Golden Era awaits Nepali Energy Sector


Anil Keshari Shah is president of Nepal Bankers’ Association (NBA) and also holds the position of Chief Executive Officer in Mega Bank Nepal Ltd. In his exclusive tete-a-tete with Energy Nepal, he divulges about myriad aspects of banking investment in the energy sector. According to him, the sector reserves immense potentials in turning around the socio-economic development through strategic and prudent investment in it.

As a veteran banker, what is your take on the energy sector of Nepal?

There is little doubt that energy sector is the lifeline of national development. The country’s socio-economic growth largely hinges on its proper mobilisation. However, the pace of the development of the sector is utterly sluggish. This is because the country has not yet come up with a concrete and visionary policy to effective leverage the sector. Unfortunately, we are still debating over whether the energy sector should get utmost priority or not.  Had Kuwait been doing so in the case of its oil resource, it would not have become as economically prosperous as it is today. Unlike Kuwait’s oil, Nepal’s water resource does not diminish.

So, the Nepali adage “Nepal Ko Pani, Pragatiko Ko Khani” (Nepal’s prosperity lies on its water resource)  does carry a lot of sense.  But such resource is yet to be fully mobilized which is evident with the country still generating less than 1,000 megawatts of power.

The country’s energy consumption continues to be dominated by traditional sources which make for over 80 percent of total energy consumption. So, there is a need to promote especially clean energy  for sustainable development of the country.

So, how willing are Nepali banks to invest in hydro and other forms of clean energy?

We are of course willing to make prudent investment in the energy sector by taking calculated risks.

What should be well understood is that banks are quintessentially the trustee of public deposits. So it will be simply wrong on the part of them to spend such money in a reckless way.

The unscrupulous tendency of holding licenses of hydro projects without doing anything is clear to all and sundry. As long as such trend is not discouraged, it will be financial foolhardy on the part of us to fund these projects.

If any private party comes up with a viable investment proposal on any energy projects, the banks will not shy away from pouring bucks into them. In fact, the banks are even ready to contribute around 60 to 70 percent equity in any feasible energy project.  Private investors should also have some skin in the game by contributing certain equity in such project as banks alone cannot have cent percent equity.    At the same they may even mull over creating a consortium to effectively fund such project.  There are 28 commercial banks in the country and they can invest up to Rs 8 billion each for energy projects provided they are bankable.

In your view, what are major reasons behind the dearth of sufficient investment in the energy sector?

I believe that the private sector still lacks the required amount of confidence to pour their bucks into the energy sector. The country has been making efforts like organizing power summit, easing bureaucratic hassles etc to attract enough investment in the sector. But still the situation has not improved.

On the other side, there is also a dearth of political will to develop infrastructure projects like hydro.  The government does not appear serious in accomplishing vital tasks (related to developing hydro projects) like  pooling the resources, land acquisition, forest clearing etc.

Because of these basic impediments, the nation has failed to achieve its goal of generating enough power for its own consumption, let alone exporting it to other nations.

In what way banks are making efforts to invest their resources in hydro projects?

As banks have already raised their minimum paid up capital to Rs 8 billion each, they are in a financial position to invest in hydro projects up to the capacity of 50 MW.  When it comes to the projects ranging from 100 to 150 MW, banks need to create a consortium for investment. Remarkably, a number of hydro projects- be it private, governmental or quasi-governmental- are being funded via the consortium.

As far as the development of hydro projects of 500 MW or above goes, there must be foreign investment and also international financial closure.  Nepali banks alone are not in a financial position to invest in such projects.

How do you see the prospects of the energy sector getting more investment in the days to come?

The energy sector is the ultimate enabler to realize development goals without jeopardizing environment.  The future of energy lies in clean energy sources such as hydropower, solar, wind and thermal. So the identification and development of renewable sources of energy through adequate and prudent investment must constitute the center.

Our country spends more than Rs 100 billion in importing petroleum products annually.  The Nepali authorities must come up with a long-term strategy to curtail the import of such products to mobilize sizeable portion of sum to develop clean energy sources.

In my view, the implementation of federalism could well spur significant investment in clean energy sources.  There is a high possibility of the provinces in the country competing with each another to attract more investment in the clean energy sources available in their respective territories. If this really happens,  the use of clean energy will be optimized in various socio-economic  activities of the country.  If this really happens, it will help herald a golden are in the energy sector in the next 20 years.