently at 270 MW, is expected to rise to 610 MW by 2005. India's energy deficit is expected to reach 20,000 MW by 2010, and China's deficit will reach 330,000 MW by 2015.

The USAID-funded Hydropower Assessment, completed in 1992, was the first major review of private potential for hydropower development, and led to a new Government of Nepal commitment to attract private U.S and other international investment. Private financing of hydropower development is extremely attractive to Nepal because it will reduce Nepal's reliance on donor financing in the energy sector, expedite development of Nepal's hydropower potential, and allow Nepal to utilize scarce financial resources for critically important social sector investments. Increased nationwide availabilty of reliable electric power will increase productivity, stimulate Nepal's economic development, and reduce relience on Nepal's primary source of energy--fuelwood.

USAID has been very successful in increasing Nepal's institutional capacity to attract private investments in small and medium scale hydropower projects. Nepal now has environmental, engineering and competitive contracting guidelines, and has undertaken regulatory reforms required for private power development.

USAID has played a critical role in leveraging several hundred million dollars of private and other donor investments in hydropower development. This includes the 60 MW, $138 million Khimti Khola Project and the 144 MW, $250 million KAligandaki A Project. Of the $ 98 million required for the 36 MW Bhote Koshi Project, the majority of the equity investment is being provided by Americans, representing the single largest American investment in Nepal.Further, in coordination with the World Bank and Asian Development Bank, USAID drafted the guidelines for implementing the World Bank's Power Development Fund. The Fund will provide financing of about $ 175 million to develop medium scale hydropwer projects and install power distribution lines. About $ 100 million will be used to leverage private investments at an expected ratio of 3:1. If used successfully, the fund can be replenished annually.

USAID helped prepare Nepal for negotiations with India, which led to ratification of the Mahakali river Basin Treaty in september 1996.The Treaty presents Nepal with a host of important new opportunities for hydropower development.Ratification of the treaty has spared international interest in investing in hydropower projects in Nepal.