Project Case Study
Delivering practical solutions to address growth constraints in Nepal
Managing and implementing poverty reduction projects through Nepal's Centre for Inclusive Growth (CIG)
Nepal is one of the world’s poorest countries, with more than 30% of its GDP coming from remittances from nearly 2 million workers living abroad, making the economy heavily reliant on foreign employment. It has three areas of comparative advantage – hydropower, tourism and some agricultural products. Successful development of these could push Nepal up to middle income status and dramatically reduce poverty within a generation if exploited fairly and effectively. However, this potential is currently held back by a number of critical growth constraints, such as a chronic lack of expenditure on infrastructure and a prohibitively high electricity tariff.
To try and address these, we were asked by the UK’s Department for International Development in 2011 to establish the Nepal Centre for Inclusive Growth as a non-partisan, independent organisation aiming to identify practical solutions to tackle these constraints, and create a business environment that would accelerate growth and promote greater social inclusion. The Centre worked by implementing a series of policy projects which aimed to yield tangible and sustainable results by pioneering new approaches, identifying overlooked opportunities and introducing fresh thinking in various areas of intervention.
This work included five projects focused on providing support to hydropower development. The first of these, for example, helped Nepal develop a world-class project development agreement template for hydropower concession agreements. It undertook a detailed survey of the Indian energy market and developed a financial and economic appraisal model to conduct detailed financial analysis of potential hydropower projects. The second project focused on supporting the negotiation of hydropower deals and a fifth on the rollout of the Nepal Investment Board, helping to position it as Nepal’s dedicated public-private partnership unit.
This work has supported the negotiation of six specific hydropower ‘megaprojects’, resulting in 2014 in the signature of two deals; the $1.4bn Upper Karnali project and the $1.1bn Arun 3 project. These represent Nepal’s two largest-ever foreign investments and the two deals are expected to result in combined financial and economic benefits to Nepal of some $8bn over the operating life of the concessions.
We protected the importance of social issues in the negotiations, ensuring that communities involved in the projects receive a fair share of the benefits and that social and environmental sustainability issues are followed, in line with international best practices. To this end, we developed industrial and employment benefit opportunities to help Nepali businesses and labour access contracts and jobs associated with the implementation of the hydropower projects, which themselves are helping to reduce the chronic electricity shortage in Nepal.
The Centre also worked on projects to improve macro-economic policymaking, strengthen governance at the apex of the bureaucracy and pilot municipal level public-private partnership investments. Together, these projects played a key role in helping Nepal to move closer to middle-income status and will have a major impact on living standards for years to come.
“Performance has been outstanding, particularly with regard to progress on hydropower development.”
DFID Annual Review 2012
