PUBLICPRIVATEPARTNERSHIPIN

NEPAL

SushilBhattaMember,NationalPlanningCommission

GovernmentofNepal

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Outline

■ Context■ RoleofPPPinInfrastructure■ EvolutionofLegalFrameworkforPPP■ PPPPracticeinNepal(Hydropower,Road,Airports,Urban/MunicipalityLevel)

■ Issues■ Opportunities■ Initiatives■ WayForward

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Context■ Nepalaland‐locked,butnotpotentiallylocked

(richnaturalresources,demographicandgeographicdividends)

■ UnitarytoFederalStructure(Stablegovernmentatfederal,provinceandlocallevels)

■ Area:147,181Sq.Km

■ Population:26.67m(2011census)

■ EconomicGrowthRate:6.9%(2017),~8%(2018Projected)

■ TotalBudget:USD12.15billion (2018‐2019)

■ LeastDevelopedCountry(LDC)graduationtodevelopingcountryby2022,MiddleIncomeCountry(MIC)by2030

■ FullcommitmentofSDGsachievementby2030.

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Infrastructure

■ RoadDensity(km):Nepal(139kmper1000km2)VsSouthAsia(1123kmper1000km2)

■ Urbanization:leasturbanizedcountry(~20percentpopulationlivingintheurbanarea)andfastesturbanizingcountry(growthrateof5percentperannumonaverage)

■ PoorInfrastructure– majorhindranceinNepal’sCompetitiveness(88outof137,GlobalCompetitivenessReportReport2017‐18)

Source: Reducing Poverty by Closing South Asia’s Infrastructure Gap, The World Bank, December 2013

PerCapitaElectricityConsumption(Kwh percapita)

Source: The World Bank, 2016

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InfrastructureNeeds&RequiredFinancingtoMeettheSDGs■ Nepalneedstoinvestasmuchas10%ofGDPonInfrastructure

(Currentlyatjust5percentoftheGDP)‐ i.e.USD13‐18billiontobridgetheinvestmentgapininfrastructure

■ BasicurbaninfrastructureneedaboutUSD2billionperyearatMunicipalitylevel

■ FinancinggapforachievingSDGsestimatedtobeUSD18billiontill2030annually.

■ Potentiallyavailableresourceswithinthecountry‐ AboutUSD13.5billion

■ NetshortfallofaboutUSD4.5billionperyearforSDGsimplementation.

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RoleofPPPinInfrastructureDevelopment■ Privatesectorhasaroletoplayincontributingfinance,technology,

andinnovationtoacceleratetheinfrastructuredevelopmentprocessfordeliveringquality,fasterandcosteffectiveandefficientpublicservices.

■ EngagingthePrivatesectorininfrastructuredevelopmentallowstheGovernmenttoleveragegovernmentsfundstofocusonsocialsectors

■ PPPemergedasareliablealternativeinemergingmarketsforinfrastructuredevelopment.

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EvolutionofLegalFrameworkforPPP

1990 - 2000

•1992 – Hydropower Policy & Electricity Act, Foreign Investment & Technology Transfer Act

•1999 – BOT Policy on Road Sector

2001-2010

•2001 - Hydropower Policy, Public Infrastructure Build Operate and Transfer Policy

•2003/04 - Private Investment in Infrastructure Build and Operate Ordinance

•2006 - Private Financing in Build and Operation of Infrastructure Act (BOOT Act)

•2006 - Private Investments in Infrastructure Act

•2007 - Financing in Build and Operation of Infrastructure Regulations

2011 Onwards

•2011 – Investment Board Act

•2015 – PPP Policy•2015 - Foreign Investment

and One-Window Policy•2017 - Electricity Regulatory

Commission Act, Foreign Investment & Technology Transfer Act (Amended)

•2018 - Electricity Regulatory Commission Regulation

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PPPPracticeinNepal

■ HydropowerProjects:Widelyinpractice(BOOTModel)

■ Road&Airport:Notmaterializedyet■ UrbanDevelopment:Initiated(smallscale)

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PPPModelsinHydropowerDevelopment

FDI Involvement: 446 MW

In operation: 230 MW ‐ Khimti 60 MW, Bhotekoshi 45 MW, Upper Marshangdi 50 MW, Upper Madi 25 MW

Under Construction: Upper Trishuli (216 MW) 

Domestic Resources: 2429 MW In operation: 283 MW 

Under Construction: 2146 MW ‐ Upper Tamakoshi (456 MW),  Rasuwagadi (110 MW), Middle Bhotekoshi (102 MW) and others (500 KW to 100 MW)

Solicited:Super 6 Projects –210 MW  (Under Construction)

Unsolicited: 2875 MWIn operation:  513 MWUnder Construction:    2362 MW

Public Private Partnership

Export  Domestic3085 MW

Solicited:Upper Arun (900 MW), Upper Karnali(900 MW)

