Bhote Koshi Power Company Pvt. Ltd.

When was the Upper Bhote Koshi Hydroelectric Project ( UBKHEP) built and when did it commence commercial operations?

Construction of UBKHEP commenced in 1997 and was completed/ synchronized to the Nepal Electricity Authority (NEA) grid on 3rd January 2001, with commercial operations beginning on 24th January, 2001.

How is the generated power connected to the NEA grid?

The power produced by Bhote Koshi Power Company (P) Ltd ( BKPC) is connected to the NEA substation in Lamosanghu, 25 kilometers away via a 132 KVA transmission line. BKPC is the only project that has built such a transmission line at its own cost. Both the transmission line 'operation and maintenance' costs and transmission losses are borne by BKPC.

What is Deemed Generation?

Deemed Generation is the power generation capacity agreed upon for each Nepali month in the Power Purchase Agreement (PPA). The Deemed Generation is 36 MW capacity for the months of Shrawan (Mid-July to mid-August) and Bhadra (mid-August to mid-September), and is less than 36MW for other months.
How much power does BKPC generate and sell to NEA?

BKPC generates and invoices only up to the Deemed Generation capacity. The Deemed Generation prescribed in the PPA varies every month due to variance in availability of water in the river (hydrology). Any excess generation beyond the prescribed Deemed Generation for the month is automatically deducted from the computerized meter reading. BKPC only generates and sells power to NEA within its generation license capacity of 36 MW, although its installed plant capacity is 45 MW.

When did foreign investors sell their shares and transfer management rights to the Nepalese investors?

In 2006, Panda Energy (the original developer and majority shareholder of BKPC) divested its 75% holding in BKPC which was bought over by the Nepalese shareholders. Similarly, in 2007, IFC's 10% shareholding was also bought over by the local shareholders.
Does BKPC pay any royalty to the Government of Nepal?

The Royalty structures are prescribed in the Electricity Act. BKPC pays Energy Royalty on its energy sales to NEA at the rate of 2% for 15 years from the Commecrial Operation Date( COD) and at the rate of 10% thereafter - as per the Electricity Act. The Company pays on an average Rs 25.41 million annually. In the year 2009/10 the company paid royalty of Rs 28.23 million.

Additionally, BKPC also pays Capacity Royalty on its installed capacity of 45 MW at the rate of Rs. 100,000/MW for 15 years from the COD and at the rate of Rs. 1,000,000/MW thereafter - as per the Electricity Act. This amounts to Rs. 4.5 million per annum till 2015/16 and Rs. 45 million thereafter.

Why does BKPC invoice NEA in US Dollars?

Since this project was developed and funded entirely in foreign currency, the PPA tariff/rate was based in US Dollars and hence the invoice is in US Dollars. Any foreign exchange risk borne by the developer is reflected in the tariff, and in this case it was absorbed by NEA in the PPA tariff.

Who are the lenders to Bhote Koshi Power Company Private Limited?

At present International Finance Corporation (IFC) and Deutsche Investitions-und Entwicklungsgesellschaft mbH (DEG) are the lenders to BKPC.

Is the cost of power supplied by BKPC to NEA expensive?

When the PPA was signed in 1996, the tariff was equivalent to only NRs. 3.12, the exchange rate of one US Dollar then being approximately NRs. 52. As the PPA tariff is in US Dollar, the equivalent Nepalese Rupee value has increased due to devaluation of the Nepalese Currency. The average tariff of BKPC over the last 9 years is NRs. 5.94.

Rupee devaluation is beyond the control of both the parties and as such, BKPC's tariff cannot be deemed expensive.

When will the UBKHEP be transferred to NEA/ GoN?

As per the PPA, 50% of the assets of the project shall be transferred to NEA after 25 years of operation in 2026, at a cost of just one rupee. Thereafter, NEA would enjoy 50 % of the profits without any financial investment in UBKHEP.

As per the Project Agreement, UBKHEP will be transferred to the Government of Nepal (GoN) after 40 years, in the year 2036, at zero value. 100% of the benefits of this project will be enjoyed by GoN once the project is handed over in the year 2036.

