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Khudi Hydro's Model
The project was first identified by LEDCO as a 3.5 MW project and the PPA was signed with the Nepal Electricity Authority back in 2057 BS.
With plans to come into commercial operation from mid-July this year, Khudi Hydropower Company’s 4 MW power project on Khudi river in Lamjung district is setting an example on how to go ahead with a hydropower project in the present situation.
The major lesson perhaps is that it pays to partner with local people in such ventures. Since Lamjung Electricity Development Company (LEDCO), which has the local people of Lamjung as shareholders, is one of the three major shareholders in the Khudi Hydro, the project has been able to avoid the problems related to the ongoing conflict. Though in the process the project is incurring some additional costs, “we hope it will pay in the long-run,” says Baburam Bharadwaj, the Project Manager.
Secondly the people affected by the project should be taken into confidence. The project is to directly affect the people of some wards of the three Village Development Committees of the district. To help them, the project has partnered with Canadian International Development Agency (CIDA) and under the industrial development program of CIDA a number of activities are being carried out in those wards.
Moreover, Chairman of the company Gyanendra Lal Pradhan says, “Part of the revenue after commercial operation shall be provided to the local VDCs for their development activities,” thus ensuring people’s continued support to the project also during its commercial operation.
The project was first identified by LEDCO as a 3.5 MW project and the PPA was signed with the Nepal Electricity Authority back in 2057 BS. Later a Canadian company, SCP Hydro International Inc., and Butwal Power Company (BPC) were inducted as partners. Now BPC holds 60 per cent of the equity in the company while SCP holds 25 per cent and LEDCO 15 per cent. During the detailed designing, the project was upgraded to 4 MW. The induction of SCP and BPC was helpful for the company as the financial closure for the project was achieved in the first sitting, according to Pradhan and he says it was greatly due to the good track record of these companies in the hydropower sector. LEDCO too has a track record of successfully completing a micro hydro project, he adds.
While LEDCO had already developed the 183 KW Syange project and is selling electricity from this project to NEA, this experience was not enough for it to develop a higher capacity Khudi project. Hence the induction of new shareholders. While SCP was originally a consulting company, it now owns and operates about 10 small hydropower projects in Canada. Meanwhile, LEDCO is also studying other small hydro projects and has survey licence for 20 MW Nyadi project for which it is searching for financiers and is talking about it with BPC too.
Khudi is a Rs. 600 million project out of which 70 per cent is loan financed by a consortium of five Nepali banks. While Nepal Investment Bank is the lead bank of the consortium, Machhapuchhre Bank, Rastriya Banijya Bank, Laxmi Bank and Siddhartha Bank are the members. The loan agreement has a clause that asks for the review of the interest rate from time to time. Accordingly, the interest rate is now reduced to 8.75 per cent per annum from the earlier 9 per cent.
Activities being implemented by Khudi Hydro to help the local villages with support from CIDA |
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electrification of affected villages of the 3 VDCs; |
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construction of rural road and bridges in affected VDCs; |
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school support programme to all 28 schools of the three affected VDCs (Rs. 2.2 million set aside for this); |
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job related training programmes like bar bending, masonry, gabion works, carpentry, welding, electrician’s work etc; |
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health support programme providing medicines, medical equipment and additional health workers to the local health posts; |
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awareness programmes against STD, girl trafficking, child labour, drug and alcohol abuse etc.; |
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training related to small business promotion, cooperative, vegetable farming, toilet construction etc. |
The project has a 25 year power purchase agreement with NEA with details of the power to be supplied to NEA during each month, thus avoiding possible dispute with the buyer. Now the PPA is in the process of amendment to incorporate a clause that the PPA will be assigned to the consortium of the lending banks in the eventuality of the company defaulting in its loan obligations.
The company executives are upbeat at the prospect for completing the project within the scheduled time and are now planning to take up lower Khudi. The attraction is that the Khudi river is very reliable. The water does not go much lower during the winters because of the catchment being in the high rainfall Annapurna Conservation Area.
