WB-ADB mission to discuss $1b loan to energy sector

WB-ADB mission to discuss $1b loan to energy sector


The donors had expressed interest to lend $500m each in response to Nepal’s request for funding to implement a 10-year Energy Emergency Plan unveiled last February

Nov 11, 2016- A joint mission of the World Bank (WB) and the Asian Development Bank (ADB) is expected to hold talks with Nepali officials next week for a planned $1-billion loan (equivalent to Rs106.6 billion) to the energy sector. The two multilateral donors had expressed interest to lend $500 million each in response to Nepal’s request for funding to implement a 10-year Energy Emergency Plan unveiled last February. The WB has proposed to invest in Nepal’s energy generation sector for the first time since the Arun III fiasco in 1994. The loan could also be the largest funding by the ADB through a single window, although it has an accumulated portfolio of around $1 billion in the energy sector. The two banks have planned to provide financing under Development Policy Credit in Energy (DPCE) under which Nepal will not have to pay any interest. The credit is provided based on the country’s progress in policy reform. 
According to a WB source, the mission is scheduled to arrive in Nepal on Saturday and hold talks on Monday. An ADB source said that they had sent a clearance request to the government to hold talks from November 14-18 and were awaiting its reply.

Finance Secretary Shanta Raj Subedi confirmed that the joint mission was coming without elaborating. According to the WB source, the main objective of the mission is to fine-tune prior actions that the government needs to perform to receive the loan, agree on a timeline and scope of the prior action and review the status of past studies in the sector. During the previous meeting held in June, the donors had particularly insisted on an early introduction of the new Electricity Act and Energy Security Policy and restructuring of the Nepal Electricity Authority (NEA) as major conditions for extending the loan. “The joint mission is coming here to discuss how the new leadership at the Energy Ministry and the NEA are thinking about implementing the reform commitments made by the previous leadership,” said a senior ADB official. The ministry has a new minister and secretary and the NEA has a new managing director. The ADB source said that the bank was ready to extend the loan as it had already planned to provide another $150 million to the energy sector under DPCE.

“We can provide an additional $350 million based on the progress in reform initiatives, for example, tariff system reform, implementation of energy loss reduction plans and establishment of a regulatory commission,” the official said. The government had sought up to $2 billion from the two donors after announcing that a number of reform initiatives would be implemented under the Energy Emergency Plan.  These reforms include unbundling the NEA, signing power purchase agreements in US dollar terms for 10 years, reducing procedural delays and conducting legal reforms by issuing a new Electricity Act and Act on National Electricity Regulatory Body. Some progress has been made in unbundling the NEA with the registration of National Transmission Grid Company, but nothing has been done with regard to a new Electricity Act and other reform commitments.