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CASE STUDY 6:                 NEPAL – POWER DEVELOPMENT PROJECT

 Barriers               Lack of long term financing and availability of equity

 Instrument             Project loan

 Application            n/a

 Amount                 Original IDA fund of US$35 million


PROJECT BACKGROUND AND OBJECTIVES                          leverage financing from other sources, i.e., developers'
                                                           equity and commercial banks, of about US$40 million.
Nepal faced a large and growing need for investment in
its power sector. The required investment was beyond       INSTITUTIONAL ARRANGEMENTS
the capacity of the government and donor agencies. The
                                                           The PDF would be set up and owned by the Government
availability of private-sector debt and equity for
                                                           while the administrative management of the fund would
hydropower projects was constrained, the debt that was
                                                           be carried out under contract by a local commercial
available was of an insufficient maturity, and private
                                                           bank (the Fund Administrator). The fund would provide
investors were uncomfortable with investing in first-of-
                                                           long-term financing to small and medium hydropower
a-kind projects.
                                                           projects, initially using money advanced by the World
This project aimed to increase the flow of private         Bank (IDA). Other donor institutions would be invited to
investment in small and medium hydropower plants           contribute over time. This donor involvement would be
through the creation of a Power Development Fund           leveraged to attract private lenders and project
(PDF), which provides provide long term financing to       developers. The Government would form a PDF Board
private investors, leveraging debt (and developer’s        which would approve loans from the Fund.
equity) financing from the local capital markets. The
                                                           OUTCOMES
project also aimed to reduce costs of new plants by
implementing improved international competitive            In January 2008 a proposal to restructure was
tendering processes. The project became effective in       submitted. Due to the political unrest in Nepal the
March 2004.                                                project had rated as unsatisfactory and only a quarter of
                                                           funds had been dispersed. Under the restructuring the
INSTRUMENTS USED
                                                           unutilized PDF funding would be redirected to rural
Under this credit operation, the PDF will finance small    electrification. The PDF would remain but without
hydro schemes with an aggregate capacity of about 10       funds. The November 2010 Implementation Status and
MW and one medium-sized scheme of about 30 MW.             Results Report stated progress as unsatisfactory.
The US$35 million from IDA Credit is expected to




   Further reading
   World Bank, Nepal Power Development Project – click here




1 | R E F I N e www.worldbank.org/energy/refine