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Renewable Energy Financing Banks Perspective

Bankers Perspective Presented By: Himalayan Bank Ltd.

About Himalayan Bank


Capital Base: Rs 5.04 B (inc. reserves) Total Asset Size: 55.43 B Total Loans & Advances: 35.96 B Total Deposits: Rs 47.73 B Operating Profit: 1.65 B Net Profit : 1.05 B NPA: 2.06 % Number of Branches: 39 Number of Himal Remit Agents : 3,200 Plus USD 854 Million in Inward Remittances

Note: Provisional figures are as on FY 2011 / 12. (FY 2068/69 BS)

Importance of Renewable Energy


Nepal at present is experiencing energy crisis of unprecedented severity Low rural electrification rate, acute power shortage in urban areas and high dependency on traditional biomass fuels, particularly fuel wood. Dependency on fossil fuel for generators Renewable Energy (RE) contributes towards reduction of green house gas emission.

HBLS Experience in Clean Energy/Renewal Energy Sector


Two successful stories of HBL in Clean Energy / Renewal Energy Sector Cleaner Production Fund (C P Fund)

Micro Hydro Debt Fund (MHDF)

Micro Hydro Debt Fund (MHDF)


HBL has been selected for the management of MHDF under GIZ / AEPC

In the past one year financed 6 MHP amounting Rs 20


Million. More than 10 MHPs are in the process of being analyzed for financing.

Project financed under MHDF


Micro Hydro Projects :
Khani Khoka (20 Kw) : Kavre District

Chari Khola (80 Kw ) : Ramechhap District Thulo Khola (50 Kw) : Okhaldhunga District Swara Tap Khola (30 Kw): Khotang District Lumju Khola (20) : Khotang District Midim Khola (100 Kw) : Lamjung District

Solar Home System


Solar Home System :
SHS financing to Indigenous Chepang Community of
Silinge VDC, Makwanpur District.

Benefit to the Bank

Exposure of the bank and its staff to the rural sector

Adds to the Image of the bank


New Area for Investment Excellent Payback

Renewable Energy Financing


Renewable Energy represents significantly largely untapped opportunity for meeting the dual goals of financial return and environment protection
Financing for Acquisition of Equipment, Services and Adopting Measures for Enhancement of Energy / Conservation of Energy

Banks Requirement
Cash Flow should justify cost saving and repayment capability The project should be identified and recommended by AEPC

Basic Banking Criteria must be fulfilled :


Should not be blacklisted Should have credibility in the market Should be profitable and self sustaining

We need to develop required technical manpower at the bank from concerned agencies.

Financing
Maximum 30 % of the total project cost Financing will be in Term Loan Only (however the bank will provide a moratorium period of six months during which the project will only pay interest) Repayment of Loan will be on EMI Basis Maximum 5 Years (Including Moratorium Period, If Any) Interest Rate : 10 % currently for projects under MHDF and for other projects as per the market condition. (In case of subsidy, the rate will be as per the contract)

Securities Required For The Bank


The entire project land / building, machinery should be mortgaged / hypothecated in favour of the bank. Personal guarantee of the members of the committee

Benefit To The Bank

New Avenue for Investment

Socially Responsible Business

Challenges Of Financing R E
Initial Cost for establishing such units are relatively high and thus its difficult to arrange for Renewable Energy Financing A major factor which will contribute to whether these projects are viable or not will also depends on the amount of subsidy from donor / government, built into the financing structure. Limited Capital Availability Loan Administration costs-The cost of monitoring Transaction costs of small projects are often a key issue Problem in follow up for repayment, recourse action Operation and maintenance is a weak link in rural sector

Banks Expectations
Partner Agencies to do thorough home work about the overall viability of the project before recommending for bank finance Preferably should have lower D/E. 30/70 is the best D/E Ratio for Renewal Energy Financing in Rural Sector
Cash Flow should justify the repayment of the loan The RE project should be self sustaining and should also promote/enhance the overall productive activities of the community instead of just lighting

Conclusion
Though Renewable Energy Financing is a relatively new sector for the bank. However we have a success story of managing C.P. Fund and financing in renewal energy, namely micro hydro and solar home system, where all the projects payment history are excellent.

Energy Sector is one of the most profitable sector across other sectors Chilime, Bhote Koshi, Khimti etc.

Conclusion
Recently Nepal Rastra Bank has made it mandatory for all commercial banks to invest 10 % of their entire loan portfolio in energy and / or agriculture sector.
As there is a market, this mandatory requirement by the central bank and government support, this sector can achieve attractive returns to all the stake holders, government, society, investors, financers and borrowers

Thank You!!