additional cofinancing memo - climate investment …...2016/02/12 · sasec project is performing...

XX March 2016 FOR APPROVAL OF PARA. 1

To: Takehiko Nakao President

Through: Wencai Zhang

Vice President (Operations 1) From: Hun Kim

Director General

Subject: Additional Cofinancing — Proposed Administration of Grant for Nepal: South Asia Subregional Economic Cooperation Power System Expansion Project

A. Recommendation

1. We seek your approval to administer a grant not exceeding the equivalent of $20,000,000 to Nepal for the additional cofinancing of the South Asia Subregional Economic Cooperation Power System Expansion Project, to be provided by the Strategic Climate Fund (SCF).1

B. The Ongoing Project

2. The project was approved by ADB on 4 July 2014 and made effective on 15 January 2015. The project is expected be completed by 30 June 2022. The project is to assist Nepal’s energy sector development by facilitating (i) expansion of domestic power transmission capacity, (ii) power exchange with India, (iii) augmentation and expansion of the distribution networks, and (iv) mini-grid-based renewable energy access in rural areas. The project is prioritized as part of the South Asia Subregional Economic Cooperation Program’s Power Generation and Transmission Master Plan and Regional Cooperation Business Plan, 2014–2016. The project supplements ADB’s ongoing interventions by enhancing Nepal Electricity Authority’s (NEA) financial position through the implementation of a viability gap funding scheme for the use of NEA’s power grid by third parties for electricity exports, as well as improvements in NEA’s planning capacity by supporting initiatives including the preparation of the distribution system and rural electrification master plan.

3. The project was estimated to cost $440 million to be financed by: (i) a loan in various currencies equivalent to SDR116,493,000 ($180 million equivalent) from ADB’s Special Funds resources; (ii) a grant equivalent to approximately $60 million from the Government of Norway, administered by ADB; (iii) a grant not exceeding the equivalent to $11.2 million from Strategic Climate Fund, administered by ADB; (iv) counterpart contribution from the Government of Nepal of $60.34 million; (v) counterpart contribution from the beneficiaries (communities) of $8.46

1 Under the Scaling up Renewable Energy Program in Low-Income Countries.

Memorandum

South Asia Department Office of the Director General

2

million; and (vi) a loan of $120 million parallel financing from the European Investment Bank (EIB).2

4. The impact of the project will be increased electricity access in Nepal and improved power exchange across the border. The outcome will be increased capacity of the national power grid and enhanced renewable energy development. The project has four outputs: (i) increased power transmission capacity; (ii) improved power distribution network; (iii) increased mini-grid-based renewable energy systems in off-grid areas; and (iv) enhanced capacity development support to NEA and AEPC.

5. The NEA is the executing agency for outputs 1 and 2 (the on-grid components); AEPC is the executing agency for output 3; and NEA and AEPC are the executing agencies for output 4. The on-grid components are being implemented and supervised by a project management unit established within the project management directorate of NEA. For AEPC, a project implementation unit, headed by a project manager, has been set up and is responsible for implementation, including procurement, accounting, quality assurance, and safeguards. AEPC’s project implementation unit is supported by a team of project implementation consultants funded by the project while for NEA PMU’s project supervision consultant selection process is ongoing. ADB conducted review mission from 28 October to 5 November 2015 for the project and jointly updated the time-bound action plan on procurements and consulting services, and discussed several actions that the government and NEA should take to expedite the implementation and the subsequent mission. Subsequently, ADB mission from 11 to 15 January 2016 noted significant progress in procurement process and key decisions have been taken, such as delegation of authority for procurement from NEA Board to NEA management. This has helped streamline the procurement process and reduced delays in contract awards.

C. The Additional Cofinancing

1. Rationale

6. Nepal continues to face chronic power shortages. Only 65% of the country’s households have access to electricity—56% through the national grid and 9% through off-grid solutions. Per capita electricity consumption is 102 kilowatt-hours per year, one of the lowest in the world. The installed capacity is 762 megawatts (MW) versus peak demand of 1,095 MW, resulting in scheduled power cuts of 12 hours per day or more during the dry season.3 With the expected commissioning of six hydropower projects with a combined capacity of 732 MW in the next 3 to 6 years, a wet season electricity surplus is anticipated by 2018. However, a dry season shortage of up to 600 MW is projected through year 2022–2023.4

7. In addition to hydropower, Nepal has reasonably good solar resources: average solar radiation is 4.5 kWh/m2 per day; there about 300 sunny days per year; and the estimated commercial potential for grid-connected solar power is about 2,100 MW. Compared to hydropower projects, solar systems can be quickly installed near load centers. Solar radiation is relatively steady year-round and is therefore one of the ideal resources to complement with hydropower during the low-flow season. Grid-connected solar power generation is technically

2 EIB cofinancing is parallel cofinancing and not administered by ADB. 3 Based on sales records and anecdotal reports from various donors and Nepali companies, there are around 33,000

petroleum-fired generator sets in Nepal, with aggregate capacity of about 500 - 800 MW, correlating strongly with the observed power capacity deficit.

