CE Construction is one of the major players in Nepal in the construction, real estate, and hydropower sectors. Since its inception in 1992, the group is known for the quality of its projects and is trusted by consumers. The group has been making big strides in the hydropower sector for the last 8 years to develop 1,000 MW of electricity by 2030. The HRM caught up with Bijay Rajbhandary, Chairman & Managing Director of CE, to talk about the CE’s transformation as a hydropower contractor, its projects and plans, and the current state of real estate and housing business in the country, among other topics. Excerpts:
How was the last fiscal year for CE Construction as a contractor and developer, and how do you expect it to be this year?
The exponential growth of CE Construction continued last year also.
Whether during the earthquake or the Covid-19 pandemic, CE as a company kept growing. With the pandemic now almost over, we have plans to further accelerate the company’s growth.
Our engagement in the hydropower sector was not planned only 4 or 5 years ago. CE Construction, when it was established, was envisioned as a company to be involved in the development of Nepal. But then, we did not have experience in the hydropower sector. Once we had all the prerequisites needed for the hydropower sector, we decided to enter this sector around 8 years ago.
We believe hydropower is necessary for our country’s development. And it is also a sector that can bring foreign currency to the country as electricity generated in Nepal can be exported.
However, many foreign contractors were involved in the development of various hydropower projects till then. And, it was not easy to replace the foreign contractors.
We thought of opening a hydro-mechanical company and looked that if the same company could do both civil and hydro-mechanical packages, the project would be successful from the coordination and interfacing aspect. With this logic, we established a hydro-mechanical company to undertake the construction of hydropower projects.
How has this transformation from a contractor to a hydropower developer been for CE?
Our first hydropower project as a contractor was the 23.5 MW Upper Solu Hydroelectric Project. While undertaking the Upper Solu, we realized that as a contractor, we will earn a 5-7 percent profit from the project. But the project developer enjoys a return from that project for 30 years.
That’s where the idea of becoming a hydropower developer came. Because of our track record as a contractor, banks have a strong trust in us, and we can raise equity as well. And, we have an advantage over others as developers because we already have experience working as contractors. This led to the establishment of Urja Developers in 2016 as our hydropower company.
What are the projects Urja Developers have developed? How many projects are currently under construction?
The subsidiary of Urja Developers has developed two hydropower projects, and the generated electricity has already been connected to the national grid.
The 9.51 MW Maibeni Hydropower Project is the first project Urja Developers undertook. The run-of-river project developed by Samling Power Company Limited is already connected with the national grid, and the entity is a publicly listed company. The 6.2 MW Jogmai Hydropower is the second project.
Currently, two hydropower projects with a combined capacity of 82.8 MW- the 73.5 MW Middle Mewa Hydropower Project and the 9.3 MW Siwa Khola Hydropower Project- are being constructed by Mewa Developers, another subsidiary of Urja Developers.
Because of the credibility we earned through these two projects, we were approached as a contractor for the 86 MW Solu Dudhkoshi Project. This project is in the final stage of completion. While working on Solu Dudhkoshi, we were asked for civil works of Nilgiri 1 and 2 projects as contractors.
As a contractor and as a developer, CE has multiple roles. How does CE plan to move ahead in this sector?
We planned to move ahead as a hydropower developer from four perspectives. We have equipment worth Rs 2 billion as a contractor. To mobilize the equipment, we can continue as a contractor even when we do not have projects as a developer.
Most contractors and developers do not retain people once the project is completed. In our case, we can handle multiple projects and be cost-effective.
As of now, we do not have the experience to undertake large hydropower projects, nor do we have the financial capacity. The general contractor may be a foreigner if it is an FDI project. In such a case, we are ready to become a sub-contractor in large power projects above 200 MW. This would prepare us to develop large projects in the future.
Many investors who have entered into hydropower development do not know properly about this sector. And the majority of the projects have landed in trouble because the promoters do not have sufficient financial resources and they lack the knowledge in managing projects. Besides, there are other problems like contractors do not work on time. In such cases, we have a last-minute rescue model where we buy the project shares at par value and complete the project by giving the last push. We have already done one such project.
You said there are uncertainties and risks in the hydropower sector. What are the significant issues that developers have to face in this sector?
While doing geotechnical investigations, sometimes there is a deviation between the earlier prediction and the actual results. If such situations arise, then it will be a significant issue. And the developer should be able to act promptly to take proactive measures to resolve the issue. It becomes problematic if one doesn’t have experience handling such a situation.
Similarly, contractors, developers, and consultants must understand the holistic spirit of projects. The lack of this understanding will create a challenge. As we work both as a contractor and a developer, we know this issue.
For instance, if one of our consultants has to make a decision, and if it takes 6 days for him/her to visit the project site, then we as a developer, need to charter a helicopter to get things done. This will save not only our time but also expenses. Therefore, the application of project management is essential in hydropower development.
But, there are other issues that developers find difficult to resolve, especially handling the grievances of the project-affected locals and providing them with compensation. How do you think these issues need to be resolved?
