Sunday, March 15, 2009

Clean Energy and Infrastructure Development Bank

Currently Nepal is facing a market failure condition in its economy; high liquidity in the system leading to very low interest rates on deposits offered by the financial institutions while very few of them have experience with or are willing to finance long term infrastructure projects that are invariably capital intensive. Projects needing financing for longer term have been facing problems securing finances. There are three development (investment) banks mandated for long term financing while a number of commercial banks are also financing long term projects. However the term of the debt offered by and the capital base of these banks is limited. Commercial banks are not mandated to offer loan for terms longer than 7 years, besides longer-term loan also result in mismatch of portfolio as their deposit base is of shorter term.

In this backdrop Winrock International in Nepal (WI-N) has encouraged and assisted a group of financial institutions and other corporate groups to design, structure, and promote a dedicated bank to finance "clean energy and infrastructure" ventures in Nepal. The Clean Energy and Infrastructure Development Bank (CEIDB), will lend money to entrepreneurs to develop clean energy (hydro, solar, wing, biomass, biogas, and municipal waste) generation projects and clean energy driven infrastructure projects such as electric-powered trolley buses, cable cars, trains and the like. The Bank is designed to mobilize capital for environmentally and commercially responsible sustainable development investments in Nepal.

WI-N has identified a pipeline of 28 small-scale hydropower projects, exceeding 75 MW in total installed capacity, for investment by CEIDB. Investment opportunities have also been identified in other renewable energy projects such as solar and biogas that are fast becoming popular to meet energy needs of hotels, residences, and small-scale industries in rural areas of the country. Business opportunities are also emerging in the transport sector where there is a demand for clean efficient transportation projects such as cable cars and trolleys to service particular high-value niche markets such as tourism and religious pilgrimages. Besides, there is a substantial market for decentralized and distributed energy services in the country.

Winrock has provided incubation services to this Bank ranging from financing/commissioning the feasibility study, structuring the Bank, garnering support from prospective promoters (banks, finance companies, insurance companies, other contract saving institutions, and other corporate groups) to promote the proposed Bank, arranged to prepare charter documents, contacted foreign investors to query their interest in investing in the proposed Bank (10% of the total equity is earmarked for investment by foreign investors) and successfully arranged to tap GEF fund through UNEP to support initiating incorporation and financing of the Bank.

During the initial years the proposed Bank will have a paid up capital equivalent to about US $ 6.7 million (Rs 500 million) out of which 10% has been earmarked for foreign investors Sixty percent of the amount (about US $ 4 million) has already been committed for subscription by the promoters comprising of provident funds, insurance companies, banks and finance companies and other corporate groups.

By the sixth year the Bank’s borrowings and deposits are expected to touch US $ 36 million and US $ 60 million mark respectively while by then its lending and investment portfolio is expected to exceed US $ 100 million.

In addition to assisting in the development of the CEIDB, Winrock will serve as the Technical Secretariat of the Bank during its first two years of operation. During this period Winrock will perform services for the Bank such as deal pipeline development, review/evaluation of projects for the purpose of lending/investing in such projects, performance of due diligence, preparation of necessary documents for lending under “project finance” mechanism. Moreover Winrock will transfer the skills from the Technical Secretariat to the Bank's professional staff such that the Bank's staff can function independently after Winrock exits as the Technical Secretariat.

Published in HRW Journal of December 2001

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