What is the Generation License capacity and installed capacity of UBKHEP?

As Section 20.e of BKPC's Generation License # Bi Bi Ka 53/54 B/ 005 dated 2053/08/13 mentions "two nos. 20.5 MW Francis Turbines with 22.5 MW Generators each", BKPC has 45 MW (2 X 22.5 MW) installed capacity. BKPC is paying capacity royalty to GoN on the basis of 45MW installed capacity.

The Generation License is for 36 MW capacity, and BKPC has not been generating more than 36 MW as per the Generation license.

What is the "short pay" issue between BKPC and NEA?

Sale of electricity by BKPC to NEA is governed by the PPA entered into between the two parties. NEA started making deductions from its payments to BKPC from the 5th invoice (Jestha 2058 - May/June 2001) onwards on the ground that for payments, NEA was referring to Schedule 1 of the PPA where the Project Description was provided. The description also mentioned estimated energy for each Gregorian calendar month. NEA took a stand that their energy purchase requirement was as per the estimated energy in Schedule 1, and not as stipulated in the PPA in Schedule 10 (Monthly Deemed Generation). The deduction, or "short pay" that NEA has been making, arises mostly from this difference in understanding about the monthly energy purchase requirement based on Schedule 1 or Schedule 10.

The Short Pay is not related to the 45 MW installed capacity and is an issue within the generation of 36 MW capacity.

How is the above short pay issue being addressed?

Subsequent to the Management changeover of BKPC in March 2006, BKPC's new management approached NEA to resolve the short pay matter amicably for the benefit of both the parties. Consequently, an MOU was signed as a package deal between BKPC and NEA on June 10, 2008, after prolonged discussions and negotiations between high level management teams from BKPC and NEA. The MOU resolved the ambiguity in Schedule 1 and Schedule 10 and came up with a 'Restated Schedule 10' for Deemed Generation that was agreeable to both the parties. The restated Schedule 10 was based on converting the estimated energy in Schedule 1 to monthly energy purchase requirement into Nepali months. Whatever amount was to be settled under this principally agreed schedule was accepted by both parties.

The MOU also covered any additional energy available in UBKHEP - from its 45 MW installed capacity, to be purchased by NEA at a rate of NRs. 1.625 per kWh. BKPC conceded to this low tariff for additional energy considering Nepal's energy needs and with a view to reduce its average tariff by approx 13%.
On June 22, 2010 NEA intimated to BKPC that its Board had rejected the payment of such settlement amount to BKPC, but had principally agreed to the purchase of additional energy. Subsequently, BKPC wrote to NEA on July 29, 2010 expressing the need for further discussion on the short pay and sale of additional energy issues. NEA responded to BKPC on September 09, 2010 stating that their task Force Committee had been formed for the purpose.

What is BKPC's view on some articles published in the national dailies about the financial losses of NEA due to some Independent Power Producers (IPPs)?

News items have appeared in local dailies of Nepal stating that some of NEA's losses are attributable to two IPPs. BKPC has been cited as one of two such power producers. Considering NEA's published revenue and energy sales figures for the financial year 2008-09, BKPC's share therein was only 8.06% of revenue and 8.15 % of energy. Hence NEA's losses cannot be attributable to BKPC.

What role has BKPC played to help the community of the Project area?

Over the years BKPC has taken several initiatives to meet its corporate social responsibilities within the area that UBKHEP operates. The project has also implemented all Environmental Mitigation measures and related responsibilities in the project area. Assistance is provided in the form of grants and subsidies to numerous local schools along with scholarships to students and under-privileged sections of the society in the Phulpingkatti, Tatopani and other VDCs of Sindhupalchowk District. Similarly, support is also extended continuously to the local VDCs for health posts, temples & gombas, repair of roads, landslide protection, open water fish stocking program, sports & games, etc. Large amounts are spent annually for the development of local infrastructure, road construction, water supply, environment protection, capacity building, etc. BKPC has spent Rs 50.82 million since its commercial operation on community support activities.