Project detail - NEPAL WATER AND ENERGY DEVELOPMENT

Who is our customer

Upper Trishuli 1 (“UT1” or “Project”) is a greenfield 216MW run-of-river hydropower plant (“HPP”) on the Trishuli river in Nepal, 70km north of Kathmandu, with a total project cost of USD 647 million. The Project is developed by Nepal Water and Energy Development Company (“NWEDC” or “Borrower”). NWEDC is majority-owned by three South Korean strategic investors (together the “Sponsors”): Korea South East Power Company (“KOEN”, 50%), Daelim Industrial Co. Ltd. (“Daelim”, 15%), and Kyeryong Construction Industrial Co. Ltd. (“Kyeryong”, 10%). International Finance Corporation (“IFC”) acquired a 15% stake in 2013. The original license holder Mr. Bkesh Pradhanang (“Local Partner”) holds 10%. Under the PDA, the Project Affected People (“PAP”) are entitled to purchase up to 10% of the Company at par value.

What is our funding objective?

FMO’s funding will be part of the approx. USD 453 million debt package arranged by IFC. This debt package will be used for construction of the Project, including financing and development costs.

Why do we fund this investment?

UT1 will be a landmark project for Nepal, a Least Developed Country (“LDC”) with severe energy shortages. As the largest HPP in the country, UT1 will be a role model for Nepal’s hydropower sector with bankable non-recourse project documents, Nepal’s first Free, Prior and Informed Consent (“FPIC”) FPIC process for Indigenous Peoples (“IP”), and the first HPP to use eDNA as a tool for management of impacts on aquatic biodiversity. Its estimated 1,427 GWh/year output will increase Nepal’s domestic generation by ~32% and will reach an estimated 9 million people. With a levelized tariff of US¢ 5.1/kWh, UT1 will be a commercially attractive generation source for the off-taker. The strong and experienced Sponsors have proven to be committed and patient in the face of severe setbacks and challenges over the past years. UT1 is a 100% Green, 100% Reducing Inequalities project and therefore fully in line with FMO’s strategy.

What is the Environmental and Social categorization rationale?

The Project has been classified as environmental and social (E&S) category A, as it is a large capacity hydropower run-of-river project, with minimal physical footprint yet complex E&S issues that have been assessed and will be managed to Good International Industry Practice (GIIP). IFC PS 1-8 are triggered by the project, including the requirement for FPIC. Lender E&S teams have been extensively engaged with the Project, the wider Trishuli basin and the hydropower sector in Nepal since 2012. This has ensured that the Project has been developed in line with the IFC PS from an early stage, including but not limited to the development of a robust environmental and social baseline, detailed impact and risks assessment, extensive stakeholder engagement and consultation, and development of management plans to adequately mitigate all E&S impacts and risks, ranging from interacting with local communities, labour management, waste management and traffic management to more specialized issues such as biodiversity, FPIC and cultural heritage. FPIC was achieved in November 2018 with support from NEFIN, Nepal’s national indigenous people’s federation, and a long term FPIC implementation governance structure has been put in place. A fish ladder of international standards has been incorporated into the design of the project to minimize aquatic biodiversity impacts by allowing upstream migration of fish. Lenders are working actively with the project company to ensure high standards of contractor and sub-contractor management, a key sensitivity on this type of project.