Officials of the Upper Tamakoshi Hydropower Project are scrambling to arrange funding to fill an investment gap of Rs7 billion to ensure that construction work on Nepal’s largest hydroelectric project in Dolakha does not stop.

The government has decided to allocate Rs1.85 billion for the 456 MW national pride project in the next fiscal year’s budget, but officials say that is not enough.
“We have secured funds amounting to around Rs3 billion from the government and the Employees Provident Fund and are talking with other potential lenders to bridge the funding gap,” said Ganesh Neupane, spokesperson for the project.
“Hopefully, we will arrange the financial resources by the end of July.”
The Upper Tamakoshi project which entered construction phase in 2012 has encountered massive cost overruns. The project’s price tag has swelled to Rs49 billion, excluding interest on loans, from the initial cost estimate of Rs35 billion.
Interest payments on long-term loans alone have jumped from Rs6.7 billion in 2016 to Rs14.42 billion in two
years. The annual interest rate has been set at 11 percent. As of date, the total project cost including interest on loans has been estimated at Rs69 billion.
During the review period, the cost per megawatt also increased by nearly 45 percent from Rs107 million per MW to Rs153 million.
Officials said that the project had not become as expensive as other hydropower projects despite the
overruns.
“Given the installed output of 456 MW and the average cost per megawatt of other privately funded projects, Upper Tamakoshi cannot be termed an expensive development project,” said Neupane.
Costs are expected to rise further as a recent equipment failure has pushed back the project completion deadline for the fifth time. Also, a depreciation of the Nepali rupee against the dollar and the euro is expected to push up the bill.
“Although the project is being built with equity and debt in Nepali currency, the agreement with the contractors for all four major components requires the company to release payment in dollars and euros by absorbing currency fluctuation risks,” said the project office.
“The project faced an additional financial burden while obtaining dollars and euros from the central bank as these currencies have appreciated by nearly 25 percent over the review period.”
The total project cost amounts to around Rs70 billion as of date. The project reported a foreign exchange loss of Rs46.2 million in 2018 from a gain of Rs20.1 million in 2017.
Apart from exchange rate fluctuations, natural disasters, logistical challenges, design changes, high interest charges and poor work execution led to massive cost overruns, officials said.
The national pride project is touted as a role model project as it is being built with domestic resources and a high level of participation from all stakeholders.
Four public entities—Nepal Telecom, Citizen Investment Trust, Rastriya Beema Sansthan and Employees Provident Fund—are major lenders to the project. Project officials hope to fill the deficit by injecting additional loans from these public entities.

Further delays expected
The project is unlikely to meet the target of switching on the first turbine and feeding 76 MW into the national grid by December-end as construction crews are still grappling to repair the damage caused by a crane failure during the installation of the penstock pipes in May.
According to officials, the project will be delayed by two-three months as workers are still overhauling the
technical equipment in the lower vertical shafts through which water will run to the turbines.
“We have rectified the error in the crane setup and are dealing with other technical issues,” said Neupane.
“The installation of the penstock pipes is a tough task as each section has a diameter of 5 metres and weighs 27 tonnes. It takes around three hours just to lower one pipe down the 400-metre shaft.”
According to project chief Bigyan Raj Shrestha, the project is in the recovery phase and it will be delayed by two-three months because of the recent crane failure.