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.

Also Read:

• Nepal 2017 Highlights: Hydropower Potential Grows Three-fold with 16 New Projects
• Himalayan Hydro Expo 2018: Investors Urged to Tap Nepal’s Hydropower Potential
• Nepal For Clean Energy Solutions, Bets Big on Hydropower

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The Board of Executive Directors of #WBG on August 07, 2018 enacted a new five-year Country Partnership Framework (CPF) for Nepal with an aim to support the country in its path of development driven by federalism.

CPF for Nepal also includes WB’s commitment to offering needed support to all Nepali institutions that are key to successful implementation of federalism and fast-paced development of the country.

According to the Chief of the International Economic Cooperation Coordination Division of the Finance Ministry, Shri Krishna Nepal, WBG also promised enhancement of its financial support to the Himalayan nation significantly over the next five years period.

Nepal’s transition to federalism unlocks opportunities for all citizens to participate in its development. This represents a window of opportunity for the country to further reduce poverty, increase the income of the bottom 40 percent, and pursue its ambitious agenda of inclusive growth and accountable service delivery.
– Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan and Nepal

What CPF Envisages for Nepal?
CPF noted that #NepalFederalAgenda comes as a boost to WBG’s programmes at the operational and policy levels, while also cautioning the nation with supposed societal challenges that can arise in the federalism implementation process.

“Transitional vulnerabilities could heighten in the early days of federalism as development roles are adjusted and the new structures take root,” notes CPF.

According to an official release, CPF’s key areas of focus for Nepal include:

• Strengthening public institutions for economic management, service delivery and public investment
• Promoting private sector-led jobs and growth
• Enhancing inclusion for the poor, vulnerable, and marginalized groups, with greater resilience against climate change, natural disasters, and other exogenous shocks 

The new partnership strategy with the World Bank Group is focused on supporting our transition to federalism, fits squarely within our vision and underpins a Nepali-owned model, says Yuba Raj Khatiwada, Nepal Finance Minister.

Khatiwada feels that this partnership strategy with the World Bank is in line with Nepal’s goal of giving every Nepali equal access to security, justice, good governance, basic services and an opportunity to participate in the developmental process.

Need of the Hour!
According to World Bank, Nepal will need significant financing beyond currently-available public and development aid resources in order to achieve fast-paced growth and fight poverty in its transition to federalism.

In this regard, CPF states that the government’s growth strategy pitching for higher investment and productivity and effective participation by public institutions will need carefully-calibrated policies to draw required private investment in parallel with the federal process.

We will expand our investments — both debt as well as equity — and advisory services for private investment in Nepal. Our efforts will encourage high-quality private investors to support the government’s strategy of inclusive development – Wendy Werner, International Finance Corporation’s Country Head for Nepal, Bangladesh and Bhutan.

Behind CPF
CPF priorities under its developmental agenda for Nepal were formed after a wide range of consultations with the federal, state and local governments.

The results also included recommendations and opinions of Nepal’s related stakeholders and development partners including private sector, civil society, academia, community groups and media.

This includes hearing from over 200,000 citizens across Nepal through SMS and online surveys. The framework aligns with the government’s development priorities and Nepal’s goal to graduate to middle income country status by 2030, said the World Bank in its official release.

WBG Support to Nepal
The World Bank Group has been actively supporting Nepal through its three main arms:

• International Development Association (IDA): Under this concessionary lending arm, WB is currently supporting 21 active Nepali projects at a USD 2.5 billion investment promised under IDA. Under IDA18, WB has indicative resources worth USD 300 million for Nepal for FY 2018-2020 through the IDA Risk Mitigation Regime.
• International Finance Corporation (IFC): This is WBG’s private sector arm in Nepal, which is committed to infuse about USD 800 million-USD 1.2 billion investment in Nepal over the coming five-year period.
• Multilateral Investment Guarantee Agency (MIGA): This is WBG’s investment risk insurance arm in Nepal, which is actively finding opportunities to pump in foreign private investment into Nepal. IFC and MIGA use IDA IFC/MIGA Private Sector Window (PSW) and the MIGA Guarantee Facility to underwrite eligible projects.

WBG’s first economic mission to Nepal arrived in 1963 to assess the country’s development prospects and challenges. Following this, the country received its first WB credit in 1969 for a telecommunications project.

Since then, the World Bank continued its support to Nepal and provided USD 4.75 billion in assistance (USD 3.48 billion in credits and USD 1.27 billion in grants), so far.

Hope the World Bank’s country-wise development strategy will offer more benefits to the development of Nepal in the years to come!

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Out of this aid, the USD 200 million (~ Rs 20.9 billion) allocated for public financial management will enable the Government of Nepal to implement the Intergovernmental Fiscal Management Act, draft the Fiscal Responsibility and Budget Management Bill and improve budget execution, among others.

The other USD 66 million (~ Rs 6.9 billion) credit will be utilized for modernizing Phase 2 of the Rani Jamara Kulariya Irrigation Scheme.

Support from the WB Board

The WB Board of Executive Directors underlined their strategic shift towards supporting federalism, and promoting accountability and transparency. The officials reiterated their full support to Nepal’s efforts in achieving inclusive development in coordination with other development partners.

“Nepal today is at a historic juncture as it transitions from a unitary to a federal democratic republic. Expectations are high that the new structure will deliver on greater equity and accountability. This operation will help establish a fiscal framework that will ensure that the newly elected governments can deliver better services to all Nepali citizens.” said Qimiao Fan, World Bank Country Director for Bangladesh, Bhutan and Nepal.

Ongoing Contribution to the Country’s Development

The WB Group has been supporting Nepal’s developmental efforts ever since the first economic mission was fielded to Nepal in 1963. Till date, the Group provided an assistance of USD 4.75 billion which includes USD 3.48 billion in credits and USD 1.27 billion in grants.

Currently, 22 WB projects amounting to a total of USD 2.32 billion are in active status, including five projects in the energy sector and four each in the agriculture and education sectors.

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