4 Continued investment in transmission and distribution grid efficiency and expansion will be required to ensure that load-shedding is reduced.

3

proven worldwide and 640 kW of grid connected photovoltaic (PV) capacity is already in operation in Nepal.

8. Given the respective challenges for hydropower and opportunities for solar energy, the government requested ADB support for utility scale solar power development. As the ongoing SASEC project is performing well, the government requested that SCF cofinancing be mobilized as additional financing to the project and expand its scope. Due to the lack of fiscal incentives for solar power project development, such as feed in tariffs in Nepal, the use of SCF fund is the most appropriate financing modality for scaling up utility scale solar power project development, given the high upfront cost in solar photovoltaic (PV) system installation.

9. The additional cofinancing will support utility-scale solar power installations by mobilizing the private sector, to install an aggregate capacity of at least 25 MW by 2018. This will help address the chronic power shortages and fuel supply deficits. The additional financing is consistent with the project’s results, government priorities, and the ADB country partnership strategy for Nepal (2013–2017). The proposed approach and business model can be replicated and scaled-up elsewhere in the country, resulting in accelerated growth of the solar energy services sector and ultimate delivery of electricity generated by solar PV systems at grid parity.5

2. Impact, Outcome, and Outputs

10. The impact, outcome, and outputs of the overall project with additional cofinancing will remain the same as in the ongoing project with the new additional output 5: utility scale solar PV project development. Under this output, at least 25 MW of solar PV capacity will be installed across multiple sites by 2018. One of the outcome indicators regarding CO2 emissions reduction will be changed to reflect an additional reduction of 26,280 tons annually against a reduction of 20,000 tons6 under the ongoing project, while other indicators will remain unchanged. Project at a glance and revised DMF is in Appendix 1 and 2.

3. Cofinancing

11. The Government of Nepal has requested additional cofinancing in the form of a $20 million grant from the Strategic Climate Fund7 to be administered by ADB, to help finance outputs 4 and 5 of the project. This additional SCF grant will be provided to NEA as a grant. The revised investment and financing plans are in Tables 1 and 2. Costs and Financing and revised Contract and Disbursement S-curve for ADB-administered Funds are in Appendix 3 and 4.

Table 1: Revised Investment Plan ($ million)

Item Current

Amounta Additional

Cofinancing Total

A. Base cost b 1. Power transmission capacity expansion 314.8 0.0 314.8

2. Power distribution network improvement 39.5 0.0 39.5 3. Mini-grid-based renewable energy development in off- 24.4 0.0 24.4

5 Given its location India and PR China which have large and growing solar technology and service supply chains,

Nepal has an opportunity to rapidly expand in-country solar supply chains and energy services expertise. Installed solar PV system costs continue to decline, while installed costs for large hydropower remain relatively stable. Based on these trends, solar PV is expected to reach price parity with conventional hydropower in the foreseeable future.

6 comprised 18,000 tons off-grid and 2,000 tons from on-grid 7 Under the Scaling Up Renewable Energy Program in Low-Income Countries.

4

grid areas

4. Project management and capacity building for utility scale solar projects development facilitation

9.2 1.5 10.7

5. Utility scale solar projects development 0.00 18.5 18.5 Subtotal (A) 387.9 20.0 407.9 B. Contingenciesc 25.1 0.0 25.1 C. Financing Charges During Implementationd 27.0 0.0 27.0 Total (A+B+C) 440.0 20.0 460.0

a Refers to the original amount and any previous additional financing. Includes taxes and duties of $7.75 million to be financed by the government through a cash contribution, and $0.58 million for mini hydro subprojects under output 3 to be financed by the Strategic Climate Fund.

b In March 2014 prices except the new additional cofinancing which is in January 2016 prices. c Physical contingencies computed at 3% of base cost. Price contingencies computed using ADB’s forecasts of

international and domestic inflation includes a provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate.

d Interest during construction for ADB loan has been calculated at 1.0% per annum during the grace period of 8 years and 1.5% per annum thereafter (24 years).

Sources: Asian Development Bank; Nepal Electricity Authority; and Alternative Energy Promotion Centre.