Unsolicited:West Seti (750 MW)

Unsolicited pipeline PPP Projects with PPA

concluded but pending financial closure:

1659 MW

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HydropowerSector■ 83GWtheoreticalpotentialofhydropower,45GWeconomicpotentialofhydropower■ Realizedpotential:Lessthan1%ofeconomicpotentialofhydropower

■ PublicPrivatePartnership– Khimti HEP,Bhotekoshi HEP,Chilime HEP(InitialPPPProjects– 1990s)

■ Almost10yearsnegligiblePPPdevelopmentinhydropowerthereafter

■ PublicPrivatePartnershipwithPeopleParticipation‐ Chilime HEP,UpperTamakoshiHEP(InitialPPPP)

– Funds(Equity&Debt)generatedthroughpublicutilities:unavailabilityoffundsfromBankingsector(Capacityaswellasloantenure)

– Fundsgeneratedthroughgeneralpublicincludinglocalparticipation:Senseofownershipandfacilitationinconstruction

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CaseStudy:FinancingStructureofUpperTamakoshi 456MW

■ SPV Company, PPA concluded with NepalElectricity Authority (also a promoter)

■ Debt: Equity = 70:30■ Debt: Employees Provident Fund, Citizen

Investment Fund, Rastriya Beema Sansthan ,Nepal Telecom, Government of Nepal

■ Equity :■ Promoter Share (51%): NEA (41%), Nepal

Telecom (6%), Rastriya Beema Sansthan(2%), Citizen Investment Trust (2%)

■ Public Share (49%):– Employees of equity provider: 24%– General Public: 25% (local – 15%)

Government

General Public

including locals

Public Utilities

PPP with People Participation

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CrossBorderTransmission■ 400 KV 140 km transmission line between Nepal and India. 42.1 km portion of the transmission

line on the Nepali side and 85.5 km in India side.■ Power Transmission Company Nepal Limited (PTCNL) in Nepal and Cross‐Border Power

Transmission Company Limited (CPTCL) in India Incorporated for the execution & operation ofthe project.

■ Initiated 2009 and Construction completed & in operation since 2014.■ Whole transmission capacity is booked by NEA with a guaranteed annual payment of wheeling

charge.■ Financing Structure■ Debt: Equity = 80:20■ Equity:

– PTCNL (NEA – 64% , ILFS – 10%, PGCIL – 24%),– CPTCL (NEA – 10% , ILFS – 38%, PGCIL – 26%, SJVN – 26%)

Lesson Learned: Successful because of revenue guarantee

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CASE‐ Road■ Kathmandu– Terai/Madhes FastTrackRoadProject(StrategicProject:72KM,4Laneexpressway)

– FirstmegaroadprojectinPPPinBOT/FDI(Solicited)– Firstattemptin2008(procurement),2012:BOTEOI,RFP‐ threeshortlistedcompaniesIL&FS,L&T

andReliancedidnotparticipateintheRFPstage(citingnotsufficientfundstomatchtheinvestmentcostandprofit– showinganeedofviabilityGapFunding

– 2014againEOIonthebasisofPPP/BOTmodelwaspublished,3companiessubmittedEOI&2shortlistedcompaniessubmittedRFP

– 2015IL&FSwasselectedbasedonlowestevaluatedsubstantiallyresponsivebidder– Nocontractwasawardedbecauseofreluctancy ofIL&FStoimplementprojectongivencondition– Responsivebidderdemandedgovernmentguaranteeforminimumtraffic.However,contractwas

silenceinViabilityGapFunding

Lessonlearnt:‐ NoclearcutPPPstructure,unclearprocurementprocess,BOTActlackedpullingeffecttoattractthe

foreigninvestmentasnoprovisionforVGF,publicresistance– Project structuring for PPP - remained very complex and difficult for risk-return profile.

E.g. traffic revenue estimation turned less than forecasted. - Compensation guarantee was demanded from the bidder - creates substantial implicit liabilities for

the government, Project was bailed-out.(IL&FS fast track project)

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■ KATHMANDU KULEKHANI HETAUDATUNNELHIGHWAY:BOT/Local(Unsolicited),58km,4Laneexpressway

– NPBCompanyLimited,Morethan1000promotershareholders– Couldnotmobilizerequiredfinancingfromdomesticmarket,thereforetheyare

tryingtomobilizeFDI– Nogovernmentparticipation

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CASE‐ Road

Airports

Gautam BuddhaInternationalAirport(UnderConstruction,estimatedcompletiontimeby2020)

■ Developedbygovernment,exploringpossibilityforPPPinoperationmanagement

■ EOItobepublishedsoon

Nijgadh InternationalAirport

■ Detailedfeasibilitycompleted

■ ExploringforPPP(BOT/BOOT)

