By Baburam Bharadwaj Wagle
A private hydro developer shares experiences with financing and constructing the new 4-mw Khudi project in Nepal.
The 4-mw Khudi project began operating in December 2006. It is located in the Lamjung District of Nepal and uses water from the Khudi River. This river originates at about Elevation 5,000 meters, in the Annapurna Conservation Area. The catchment area of the Khudi River upstream from the dam site is about 127.3 square kilometers, and average annual flow is about 9.8 cubic meters per second (cms). The river gathers a gross head of 103 meters in the 2.5-kilometer stretch between the intake site and the Khudi powerhouse. Net head for this project is 97.6 meters.
One requirement based on the environmental impact assessment (EIA) for the project is that the operator release at least 10 percent of the annual minimum flow back into the river, by means of a diversion weir.
A boulder-armored weir with a crest length of 22.75 meters diverts water through a side intake. Sediment is separated and diverted to the river through an under-sluice, and relatively clearer water enters the intake canal. The intake canal conveys the water to a settling basin that also acts as the forebay for the project. A 1.75-meter-diameter, 2,466-meter-long steel penstock conveys water from the settling basin to the powerhouse.
The power plant contains two 2-mw Francis turbines supplied by Asia Pacific Power Tech Company in Hangzhou, China. Because the penstock system is a long water conductor system without a surge tank, potential surges initiated during load rejection are nullified with the help of a pressure relief valve. This valve is designed to divert about 30 percent of the discharge within two seconds after load rejection. A flywheel has been provided to prevent the runaway speed of the turbine.
The powerhouse also contains digital proportional integral differential (PID) function governors and digital excitation devices with digital automatic voltage regulators.
The generating voltage of the power plant is 6.3 kilovolts (kv). The station is equipped with a step-up transformer with a capacity of 5 megavolt amperes (mva). Power is transmitted via a 33-kv line to the national grid.
Annual generation at the Khudi hydro project is expected to be about 28 gigawatt-hours (gwh). In June 2001, Khudi Hydropower Limited signed a 25-year power purchase agreement (PPA) with state-owned utility Nepal Electricity Authority (NEA) for annual sale of 24.284 gwh. The price for electricity in this agreement is 3.9 Rupees (US$0.054) per kilowatt-hour (kwh) for the eight wet months and 5.52 Rupees (US$0.076) per kwh for the four dry months of the year. Khudi Hydropower Limited hopes to sell to NEA any electricity generated above the amount in the PPA, under a separate contract.
On February 22, 2005, the government of Nepal issued a 35-year generating license for the Khudi project. To receive this license, Khudi Hydropower Limited submitted a feasibility study report, the EIA report, and the signed PPA document to the Department of Electricity Development. The cost to conduct the two studies and negotiate the PPA was about 25 million Rupees (US$347,200).
The internal rate of return (IRR) for this project is 12.56 percent, the payback period is 7.5 years, and the net profit is 18 percent of sales.
The Khudi project is being financed at a ratio of 70 percent loans to 30 percent equity. The project cost about 560 million Rupees (US$7.78 million).
Conditions of the loans
Lenders for the Khudi project include lead bank Nepal Investment Bank Limited (NIBL), as well as a consortium of NIBL and the Laxmi, Machhapuchhre, Siddharth, and Rastriya Banijya banks, all in Nepal. Initial estimates of the cost for the project were 600 million Rupees (US$8.33 million). Based on this figure, the consortium is financing a nine-year term loan of 400 million Rupees (US$5.55 million), while NIBL is separately financing a working capital loan of 14 million Rupees (US$194,400). Capitalization of the loan interest was for a period of two years during the construction period (starting from the date of the initial drawdown).
Construction of the powerhouse for the 4-mw Khudi hydro project on the Khudi River in Nepal was challenging owing to political unrest in the area. As a result, deployment of technical manpower to the site was difficult.
The credit facilities for the project were secured by the following tools:
- Registered mortgage for the entire project to the participating banks on a “pari-passu” basis (i.e., to the proportion of their financing);
- Assignments of the PPA, current accounts, bills, and receivables to the banks on a pari-passu basis;
- Corporate guarantee from the shareholders of Khudi Hydropower Limited, in proportion to their shareholding; and
- Corporate guarantee by Khudi Hydropower Limited for the loan amount.
Other terms of the loans include:
- At any time, the total fixed term loan outstanding will not be more than 70 percent of the total fixed assets investment;
- The working capital loan shall be made available to Khudi Hydropower Limited in accordance to the limits and requirements set by NIBL;
- No bank shall withdraw from participation in the facilities other than in event of a default or force majeure.
The equity portion of funds for the Khudi hydroelectric project is provided by shareholders Butwal Power Company (BPC) of Nepal, SCP Hydro International Inc. of Canada, and LEDCO of Nepal.