Table 2: Revised Financing Plan

Currenta Additional Cofinancing Total

Amount Share of Amount Share of Amount Share of Source ($ million) Total (%) ($ million) Total (%) ($ million) Total (%)

Asian Development Bank Special Funds resources (loan) 180.00 40.91 0.0 0.0 180.00 39.13

Cofinanciers Strategic Climate Fund (grant)b 11.20 2.55 20.0 100.0 31.20 6.78 Government of Norway (grant)c 60.00 13.64 0.0 0.0 60.00 13.04 EIB (loan)d 120.00 27.27 0.0 0.0 120.00 26.09

Government of Nepal 60.34 13.71 0.0 0.0 60.34 13.12 Communities 8.46 1.92 0.0 0.0 8.46 1.84 Total 440.00 100.00 20.00 100.00 460.00 100.0

ADB=Asian Development Bank, EIB = European Investment Bank. a Refers to the original amount. b Under the Scaling Up Renewable Energy Program in Low-Income Countries. Administered by the Asian

Development Bank. c Administered by the Asian Development Bank. d Not administered by the Asian Development Bank.

Source: Asian Development Bank estimates.

12. The implementation arrangements will follow the arrangements of the ongoing project. NEA will be the executing agency for the additional cofinancing component, which will be implemented and supervised by the existing project management unit set up under project management directorate (PMD) of NEA for the SASEC Project. NEA PMD will assign separate project manager for this component. Solar installations will be developed through a competitive tendering procedure, with Power Purchase Agreements (PPAs) awarded on the basis of best offtake price. The PPA off-take prices will be the basis for viability gap financing (VGF) delivered as front-loaded PPA payments until June 2022; the remaining PPA period will have fixed tariff set at NEA’s solar tariff. NEA will prepare a draft Request for Proposal (RFP) packages for various possible options including but not limited to semi-captive power generation with surplus power delivered to the grid, and independent power producers (IPPs) in solar farms with and without designated land. NEA will manage the bidding process and sign the PPAs for minimum of 15 years. NEA will consult ADB during the RFP preparation stage and seek approval on the final RFP documents prior to issuance and before making final decisions on the bidding process. ADB will disburse funds on a quarterly basis or other frequency to be determined

5

based on withdrawal applications submitted by NEA; the amounts to be disbursed will be calculated as the difference between the PPA off-take price and NEA’s solar tariff. Advance payment or other similar modalities may be allowed via imprest account procedures subject to ADB’s approval. Fund flow diagram is attached in Appendix 5.

13. Technical assistance will be provided to ensure that subprojects are feasible and meet all national and ADB requirements including environmental and social safeguards. Technical assistance comprises an estimated 80 person months of individual international and national consultant services over the period of the implementation of the project with the following expertise: (i) solar power engineer to assist in site evaluation and technical appraisal; (ii) procurement specialists to facilitate bidding process; (iii) project management, including monitoring, reporting and verification; (iv) environment and social experts to assist in ensuring compliance with both national and ADB safeguard requirements; and (iv) financial experts to assist in managing financial arrangements.

14. Due diligence will be conducted on technical, economic, financial, governance, social and poverty, and safeguard aspects, as suitable sites are identified by NEA, other government agencies, and IPPs. Safeguards frameworks have been prepared and agreed between ADB and Government of Nepal to ensure that any environmental and social issues are fully addressed in accordance with the government’s regulatory requirements and the ADB Safeguard Policy Statement (2009). The proposed introduction of utility scale solar power systems in Nepal cofinancing is economically and technically feasible. With additional cofinancing, the financial and economic viability of the ongoing project will further improve due to increased solar PV contribution in energy supply mix, reducing the need for high cost electricity from diesel generators. The technical assistance will have no safeguard impacts. Poverty, environmental and social impacts of additional cofinancing will be positive due to reduction in pollutant emissions, and increased financial sustainability and capacity of NEA. These positive impacts will improve the enabling environment for more investment in the energy sector from the public and private sectors which is required for sustainable economic development.8

15. The first set of sites to be developed under the project with additional cofinancing will be tendered out by 31 May 2016. ADB’s Procurement Guidelines (2015, as amended from time to time) would be followed for procurement.9 Consultancy services will be procured in accordance with ADB's Guidelines on the Use of Consultants (April 2013, as amended from time to time).

D. Staff Views

16. The proposed additional cofinancing has been reviewed and supported by the Controller’s Department, Economic Research and Regional Cooperation Department, the Office of Cofinancing Operations, the Office of the General Counsel, Operations Services and Financial Management Department, and the Sustainable Development and Climate Change Department. Comments matrix is in Appendix 6.

8 The safeguards categorization of the overall project with Additional Financing will only fund the projects with

safeguards categorization B or C for environment, and C for involuntary resettlement (IR) and Indigenous Peoples (IP). A loan covenant will be prepared to exclude any subprojects with Category A for environment, or A and B for IR and IP.

