The Impact of Floods and Landslides on Nepal's Hydropower Sector: Stock Market, Economy, and Long-Term Effects

The recent floods and landslides in Nepal have caused significant damage to the country's energy sector, deeply affecting the stock market, particularly hydropower companies listed on the Nepal Stock Exchange (NEPSE), and the broader economy. With over NPR 2.45 billion in damages, a shutdown of 1,100 MW of electricity production, and disruptions to 15 ongoing projects, serious concerns have been raised about Nepal's energy security and investment environment.

Major hydropower companies listed on NEPSE, such as Upper Tamakoshi, Lower Hewa Khola, and Mandu Khola, have been directly impacted. These companies have had to halt production, severely affecting their revenue. As a result, a decline in stock prices of hydropower companies is inevitable. With production stopped, companies may need to cut dividends and other financial returns, lowering investor confidence and creating a negative cycle in the market. Given the significant presence of hydropower companies in NEPSE, a decline in their stock prices could negatively affect the overall market.

Hydropower is Nepal’s primary energy source, and long-term disruptions in this sector could have a deep impact on the economy. The immediate shutdown of 1,100 MW of electricity is already affecting industries, agriculture, trade, and services. Nepal Electricity Authority has been importing 300 MW of electricity from India, but this amount may not suffice to meet the high demand from industries and businesses.

If industries and businesses face unplanned load-shedding, production levels will drop, directly impacting the gross domestic product (GDP). The floods have also caused extensive damage to irrigation systems, which will likely affect agricultural output. For an agriculture-based economy like Nepal, such damage could lead to a long-term agricultural crisis.

The damage to the energy sector, particularly in irrigation, could reduce food production and exports, potentially leading to a food crisis, which would increase the country’s dependence on imports. This would further widen the trade deficit, weakening the economy.

Hydropower companies, having borrowed large amounts from the banking system, could face challenges in repaying loans, interest, and other financial obligations. This could increase the risk of default, weakening the financial health of banks. If banks cannot recover their loans, the banking sector could face instability, affecting the entire financial system.

Banks typically consider hydropower companies as safe and sustainable investments. However, the floods and landslides put these investments at risk, potentially leading to a decline in banking sector performance, which could further hurt the economy.

There is significant foreign investment and involvement in Nepal’s hydropower sector. The damages caused by the floods and landslides could discourage foreign investors, potentially hampering future investments in Nepal’s energy sector. Such natural disasters send a negative message about the investment climate in Nepal.

The government faces the challenge of rebuilding damaged projects, with over NPR 2.45 billion in damages to infrastructures requiring long-term, large-scale investments of time and money. To cover these costs, the government may need to seek foreign loans, further straining the country’s financial health.

Rebuilding damaged hydropower projects will take time and significant resources. Beyond the immediate need for reconstruction, long-term solutions must include the safe relocation of hydropower projects, the use of modern safety systems, and the development of resilient infrastructure.

The Ministry of Energy, Water Resources, and Irrigation must plan for future disaster mitigation in the hydropower sector, re-evaluating flood and landslide risks and implementing long-term strategies. Structural reinforcements, early warning technologies, and enhanced disaster management capacities are essential to safeguard hydropower projects.

This disaster signals a need for new approaches in hydropower project management. The government must prioritize robust disaster management and long-term infrastructure development. Hydropower projects must undergo risk assessments, structural strengthening, and environmental protection measures.

To mitigate the impact of floods and landslides, the relocation of hydropower projects, construction of embankments, and maintenance of irrigation systems should be prioritized. Additionally, the government must focus on environmental protection and long-term planning to address natural disasters triggered by climate change.

The recent floods and landslides have posed significant challenges to Nepal’s hydropower sector. Hydropower companies may experience stock price declines, frustrating investors, while the economy could suffer long-term consequences, particularly in energy supply, the banking sector, and industries.

The government and private sectors must work together to develop long-term plans to protect hydropower projects from natural disasters. Moreover, effective utilization of international cooperation and investment is essential to expedite reconstruction efforts.