Chinese cos play the credit card to win Nepal hydro projects

Chinese cos play the credit card to win Nepal hydro projects

New Delhi: Indian and Chinese firms are going head to head in efforts to develop hydropower projects in Nepal in an attempt to build commercial and diplomatic relations with a country that is strategically located between two of the world’s fastest growing major economies.

Commercial and so-called exim banks from China are underwriting efforts by Chinese companies to develop hydropower projects in Nepal by promising money for these. This model using so-called letters of intent promising credit has been successfully used by Chinese firms in Africa to win oil and gas exploration blocks.

“Since Nepal has a huge infrastructure funding requirement, such a model definitely helps," said Himalaya Pande, director, West Seti Hydro Project, one of the largest hydropower projects being developed in Nepal.

“Chinese banks are flush with funds and are looking at opportunities in different parts of the world...India, on the other hand, has not adopted this model in Nepal."

Companies such as China National Machinery and Equipment Import and Export Corp., or CMEC, and Sinohydro Corp. have used letters of intent promising credit provided by Bank of China and China Exim Bank to get contracts and projects.

CMEC has won the contract to construct 750MW West Seti Hydro Project and Sinohydro has picked up a 90% stake in the 50MW Upper Marsiangri project. CMEC had not responded to a questionnaire from Mint till late Tuesday evening.

Nepal has a hydropower potential of 83,000MW and needs an investment of around Rs9.96 trillion to harness this. The country is open to partnering with Chinese and Indian firms to raise this money. On Tuesday, Mint reported that it plans to offer Indian private sector firms majority stakes in mid-size hydropower companies.

India isn’t worried by China’s display of money power.

“Chinese competition in Nepal is overstated. It is partly due to nervousness and partly due to the reason that they are strong. As Nepal is in our immediate neighbourhood, we get jittery," said an Indian government official posted in Kathmandu who did not want to be named.

Nepal has emerged as a favourite destination for several Indian hydroelectric power generation firms. Companies that have plans to set up hydroelectric projects in that country include Satluj Jal Vidyut Nigam Ltd, Bhilwara Energy Ltd and GMR Infrastructure Ltd.

It was only because India didn’t respond to requests for monetary participation in hydropower projects that Nepal turned to China, said one banker.

“We have contacted Indian banks such as Punjab National Bank and Canara Bank for participation in hydropower projects but they were not interested...only then did we go to the Chinese banks," said Prithivi B. Pande, chairman and chief executive officer of Nepal Investment Bank, the largest investment bank in that country.

Nepal has an installed power generation capacity of 617MW, of which around 570MW is generated from hydropower. Although Nepal has 83,000MW of hydropower potential, it is facing a shortage of 100MW, which is expected to increase to around 300MW in the coming winter months.

Tapping some of the country’s hydropower potential could help bridge that gap and also serve as a source of power for India.

And Nepal could also be the ideal place for Indian infrastructure firms to showcase their integrated project development and financing model, said Anish De, chief executive officer of energy consulting firm Mercados Asia.