9 On 18 March 2013, the ADB Board of Directors approved a blanket waiver of member country procurement eligibility restrictions in cofinanced ADF operations.

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cc: Directors General, ERCD; OSFMD; SDCC; Head, OCO; Controller; Assistant General Counsel, OGC; Directors, EREA; OCO; OSP1; SDGG; SDES; SARC; Y. Seo, OGC; K. Nam, EREA; R. Barba, SAOD-PR; S. Janardanam, OSFM; Y. Sakurai, CTLA-LGFC; B. Mirbabaev, OCO; C. Santiago, OSP1;J. Acharya, SDCC; S. Shafiq, SAOD; SAOD-PR team; SAOD-QAE team

Attachments: 1. Project at a Glance

2. Revised Design and Monitoring Framework 3. Costs and Financing 4. Revised Contract and Disbursement S-curve for ADB-administered Funds 5. Fund Flow Diagram 6. Comments Matrix

Attachment 1 1

2 Attachment 2

REVISED DESIGN AND MONITORING FRAMEWORK

Impact the Project is Aligned with Current Project Increased electricity access in Nepal and improved power exchange across the border. Overall Project Unchanged

Results Chain Performance Indicators with

Targets and Baselines Data Sources and

Reporting Risks

Outcome Current Project Increased capacity of national power grid and enhanced renewable energy development. Overall Project Unchanged

Current Project a. Power evacuation capacity from Kali Gandaki basin and Marsyangdi basin increased to 1,000 MW by 2021 (Baseline: 100 MW in 2013) b. Distribution capacities in identified areas increased to 316 MVA by 2021 (Baseline: 100 MVA in 2013) c. 30,500 additional households supplied by renewable energy in rural communities by 2021 d. CO2 emissions reduced by 20,000 tons per year by 2021 Overall Project a. – c. unchanged d. Additional CO2 reduction of 26,280 tons per year is expected from new solar installations

NEA annual reports SASEC Energy Working Group meeting minutes NEA annual reports AEPC annual reports AEPC annual reports NEA annual reports

The government does not continue to be committed to progress on NEA financial and management restructuring

Outputs Current Project 1. Power transmission capacity increased

Current Project 1a. 45 km of 400 kV and 191.5 km of 220 kV transmission lines and associated substations, constructed and/or augmented along Kali Gandaki corridor and Marsyangdi–Kathmandu route by 2021 1b. 125 km of 220 kV transmission line, and associated substations at Marsyangdi corridor; and 24 km of 132 kV transmission line and associated substations at Samundratar–Trishuli 3B transmission hub constructed by 2021 (to be financed by EIB’s

1a. NEA annual reports; SASEC Energy Working Group meeting minutes 1b. NEA annual reports

Government counterpart funds are not mobilized in a timely manner For AEPC’s component, contributions by communities are not realized on time

Attachment 2 3



Reporting Risks

Overall Project Unchanged Current Project 2. Power distribution network improved Overall Project Unchanged Current Project 3. Mini-grid-based renewable energy systems in off-grid areas increased Overall Project Unchanged Current Project 4. Capacity development support to NEA and AEPC provided

parallel cofinancing) 1c. 8 grid service substations with aggregate capacity of 393.8 MVA constructed and/or replaced by 2020 Overall Project Unchanged Current Project Identified distribution lines (410 km of 33 kV, 545 km of 11 kV, and 725 km of 400 kV), 216 MVA 33kV/11 kV substations and 20 MVA distribution substations constructed and/or upgraded by 2020 Overall Project Unchanged Current Project Up to an additional 4.8 MW of mini-grid-based renewable energy capacity established by 2020 in selected communities where at least 33% of the households are headed by women or are disadvantaged Overall Project Unchanged Current Project 4a. Project management monitoring system developed by 2015 4b. 20 persons trained in GESI-based community participation and management of energy systems by 2018 4c. A feasibility study of one large scale wind farm approved by AEPC by 2018 4d. Draft regulations for implementing Renewable Energy Promotion Board Act accepted by AEPC by 2018 4e. An updated distribution system and rural electrification master plan

1.c NEA annual reports NEA annual reports AEPC annual reports Current Project 4a. Project quarterly progress report 4b. Project quarterly progress report 4c. AEPC annual reports 4d. AEPC annual reports

4 Attachment 2



Reporting Risks

Overall Project Unchanged Overall Project

5. 5. Utility scale solar projects development

adopted by NEA by 2019 4f. Solar project sites identification, preparation, development plan Overall Project Unchanged Overall Project At least 25 MW solar capacity will be installed and in operation by 2018, producing 32,850 MWh per year of electricity and avoiding 26,280 ton CO2 emission per year.

