In a move helping Nepalis in income generation, the International Finance Corporation (IFC) released its first ever in-depth analysis report that speaks about investment opportunities in Nepal’s hydropower projects.
The report entitled ‘Local Shares: An In-depth Examination of the Opportunities and Risks for Local Communities Seeking to Invest in Nepal’s Hydropower Projects’ analyzed the country’s innovative benefit sharing policy that allows communities’ investment in local hydropower projects in the form of ‘local shares’.
Currently, the Government of Nepal mandates hydropower developers to give 10 percent of their shares to communities affected by the project.
Considering the government’s goal of generating 10,000 MW hydropower in the next 10 years, around USD 439 million can be raised from project-affected communities as ‘equity’, says IFC.
Nepal’s local shares model is unique. It recognizes the importance of communities in private sector hydropower investment, says Wendy Werner, IFC Country Manager for Bangladesh, Bhutan, and Nepal.
“For example, in the last three years, over USD 10 million was raised through local shares by 13 small-to-medium hydropower companies. The investment model offers great potential to create local ownership and increase public support for hydropower projects,” adds IFC, a World Bank Group member.
However, IFC reports lack of awareness about the sharing market mechanism and safety measures that can reduce investor risk among locals, majorly women and socially, economically & culturally disadvantaged communities of the country.
The report found that locals borrow at high interest rates or sell primary assets in order to invest in local shares, ending up in unrealistic expectations and risk of loss.
To address such gaps, IFC recommends community-level education and enhanced regulations that can maximize investment opportunities and also protect them from undue risk.
The study also recommends simplification of financial information making it understandable event to non-subject matter experts, creation of low-risk mechanisms for vulnerable households, digitizing the share allocation process and information online for more transparency and accountability in the process.
“IFC aims to ensure the private sector contributes to sustainable power development and that this investment opportunity is within reach of every citizen, balancing the potential returns with the project risks,” adds Werner.
“The comprehensive consolidation of this report is very timely and will hopefully enable informed discussions at the policy level to improve and strengthen the local shares mechanism as a viable model of equity participation involving local people,” says Kulman Ghising, Managing Director of Nepal Electricity Authority.