BPC, established in the late 1970s, is a private utility with sound financial footings and extensive experience in the hydropower business. BPC is regarded as the pioneer of private sector power development in Nepal. The company developed and operates the 5.1-mw Andhi Khola and 12-mw Jhimruk Khola projects. In addition, in partnership with Statkraft SF of Norway, BPC developed 60-mw Khimti, which it now operates. BPC is the backbone of Khudi Hydropower Limited. Because BPC is the majority (60 percent) shareholder company for development of Khudi, the Nepalese banks were favorable toward making the loans.
Canadian investment company SCP Hydro International owns 25 percent of the shares. Allocating shares to a company outside Nepal boosted the confidence level of the financiers. SCP Hydro International provided important input in finalizing the electromechanical specifications and during commissioning of the power plant.
The 2,471-meter-long steel penstock at the 4-mw Khudi project conveys water from a settling basin to the powerhouse.
LEDCO, a 15 percent partner, is the local company representing the Lamjung District. The local people of Lamjung District own more than 70 percent of the shares of LEDCO. The remaining shares are owned by local government bodies of the district, such as village development committees and Lamjung District Development Committee. LEDCO’s shares ensure that part of the benefit of the project will be diverted to the local people. In this sense, Khudi could be regarded as an example of partnership with indigenous peoples. With this arrangement, the local people also feel ownership of the project. This situation has helped minimize local conflicts.
Constructing in times of political unrest
Khudi was constructed during the peak of the Maoist movement in Nepal. The Maoists are seeking to reform the government of Nepal, and thousands of people have been killed in this effort. The Maoists believe political power comes from armed action. Because of the high influence of the Maoist movement, government presence in the project area was almost nil. This made it difficult for Khudi Hydropower Limited to coordinate construction activities with the government, and the Maoist presence made it difficult to execute construction activities. At the same time, the political instability resulted in frequent changes of government and, consequently, government policies.
It was difficult to manage construction materials and equipment because of strikes and blockages organized by different political parties. These barriersresultedin huge overruns in projectdevelopment costs because of time overruns and changes inconstruction methods. For example, explosives could not be used for rock excavation at the project because of the unstable and dangerous political situation. Khudi Hydropower Limited had to adopt a very expensive non-explosive option (using damite, blister, and hydraulic rock splitters). This substantially increased the cost of the civil work package of the contract.
In addition, deployment of technical manpower to the site was difficult. Most of the technical experts did not like to visit or stay at the site during construction of the project. This slowed the progress of work at the site and increased the project development cost. To reinforce the technical team, experts from Kathmandu, Nepal, made regular visits to the site. Their input improved the progress of the work.
The project has been completed and was commissioned December 16, 2006. Khudi began commercial operations December 30, 2006.
Development of the Khudi project was successful for two main reasons. First, the mixed model of local, financially strong, and technically sound partners convinced financiers to invest in this project. Second, the protective cover of ownership by the local community helps aid project development, especially during a politically vulnerable time.
Khudi Hydropower Limited is now working to develop the 20-mw Ngyadi hydropower project. To take advantage of the lessons learned during development of Khudi, Khudi Hydropower Limited organized a one-day workshop in March 2007, “Lessons Learned in Khudi and Plan for Ngyadi.” Participants in this workshop consisted of personnel from Khudi Hydropower Limited, contractors, consultants, and other companies involved in construction of Khudi, as well as potential investors from Canada.
The workshop resulted in identification of several lessons learned from the Khudi project that will be applied during development of Ngyadi. All employees involved in Khudi will also work on Ngyadi.
Mr. Wagle may be reached at Khudi Hydropower Limited, Kalkumari Bridge, Koteshwor, Kathmandu, Nepal; (977) 205-3003; E-mail: khudi@ khl.com.np.
Baburam Bharadwaj Wagle is project manager and chief executive officer of Khudi Hydropower Limited in Nepal, developer of the 4-mw Khudi project.
© Hydropower in Nepal
With its mountainous topography and abundant water, Nepal has significant hydropower potential. One study shows that more than 83,000 mw of technically feasible capacity is available, out of which more than 50 percent is financially feasible. Only slightly more than 1 percent of the financially feasible hydro capacity in Nepal has been harnessed. The country has options for projects of many sizes, ranging from a few kilowatts to as much as 10,800 mw at one site, the Karnali Chisapani project on the Karnali River in western Nepal.
Nepal has current installed generating capacity of about 614 mw, of which about 90 percent is from hydropower plants and 10 percent from diesel stations. About 155 mw of that capacity is developed and operated by private companies. The remaining 459 mw is developed and operated by Nepal Electricity Authority (NEA), the state-owned utility. As the main distributor of electricity in Nepal, NEA has a nationwide distribution network. In 2004, NEA generated hydro energy of 1,345.654 gigawatt-hours (gwh), while diesel generation was 9.92 gwh. In the same year, independent power producers sold 840.275 gwh of energy to NEA and NEA imported 185.647 gwh from India. Total energy available was 2,381.496 gwh.
The annual rise in demand for electricity in Nepal is more than 10 percent, which makes the domestic market more attractive day by day. NEA is developing the 70-mw Middle Mershyangdi hydro project with German aid. And private companies are developing 11.2 mw of hydro plants.