4e. NEA annual reports; distribution system master plan 4f. NEA annual reports; NEA annual reports

Government support for accelerated solar development is not maintained. Project sites are not available for development.

Activities with Milestones 1. Power transmission capacity increased (unchanged) 1.1 Acquisition of land for substations and tower footings (June 2015) 1.2 Construction of transmission lines (July 2015–June 2021) 1.3 Implementation of environment management plan (July 2015) 2. Power distribution network improved (unchanged) 2.1 Acquisition of land (if any required) (December 2016) 2.2 Extension of the identified distribution networks (January 2017–

December 2018) 3. Mini-grid-based renewable energy systems in off-grid areas increased (unchanged) 3.1 Land contribution by communities for sample mini hydroelectric subprojects (September 2015) 3.2 Construction of sample mini hydro subprojects (December 2015–November 2017) 3.3 Construction of subsequent mini hydro subprojects (July 2017–June 2020) 3.4 Land contribution by communities for sample mini-grid solar and solar–wind hybrid subprojects (June

2015) 3.5 Installation of sample mini-grid solar and solar–wind hybrid subprojects (January 2016–June 2017) 3.6 Installation of subsequent mini-grid solar and solar–wind hybrid subprojects (September 2017–

February 2019) 4. Capacity development support to NEA and AEPC provided 4.1 PSC support for NEA in supervising the implementation of outputs 1 and 2 (January 2016–December

2021) (unchanged) 4.2 PIC and social mobilizers support for AEPC in procuring and implementing output 3 (January 2015–

June 2020) (unchanged) 4.3 Training of NEA, AEPC, and identified stakeholders (May 2015–April 2017) (unchanged) 4.4 Feasibility study of one large-scale wind farm (minimum 1 MW) accepted by AEPC (December 2017)

(unchanged) 4.5 Draft regulations for implementing Renewable Energy Promotion Board Act accepted by AEPC (June

2018) (unchanged) 4.6 Distribution system and rural electrification master plan adopted by NEA (December 2019)

(unchanged) 4.7 Technical assistance provided to NEA to facilitate new utility scale solar development (May 2016 –

December 2018) (added) 5. Utility scale solar projects development

Attachment 2 5



Reporting Risks

5.1 Issuance bidding documents, power purchase agreement awards (May 2016- April 2018) (added) 5.2 Project commission ( January 2017- December 2018) (added) 5.3 Monitoring, reporting and verifying outputs ( January 2017- June 2022) (added)

Inputs

ADB Loan ADB Technical Assistance Grant

$180,000,000 (current) $50,000 (current)

$0.00 (additional) $0.00 (additional)

$180,000,000 (overall) $50,000 (overall)

Government of Norway (Grant) SCF (Grant)

$60,000,000 (current) $11,200,000 (current)

$0.00 (additional) $20,000,000 (additional)

$60,000,000 (overall) $31,200,000 (overall)

EIB (Loan) Beneficiaries (Communities)

$120,000,000 (current) $ 8,460,000 (current)

$0.00 (additional) $0.00 (additional)

$120,000,000 (overall) $8,460,000 (overall)

Government

$60,340,000 (current)

$0.00 (additional)

$60,340,000 (overall)

Assumptions for Partner Financing

Current project

The additional cofinancing from SCF will be used for providing viability gap financing and payment for experts’ services. It is expected that the private sector will make the initial investment for generating and transmitting energy up to the connection point agreed with NEA.

Overall project

Unchanged.

ADB = Asian Development Bank, AEPC = Alternative Energy Promotion Centre, CO2 = carbon dioxide, EIB =

European Investment Bank, GESI = gender equality and social inclusion, km = kilometer, kV = kilovolt, MVA = megavolt-ampere, MW = megawatt, NEA = Nepal Electricity Authority, PIC = project implementation consultant, PSC = project supervision consultant, SASEC = South Asia Subregional Economic Cooperation, SCF = Strategic Climate Fund. Source: Asian Development Bank.

6 Attachment 3

COSTS AND FINANCING

1. The revised project cost is estimated at $460 million including physical and price contingencies and interests during implementation. The government has requested a loan of $180.0 million10 equivalent to SDR 116,493,000.00from ADB’s Special Funds resources to help finance the project. The loan will have a 32-year term, including a grace period of 8 years, an interest rate of 1.0% per annum during the grace period and 1.5% per annum thereafter, and such other terms and conditions as set forth in the draft loan and project agreements. ADB will finance the interest during construction.