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PPPatUrban/MunicipalLevel

■ SmallInitiativesunderPPP

■ Examples:– Urbantransport(FeeCollectionatMahendra BusPark,Bharatpur;Operation

andManagementofLumbini BusTerminalinButwal)– SolidWasteManagement(UsedPlasticManagementinMechinagar– WaterSupply(KathmanduValleyDrinkingWaterLimited‐ KUKL)– ParkManagement– Sanitation

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Issues

Political■ Politicalcommitmentandconsensusamongvariousstakeholders

LegalFramework■ PPPpolicyrevisioninlinewithfederalstructureandcontext■ EnactmentofPPPACT,regulation

InstitutionalMechanism■ StrongPPPCenterresponsibleforPPPProjectdevelopment,allocationandPPPstructure■ Rolesandfunctionsstillunaddressed,duetowhichvisionforPPPisnotestablishedyetandshared■ MainstreamingofPPPprojectsinperiodicandsectoral plans■ CapacityBuildingandTraining

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Financial■ ReductionoftransactioncostofPPPthroughcreationofProjectDevelopmentFundfor

projectdevelopmentandlandacquisitionandotherclearances/statutoryapprovals

■ ActualizationofonewindowpolicythroughreviewandamendmentofprevailingActs(e.g.InvestmentBoardAct)forattractingandcreatingenablingenvironmentforFDI.

■ DevelopmentofLocaldebtandcapitalmarket

Social■ PublicAwarenessonPPPforpublicsupport

Issues

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Opportunities

■ Infrastructuregap■ Reconstruction(forfinancingarrangements,capabilityandcapacity)

■ PoliticalStability■ GovernmentgearedupPPPininfrastructuredevelopmentbycreatingenablingenvironment

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Initiatives

■ FormulatingthePublicPrivatePartnership(PPP)Policyin2015aswellasdraftingofPPPAct

■ Reforminglaws(e.g.LandManagementAct)■ InternationalInfrastructuresummitsinNepalfocusingonPPP

infrastructureprojectdevelopment■ PPPDiscussions– PPPPolicyDialogue,Workshops,Training■ InfrastructureDevelopmentBank(PPPmodel)■ SettingupofPROJECTBANKatNPC(Screening,appraisal,selection

andprioritization)

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HighlightsofPPPPolicy2015■ Usingthispolicy,thegovernmentintendstoengagetheprivatesectorin

developmentofvariousphysicalinfrastructure,suchasroads,bridges,hydropowerprojectsandtransmissionlines.

■ Incorporatesaprovisionon“UnsolicitedProposals”■ LandAcquisitiontobedonebyGovernmentofNepal■ ProvisionsforProjectpreparatoryfund■ ProvisionsforViabilityGapFunding■ DemarcationoftheresponsibilitiesofPPPCentreandPPPSteeringCommittee■ Guidelinesforoperationofviabilitygapfundandprojectpreparation

facilitationfundtobepreparedwithinayear

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HighlightsofPPPPolicy2015(Contd…)■ ProjectstobebuiltunderPPPtobeidentifiedbygovernment■ IfaprojectisworthoverRs 1Billion,globalbiddingisamust■ ProcurementprocessforprojectsofRs 500Millionormoretobeinitiated

upongettingapprovalfromPPPSteeringCommittee■ IfaprojectisworthoverRs 100Million,requiresviabilitygapfundingor

needsgovernmentsubsidy,thenprojectdesignandotherdocumentsmustbeapprovedbyPPPCentre

■ PolicyallowsgovernmenttoextendtaxrelieftobuildPPPprojects,■ Governmenttoshareriskandbenefitswithprivatedevelopers

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InvestmentBoardNepalProject Amount(USD)900MWUpperKarnali HEP 1.5Billion900MWArun IIIHEP 1.4Billion750MWWestSeti HEP 1.5Billion600MWUpperMarshyangdi HEP 1.5BillionTamakoshi 3HEP N/AIntegratedSolidWasteManagement 100MillionChemicalFertilizerPlant 1.4Billion

ProjectBankKathmanduKulekhani Hetauda TunnelHighway 348.7MillionEast‐WestElectrifiedRailwayProject 3000MillionEastWestRailwayLinktoIndiaProject 227MillionKathmanduvalleyMetroProject 5471.2MillionSecondInt’lAirport(Nijgadh) 6565MillionKathmanduPokharaRailwayProject 2830MillionChemicalFertilizerPlant 600‐1300Million

(www.ibn.gov.np)

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WayForward

■ PPPOperationalization:PPPACT&Regulation,PPPCenter■ CreationofViableGapFunding&ProjectDevelopmentFund■ EstablishmentofProjectBank■ CapacityBuildingforPPPImplementation

– ExchangePrograms,Visits,TrainingsandWorkshops– Sectoral expertise(Law,finance,accounting,development&engineering)

■ MainstreamingthePPPintoprovincialandlocallevel.■ CallforattentiontoPPP:Government,Donors,DevelopmentPartners,Private

SectorandBeneficiaries

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THANKYOU

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