Hydropower developers in our country have to face the issues related to the locals in every project. The developers need to interact with them (locals) and educate them about the benefits they will get from the development of the project.
As project-affected communities are entitled to get 10 percent shares of the project, we try to educate them on how the shares will transform their lives economically.
Secondly, developers should also help the residents of project areas to address their other problems. We believe we are there not only to develop the projects but also to develop the area. Hence, we don’t have problems with locals.
Land acquisition is a significant problem in transmission line projects. In our case, we prepare for such eventualities even before going to the project sites so that such issues do not affect or delay the project.
Many developers complain that their projects have suffered as they have not been able to evacuate the electricity as the Nepal Electricity Authority has not built the transmission lines. How serious is this problem?
I cannot talk about the overall hydropower sector. But the issue here is about the project selection. As a professional, the project has to be viable for me first. This means one has to select the right project to develop and complete the construction on time. When we choose the project, we undertake only those projects where power evacuation is assured. Hence, we have not faced face the issues related to transmission lines so far.
However, some developers initiated the project by taking risks hoping the NEA would build the transmission line. Then, they have to face such problems. In the next 3-4 years, there will be no such problem as authorities have prioritized the construction of transmission lines.
Since the last fiscal year, there has been some positive momentum in the country’s energy sector, from the operation of the Upper Tamakoshi Project to electricity exports to India. As a developer, how do you see these developments?
If we are serious about developing the country, then our energy needs should be accurately assessed. This has not been done yet.
We need to study in depth how electricity usage can be increased. These days, people in the government talk about displacing LPG from kitchens through the widespread use of induction cooktops. But irregular electricity supply has prevented many Nepalis from switching to electricity from LPG for cooking purposes. The government and NEA must do proper planning to ensure an uninterrupted supply of power to the homes of general consumers.
The transport system consumes a lot of electricity, and so does the industrial sector. So, using the electricity generated from small and medium hydropower projects won’t be a problem. I think we must export the electricity from large projects such as Upper Tamakoshi. Nepal’s electricity market is India and our southern neighbor is in dire need of power.
However, there is a need to identify the problems in energy export and address them quickly, whether it is a political issue or a transmission line issue.
The market for electricity from Arun-III and West Seti projects is in India, as Indian developers are constructing these projects. But, we need to assess whether projects other than those mentioned above would meet our requirements or not. There should be a proper study on our energy requirement in the next 3-5 years.
CE Construction had a solid real estate portfolio in the past. As it becomes active in the hydropower sector, has CE slowed its involvement in the real estate sector?
We are still active in the real estate sector. Our objective has been to develop the real estate and housing industry as well as facilitate the transfer of technology.
CE has identified itself as a company that delivers quality in construction since its inception. CE Construction showed that Nepali contractors could provide quality construction. At the same time, we also displaced foreign contractors in the building construction. By 1995, Nepali contractors replaced foreign contractors in commercial building construction.
After that, we undertook engineering-challenged buildings and projects that had to be completed on time, such as hotel projects. The timely completion of construction in hotel projects is of great importance.
We are still working in real estate, developing projects inside Kathmandu valley and outside. We also introduced the concept of territorial expansion in urban housing. But now, the land is not available in Kathmandu for implementing such a concept.
Given an exorbitant land price inside Kathmandu valley, there is no profit even if we develop a housing project.
That is why we are working on housing projects in cities such as Biratnagar and Pokhara. We are currently developing two housing projects in Pokhara, one near Lakeside and the other near the Pokhara International Airport. Similarly, our housing project The Hub Lumbini is also coming up which will be situated between the Gautam Buddha International Airport and the Maya Devi Temple.
How easy or difficult is it to get human resources for a group like yours that works on multiple projects? Especially for hydropower projects?
There is a shortage of qualified and experienced human resources. But, managing the available human resources is also very important. Even if we cannot get the required workforce, we can still train the people working with us.
In hydropower also, finding specialized human resources is a big challenge. But, there are other challenges we have to face. For instance, other companies try to attract people who are working at CE by offering them lucrative remuneration packages.
Hence, the model we have been adopting in the last 30 years is to keep more human resources than what is necessary. If one geologist is required, we will hire 5 in advance.
How important is people management for a large group like CE?
Without people, you cannot grow. You may be able to make profits, but you cannot last long. At CE, the management is continuously interacting with the employees. If they have complaints, there is a program called Connect with MD where employees can directly come to me. I listen to them and address their problems.
I also run a program called The Coach. This is a one-day residential course. We run this program for 20 people of different age groups, gender, and background.
Though we are a relatively new entrant in the hydropower sector, we have already made our presence felt. Today, CE is the first choice of developers when they decide to start their hydropower projects.
Where do we see CE in the next 10 years?
We want to establish CE as the most significant player in the development sector. Secondly, we want CE to be known for quality work. In the next 10 years, we will have the best human resources making CE a significant force in the development sector.