A. Revised Project Financing Plan

Amount ($ million) Share of

Source Subtotal Output 1 Output 2 Output 3 Output 4 Output 5 Total (%)

ADF Loan* 180.00 135.00 40.00 5.00 0.00 39.00 SCF Grant 31.20

11.20 1.50 18.5 7.00

Norwegian Grant 60.00 52.00

8.00 13.00 EIB Loan 120.00 120.00

26.00

Government 60.33 52.54 4.54 3.25

13.00 Communities 8.47

8.47

2.00

Total 460.00 359.54 44.54 26.72 9.20 19.0 100.00

ADF = Asian Development Fund, EIB = European Investment Bank, SCF = Strategic Climate Fund. Source: ADB project team

10 This includes $70 million from the allocation for regional cooperation and integration projects.

Attachment 3 7

B. Allocation and Withdrawal of Loan and Grant Proceeds

a. Asian Development Fund (Loan 3139) CATEGORY ADB FINANCING BASIS

Amount Allocated for

ADF Financing (SDR)

Percentage and Basis for Withdrawal from the Loan Account

S.N. Item Category

1 Turnkey contract- New Butwal- Bardaghat 400kV Transmission Line and Marsyangdi-Kathmandu 220kV Transmission Line (NEA)**

23,111,000 41% of total expenditure claimed

2 Turnkey Contract - Kali Gandaki 220 kV Transmission Line, Grid Substations, and Distribution Lines (NEA)**

82,548,000 100% of total expenditure claimed

3 Credit line to AEPC*** 2,971,000 100% of total expenditure claimed

4 Unallocated for NEA 5,656,000

5 Interests during implementation 2,207,000 100% of total amount

Total 116,493,000

ADB = Asian Development Bank, AEPC = Alternative Energy Promotion Centre, kV = kilovolt, NEA = Nepal Electricity Authority. ** Subject to the condition for withdrawal as described in paragraph 6 of Schedule 3 of the loan agreement. *** Subject to the condition for withdrawal as described in paragraph 7 of Schedule 3 of the loan agreement.

b. Government of Norway (Grant 0397) CATEGORY FINANCING BASIS

Amount Allocated for

Norwegian grant Percentage and Basis for Withdrawal from the Grant Account

S.N. Item ($ million)

1 Turnkey contract New Butwal- Bardaghat 400kV Transmission Line and Marsyangdi-Kathmandu 220kV Transmission Line (NEA)**

50.80 59% of total expenditure claimed*

2 Consulting services 8.00 100% of total expenditure claimed*

3 Unallocated** 1.20

Total 60.00

NEA = Nepal Electricity Authority. * Exclusive of all duties and taxes imposed within the territory of the Recipient. ** This amount also include ADB's administration fee, audit costs, bank charges, and a provision for foreign exchange fluctuations (if any), to the extent that these items

are not covered by the interest and investment income earned on this grant, or any additional grant from the Government of Norway.

8 Attachment 3

c. SCF (Grant 0398) CATEGORY FINANCING BASIS

Total Amount Allocated for

SCF Financing Percentage and Basis for Withdrawal from the Grant Account


1 Turnkey contract-–Mini-micro hydro (AEPC)** 7.00 100% of total expenditure claimed

2 Turnkey contract–Mini-grid solar/wind (AEPC)** 3.00 100% of total expenditure claimed*

3 Consulting services** 1.20 100% of total expenditure claimed*

Total 11.20

AEPC = Alternative Energy Promotion Centre, SCF = Strategic Climate Fund. * Exclusive of all duties and taxes imposed within the territory of the Recipient. **Subject to the condition for withdrawal as described in paragraph 5 of Schedule 1 of the grant agreement.

d. SCF Grant (Additional Cofinancing) CATEGORY FINANCING BASIS

Total Amount Allocated for

SCF Financing Percentage and Basis for Withdrawal from the Grant Account


1 Consulting services 1.50 100% of total expenditure claimed

2 Viability gap financing to develop utility scale solar projects

18.50 100% of total viability gap*

Total 20.00

SCF = Strategic Climate Fund. * In the case of the viability gap fund shortage appears, NEA will be responsible to cover the shortage.

