World Bank Funds RE in Nepal

In order to meet the energy needs of a vast majority of Nepalis who have little or no access to electricity, the World Bank has approved a US$75.6 million credit to His Majesty’s Government of Nepal in support of its efforts at expanding access by strengthening partnerships with the private sector and local communities.

Washington, D.C. – May 27, 2003 [] The Nepal Power Development Project will increase access to electricity for the population in rural areas connecting approximately 47,000 households. The project will also promote the development of Nepal’s hydropower potential in a sustainable and environmentally sound manner, and encourage private participation to improve efficiency in the power sector. Based on the 2001 census, 40 percent of Nepal’s households have access to electricity, but there is a stark disparity between rural and urban area access to electricity. In rural areas, only about 30 percent of the population has access, in contrast with roughly 90 percent of the urban population, which has electricity at home. Moreover, the power sector in Nepal is hindered by a series of institutional problems, which constrain its efficient development and the mobilization of resources for future investments. As a result, Nepal’s power sector suffers from poor quantity and quality of supply, high system losses and high cost of power. “The project draws on the combined strengths of communities, the private sector and the public sector,” said Mudassar Imran, Senior Energy Economist for the World Bank and Task manager for the project. “The private sector will lead the development of medium and small scale hydro projects. Investments in transmission and distribution will be implemented by the Nepal Electricity Authority. Village electrification programs will be led by community groups with women and ethnic minorities as active participants and beneficiaries.” The Nepal Power Development Project will be the Bank’s first major investment in the hydropower sector since the cancellation of the proposed Arun Three project amid controversial circumstances in 1995. This project will have three main components. The first one is the establishment of a Power Development Fund to help the private sector undertake developments of small and medium-sized hydro projects. The fund will support the private sector by providing resources for long-term financing and guarantees for first-time investors in the sector. A local commercial bank will be recruited to act as administrator for the fund. The second component supports community-based village electrification by developing 2-3 MW of new hydropower systems, enough to serve some 30,000 new consumers in rural areas. This component will extend electrification activities from the 15 districts currently served to another 10 more and will be implemented by a Government agency Alternative Energy Promotion Center. Support to the Nepal Electricity Authority is the third component and includes investments in the transmission lines, which will strengthen Nepal’s national grid to allow for expansion. In addition, this component will provide extension of grid-connected power supply to further rural villages allowing the improvement of some 34,000 connections and the addition of some 17,000 new connections. There will also be technical assistance provided to the Nepal Electricity Authority, including support to strengthen its contract management, financial management, and accounting systems, and studies on the opportunities for productive use of surplus energy. “The Power Development Project has been a long time in coming between the time when it was first promised as a substitute for the aborted Arun Three project in 1995 and Board approval today,” said Kenichi Ohashi, the Bank’s Country Director for Nepal. “During this period, the project went through several design changes in order to ensure that the innovations proposed would be compatible with the Nepali context and that the project would deliver maximum impact to rural Nepalis.” The project follows the Government of Nepal’s strategy of developing its hydroelectric potential to serve both the energy needs of its people, and its export goals, one of its key development objectives. The International Development Association (IDA), the World Bank’s concessionary lending arm, is providing a US$50.4 million credit, which has a 35-year maturity, with a 10-year grace period, and a 0.75 percent service charge, and a US$ 25.2 million grant to the Government of Nepal.
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