NEA to float power bonds worth Rs 3b



BY BIKASH SANGRAULA


KATHMANDU, Jan 12 - To mobilize domestic resources for funding hydropower project construction, Nepal Electricity Authority (NEA) Thursday appointed the chief executive officer of Nepal Merchant Banking and Finance Ltd as manager for the issue of power bonds worth Rs 3 billion.
This is the first time that NEA is issuing power bonds. The bonds will be issued exclusively to institutional lenders and individuals in Nepal. "Foreign loans, which come with lender's conditions, have made hydropower projects in the country very costly," said Arjun Kumar Karki, NEA's managing director.

Elaborating further he said, "Our experience is that strings attached to foreign loans including limited bidding, appointment of contractors of donor's choice and donor interference in projects have escalated project costs, thus eventually making electricity generation expensive."

Karki and bank CEO Upendra Poudyal signed an agreement on the bond issue Thursday. Poudyal said that currently there is liquidity of about Rs 15 billion in the country's financial system, and selling power bonds worth Rs 3 billion should not be a problem. The bonds will have a maturity period of five years, after which the principal will be returned. In the meantime, the bond owners will receive interest payment every six months. According to Poudyal, NEA is yet to fix the interest rate but "it will be more attractive than what banks are offering".

So far, hydropower projects in the country have been built in two ways, the first being with total financing from private investors, and the second with equity participation by the government and NEA and loans from donors.

The power bond issue manager will float the bonds in a few weeks after the bond prospectus is approved by the Security Board. The money generated from the bonds will be used to finance the 30 megawatt Chameliagadh project and 14 megawatt Kulekhani III and to meet the financing gap faced by the under-construction 70 megawatt Middle Marsyangdi, according to Karki.

NEA is also planning to issue soon Rs 5 billion worth of project-specific power bonds for the 309 megawatt Upper Tamakoshi, supposedly the most attractive project in the pipeline. In the case of Upper Tamakoshi, bond holders will be entitled to convert 30 percent of their bond into shares after project completion.

"The country's hydropower future depends on the success of the power bonds we are floating. If the market responds positively, we will be able to build hydropower projects in the country with internal financing," said Karki.