Attachment 3 9

C. Detailed Cost Estimates by Financier ($ million)

ADF SCF Norway EIB Comm. Equity Government Total

Amt. % Amt. % Amt. % Amt. % Amt. % Amt. % Cost

A Investment Cost

1 NEA transmission capacity expansion 126.85 44

58.80 20% 105.54 36

291.19

1.1 Kali Gandagi to border 220/400kV T/L and SS

1.1.1 Dana-Kushima 220kV HTLS TL and SS 37.86 100

37.86

1.1.2 Kushma-New Butwal 220kV HTLS and SS 45.89 100

45.89 1.1.3 New Butwal- Bardaghat 400kV TL and SS 20.00 41

28.59 59

48.59

1.2 Marsyangdi Corridor 220 kV T/L

1.2.1 Manang-Khudi 220kV HTLS TL and SS

19.68 100

19.68

1.2.2 Khudi-Marki Chowk-Baratpur TL and SS

73.86 100

73.86 1.3 Marsyangdi to Kathmandu 220kV TL and SS 15.72 41

22.21 59

37.93

1.4 Samundratar-Trishuli 3B 132kV

12.00 100

12.00 1.5 Grid service S/S replacement 7.38 100

7.38

1.6 Project Supervision and capacity building

8.00 100

8.00 2 NEA distribution network improvement 36.42 100

36.42

Distribution system augmentation 36.42 100

36.42

3 AEPC mini grid based RE development 4.59 20 10.62 46

6.74 30 1.00 4 22.95

3.1 Mini-micro hydro mini grida 4.59 38 6.42 53

1.22 10

12.23 3.2 Solar and solar-wind on mini gridb

3.00 90

0.33 10

3.33

3.3 Project implementation consultants

0.80 100

0.80 3.4 Social mobilizers

0.40 100

0.40

3.5 Productive energy use

1.00 100 1.00 3.6 In-kind contribution by communities

5.19 100

5.19

4 Land

0.31 3 10.23 97 10.54 5 Safeguards Mitigation Cost

0.47 6 7.55 94 8.01

6 Taxes and duties

0.58 7

7.75 93 8.33 B Recurrent Costs

Administration cost

10.40 100 10.40

Total Base Cost 167.85 43 11.20 3 58.80 15 105.54 27 7.52 2 36.93 10 387.84

C Contingencies 8.74 35

1.20 5 9.76 39 0.94 4 4.52 18 25.16 D Interest during Implementation 3.41 13

4.70 17

18.88 70 26.99

Total Project Cost (A+B+C+D) 180.00 41 11.20 3 60.00 14 120.00 27 8.47 2 60.33 14 440.00

ADF = Asian Development Fund, AEPC = Alternative Energy Promotion Centre, EIB = European Investment Bank, kV = kilovolt, NEA = Nepal Electricity Authority, SCF = Strategic Climate Fund. 1 Cost updated as on Q1 2014 prices. 2 IDC for ADB loan has been calculated at rate of 1.0% per annum during the grace period of 8 years. IDC for other cofinancers is subject to negotiation

3 Except taxes and duties for mini hydro subprojects of Output 3, all other taxes and duties will be funded by the government, with 1% customs levy on imported equipment and 13% value added tax on construction and consulting services.

a Though 38% for ADF loan and 53% for SCF grant are shown here, it will be 100% for ADF loan which serves as credit line, and 100% for SCF grant which serves as subsidy during disbursement. The taxes and duties of procurements for mini hydro will be funded by SCF.

b Though 90% for SCF grant are shown here, it will be 100% for SCF grant which serves as subsidy during disbursement. The taxes and duties of procurements for mini-grid based solar and/or wind systems will be funded by SCF.

c Administered by the Asian Development Bank. This amount also includes ADB's administration fee, audit costs, bank charges, and a provision for foreign exchange fluctuations (if any), to the extent that these items are not covered by the interest and investment income earned on this grant, or any additional grant from the Government of Norway

10 Attachment 3

($ million)



E. Utility scale solar project development 20.00 100 20.00

($ million)