And the same project construction team of Khudi will be deployed in 2.6 MW Lower Khudi as per the company’s plan while the operation management team will take over the completed project. For this, BPC has been awarded the contract as the project operator. The idea is to develop specialisation among the employees as per the BPC’s philosophy which already has separate departments or subsidiaries for engineering services, project operation and fabrication of equipment.
SME Focus
Godavari Marketing Secrets of Distributorship
Distributorship is a service business, says Prem Khanal, the owner of a medium scale distributor firm Godavari Marketing in Chitwan. It sounds very simple and obvious. But failure to understand this and shape the business accordingly has been causing troubles to many distributors, he reminds us.
He started the business in partnership and the firm was named after the locality where his friend was from.
Though in the beginning (that was in 2057 BS when his firm was first established), he had intended to do a 'kirana' type of business selling household supplies, he was gradually coaxed to go in for liquor distributorship as well by his friends who showed high profitability in this business. Initially he was served in distant places like Mungling. But as other local people of Mungling started taking distributorship of liquor, he started confining himself to the local market. Moreover, his preference to remain close to his family all the time was the other reason for this. "If you try to serve remote areas, you may have to stay away from home for long,' he says.
And there is the significance of his opening remark that distributorship is a service business. "You have to be able to serve your customers better compared to other distributors in terms of delivery, handling returns and providing credit. Similarly, you have to be able to serve the principal better than other distributors do in terms of ensuring smooth flow of the goods to the market and realisation of revenue," he explains.
Another major feature of distributorship is that it is a monopoly business. "You have monopoly over your designated area to distribute the particular brand of product. Therefore, while you can have a certain level of power in your hands to dictate the terms of the trade, there also are risks of overusing this power. If you overuse it, you may invite disaster as the principal may leave you and appoint another distributor. Similarly, the customer too may switch over to another brand in the same category," he says.
Yet another important aspect in distributorship, Khanal adds, is that it is different from wholesaling. A wholesaler has to stay in the shop all day and deal in different products. Moreover, a wholesaler has to wait for the customer to come to him, thus making the business uncertain with the risk of mismanagement. But distributorship is active and focused and there is scope for better management.
Khanal provides lessons also for the banks. As is the usual case with fresh start ups, Khanal too had problems in getting bank credit in the beginning of his business. Finally he was able to get some credit from a bank, but it refused to help him when he wanted to extend his business. So he was forced to seek the help of another bank, but that bank is not professional, he feels. Therefore, now he is searching for another bank and his first bank is now inviting him. But Khanal says he is not going to go back to the original bank, as they did not help him when he was badly in need of finance. "Now I have my own credit standing in the market, and I want to borrow on my own strength," he says.
Though his business is still managed traditionally with him as the owner and the CEO, he has introduced some modern management methods. He says, he does not retain with him the keys to the godown or handle the cash. The people are able to handle the business even if he is away for about two-three weeks. The accounts are all fed into computers.
While cheating is still rampant across distributors who cheat the government, the principal as well as the customers in various ways, thus ensuring higher margins for themselves, Khanal claims to be among the very few who conduct fair businesses. “All those who are doing fair trade are in the long term business and it pays in the long run. However, those who are involved in unfair business create short-run problems frequently to the firms like ours,” he says.
Another lesson he provides to would-be distributors is: "If one opts for well-known brands, it would be difficult to get good terms from the principal. But if you go for relatively less-known brands you can get better terms. If you provide good service to the customers, you will establish these brands at least in your locality and reap good returns. That is where your attention to the service plays the role," he explains.
Now, Godavari Marketing deals in beer, liquor (Virgin and Valentine), instant noodles (Shaka Laka Boom and Jhilke), and tea (Haldibari) and serves a market of about 550,000 people and records an annual turnover of about Rs. 40 million with its eight staff.
He is now planning on dividing his business into different units dealing in different specialised products. For this he is hiring more staff and purchasing transport equipment.
But he is not planning on entering into manufacturing. "Being good in distributorship and having good knowledge about the marketing is not enough to start manufacturing. You need to know other many things," he says.
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