F. Revised Total Project Cost (A+B+C+D+E) 180.00 39 31.20 7 60.00 13 120.00 26 8.47 2 60.33 13 460.00

Attachment 3 11

D. Detailed Cost Estimates by Outputs Item ($ million)

Total Output 1 Output 2 Output 3 Output 4 Output 5

Cost Amount % Amount % Amount % Amount % Amount %

A. Investment Cost

1. NEA transmission capacity expansion

1.1 Kali Gandagi to border 220/400kV T/L and SS

1.1.1 Dana-Kushima 220kV HTLS TL and SS 37.86 37.86 100

1.1.2 Kushma-New Butwal 220kV HTLS and SS 45.89 45.89 100

1.1.3 New Butwal- Bardaghat 400kV TL and SS 48.59 48.59 100

1.2 Marsyangdi Corridor 220 kV T/L

1.2.1 Manang-Khudi 220kV HTLS TL and SS 19.68 19.68 100

1.2.2 Khudi-Marki Chowk-Baratpur TL and SS 73.86 73.86 100

1.3 Marsyangdi to Kathmandu 220kV TL and SS 37.93 37.93 100

1.4 Samundratar-Trishuli 3B 132kV 12.00 12.00 100

1.5 Grid service S/S replacement 7.38 7.38 100

1.6 Project Supervision and capacity building 8.00

8.00 100

2. NEA distribution network improvement

Distribution system augmentation 36.42

36.42 100

3 AEPC mini grid based RE development

3.1 Mini-micro hydro mini grida 12.23

12.23 100

3.2 Solar and solar-wind on mini grid 3.33

3.33 100

3.3 Project implementation consultants 0.80

0.80 100

3.4 Social mobilizers 0.40

0.40 100

3.5 Productive energy use 1.00

1.00 100

3.6 In-kind contribution by communities 5.19

5.19 100

4. Land 10.54 9.87 94 0.36 3 0.31 3

5. Safeguards Mitigation Cost 8.01 7.18 90 0.36 5 0.47 6

6. Taxes and duties 8.33 6.95 83 0.80 10 0.58 7

Subtotal A 373.44 307.19 81 37.95 10 23.11 6 9.20 2

B Recurrent Costs

Administration cost 10.40 7.61 73 1.52 14 1.27 12

Total Base Cost 387.85 314.91 81 39.47 10 24.38 6 9.20 2

C. Contingencies 25.16 20.66 82 3.16 13 1.34 5

D. Interest during Implementation 26.99 24.09 89 1.91 7 0.99 4

Total Project Cost (A+B+C+D) 440.00 359.65 82 44.54 10 26.71 6 9.20 2

AEPC = Alternative Energy Promotion Centre, kV = kilovolt, NEA = Nepal Electricity Authority.

12 Attachment 3

Item ($ million)



E. Utility scale solar project development 20.00 1.50 8 18.50 92

Item ($ million)



F. Revised Total Project Cost (A+B+C+D+E) 460.00 359.54 78 44.54 10 26.71 6 10.70 2 18.50 4

Attachment 3 13

E. Detailed Cost Estimates by Year

($ million)

Item Total Cost* Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

A Investment Cost 1 NEA transmission capacity expansion 1.1 Kali Gandagi to border 220/400kV T/L and SS 1.1.1 Dana-Kushima 220kV HTLS TL and SS 37.86 0.00 9.00 20.00 8.86 0.00 0.00

1.1.2 Kushma-New Butwal 220kV HTLS and SS 45.89 0.00 4.00 6.00 27.00 8.89 0.00

1.1.3 New Butwal- Bardaghat 400kV TL and SS 48.59 0.00 0.00 8.00 16.00 24.59 0.00

1.3 Marsyangdi to Kathmandu 220kV TL and SS 37.93 0.00 3.00 12.00 22.93 0.00 0.00

1.5 Grid service S/S replacement 7.38 0.70 4.90 1.78 0.00 0.00 0.00

1.6 Project Supervision and capacity building 8.00 0.00 2.12 2.16 2.16 1.56 0.00

2 NEA distribution network improvement

Distribution system augmentation 36.42 0.00 0.00 8.40 13.60 14.42 0.00

3 AEPC mini grid based RE development 3.1 Mini-micro hydro mini grid 11.59 0.00 0.00 2.40 3.20 5.99

3.2 Solar and solar-wind on mini grid 3.00 0.00 0.00 0.90 1.20 0.90 0.00

3.3 Project implementation consultants 1.20 0.10 0.28 0.28 0.28 0.28 0.00

B Contingencies 9.94

9.94 C Interest during Implementation 3.41 0.00 0.10 0.43 0.99 1.89 Total Project Cost (A+B+C) 251.20 0.80 23.40 62.34 96.21 68.45 0.00

AEPC = Alternative Energy Promotion Centre, kV = kilovolt, NEA = Nepal Electricity Authority. Assumptions: 1 Cost updated as on Q1 2014 prices. * ADB or ADB administered fund. Source: ADB project team

($ million)

Item Total Cost* Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

D. Utility scale solar project development 20.00 0.00 0.00 0.00 0.00 5.50 5.50 7.50

($ million)

Item Total Cost* Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

E. Revised Total Project Cost (A+B+C+D) 269.7 0.80 23.40 62.34 96.21 73.95 5.50

7.50

14 Attachment 4

REVISED CONTRACT AND DISBURSEMENT S-CURVE FOR ADB-ADMINISTERED FUNDS

0.00

50.00

100.00

150.00

200.00

250.00

300.00

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Accumulated Contrat Award

AccumulatedDisburesement (withoutadditional SREP cofinancing)

AccumulatedDisburesement (withadditional SREP cofinancing)

Attachment 5 15

FUND FLOW DIAGRAM

additional cofinancing memo - climate investment …...2016/02/12 · sasec project is performing...

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