Deloitte India presenting report on bond market next week

Deloitte India, a consulting firm, is presenting its preliminary study report on regulatory and institutional framework for bond market to the government next week.
The consulting firm was hired by the government to conduct study on three components -- regulatory and institutional framework on bond market, private sector on infrastructure development, and identifying projects that can be developed under public-private partnership (PPP) model.
“We have received some of the preliminary drafts of the reports prepared by Deloitte India,” Nava Raj Bhandari, joint secretary at the Ministry of Finance (MoF), told Republica. "We are trying to manage public debt efficiently so that the government can gain higher returns from it."
The government hired Deloitte India under ´Capital Market and Infrastructure Capacity Support Project´ with assistance form the Asian Development Bank (ADB).
According to information posted on the website of ADB, the government has received assistance of US$ 5 million for the project.
The project, which will continue till 2015, has been tasked with the responsibility of preparing a comprehensive report on how public debt of the country can be managed and utilized with comparatively higher rate of returns.
The government implemented the project, realizing its low investment in infrastructure development, underdeveloped bond market and loose implementation of PPP models.
"Long-term committed funding for infrastructure projects is best supported by a mature and vibrant bond market. But Nepal´s bond market remains constrained, accounting for just 12.6 percent of the gross domestic product at the end of 2009," reads the project concept paper available on the ADB website.
The concept paper further says, "There is no coherent public debt management strategy to guide decisions on the volume and maturity of each issuance, which are done on an ad hoc basis, preliminary to meet short-term needs."
An official at the finance ministry said, “We are hoping that the report that comes from the Deloitte will help the government to manage public debt more effectively in long-term goals."
Meanwhile, the government is also envisioning establishing a different institution for bond market management. However, the Nepal Rastra Bank (NRB), the central bank of the country, and the finance ministry are divided over establishing a separate agency for bond market management.
According to a source privy to the issue, the ministry wants to establish the agency under it, whereas the NRB says the agency should be an autonomous body.
At present, Public Debt Management Department at the NRB is looking after the country´s bond market.

NRB to let more imported goods against convertible currency from India

The Nepal Rastra Bank (NRB) has decided to increase the number of goods in the list that are imported from India by paying convertible currency.
The central bank, through the Monetary Policy 2013/14, aims to reduce the cost of goods that are imported from the Southern neighbor. "Additional goods will be included in the list of goods that are imported from India by paying convertible currency," reads the full text of Monetary Policy that the NRB unveiled last week.
As of now, there are 161 different goods that are imported from India against convertible currency.
"The Nepali traders shouldn´t pay additional taxes when they import goods from Indian market against convertible currency," Bhaskar Gayawali, spokesperson of the NRB, told Republica.
The NRB had added only one good in the list, namely, Mango Pulp, in last fiscal year 2012/13.
Businessmen have welcomed the NRB´s move. "We want the NRB to include goods pertaining to the automobile and service sectors," Pashupati Murarka, the vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said.
According to Muraraka, Nepali businessmen have to pay 12.36 percent as a service charge to the Indian government while importing different consulting services. “We even pay a trading charge to the Indian government when we carry out transactions in dollar,” Murarka said.
Similarly, the central bank has also stated that it would simplify the procedure of exchanging amount of currency that is required for transport.
The NRB will include the goods in the list only on the basis of the recommendation made by the Department of Industry (DoI). "We will request the DoI to add goods from the automobile industry and service sectors," Murarka informed.
Additionally, the NRB has increased the amount of one-time payment money from USD 25,000 to 30,000 while importing goods from third countries.
However, trade experts aren´t that upbeat about the NRB´s move. "This move is not going make any significant difference to the bilateral trade between Nepal and India," trade expert Dr Ratnakar Adhikari at the South Asia Watch on Trade, Economics and Environment (SAWTEE), said. "Nonetheless, this is a good move."

Unclear benefit sharing mechanism hindering growth of energy sector: Report

Nepal´s energy sector is not becoming competitive mainly due to politicization, unclear mandates to the responsible institutions and unclear benefit sharing mechanism, a study report shows.
"The development of energy sector and its competitiveness have some binding constraints such as political and market uncertainties," a report on ´Practical Approach on Supporting Competitiveness in Carbon Constrained World´ reads.
The report, which is in the final state of production, is being prepared by South Asia Watch on Trade Economics and Environment (SAWTEE) and Overseas Development Institute (ODI) -- a UK based think tank.
The report, which has taken three sectors, namely, energy, forestry and tourism, has made some policy recommendation on how to achieve a higher level of economic growth and maintaining low carbon emission.
"All three sectors -- energy, forestry and tourism -- are important in case of Nepal and we have to be careful while exploiting the natural resources," Asish Subedi, research officer at SAWTEE, who is also involved in the preparation of the report, said.
Presenting the findings of the study on Friday, Subedi said public-private dialogues should be carried out in order to improve the livelihood of people.
The three sectors that have been accommodated in the report should be linked up with each other, Dr Posh Raj Pandey, executive chairman of SAWTEE, said.
"We have to think of achieving higher economic growth and maintaining competitiveness in the long run," Pandey said.

Record budget amid slim prospect of effective implementation of power programs

The great potential that Nepal holds in generation of electricity through hydropower has been a favorite topic no matter where you go in Nepal, from school classrooms to high-level party and business and trade conferences. But that is all it has been limited to -- babble.
The government this year went a step forward by allocating a record-high budget for the energy sector for Fiscal Year 2013/14. People from the general public to the hydropower developers are upbeat with the budget which has also offered some incentives for investors in this crucial sector.
However, going by our recent history, the government´s target of developing hydropower can not be achieved even with allocation of a sufficient budget.
This year, the budget for energy promotion has risen to an all time high of Rs 30 billion, which is one of the largest allocations for a single sector.
But, merely arranging a budget can´t bring about the desired result if it is not backed up by effective implementation.
The 12th development plan, which ended in mid-July, had envisaged adding 184 MW power to the national grid. But that ended up with bleak progress with addition of only 21 MW during the three-year period. The progress in extension of transmission lines is even worrisome.
The National Planning Commission (NPC), the apex body of the government to formulate policy guidance, revealed that the government could construct hardly 500 meters of transmission line against a target of completing 500 km of lines during the plan period.
"A reform of Nepal Electricity Authority (NEA) is a must to utilize the allocated amount of budget for the development of the hydropower sector in the country," an official at the Ministry of Energy (MoE) said after the government announced it was injecting comparatively higher amounts of investment into the sector.
The government in its approach paper for 13th three-year development plan has set a target of developing an additional 668 MW in the next three years.
"The government´s move to develop the hydropower sector is appreciable but the implementation institutions are weak," Subarna Shrestha, a power developer, said.
Finance Minister Shankar Prasad Koirala, who is also a former energy sectary, while unveiling the budget for the current fiscal year said that the government´s first priority would be to develop hydropower projects in the coming years keeping in view the deepening power shortage.
However, the budget failed to speak about the measures to effectively implement the programs planned in the budget.
"Our emphasis on power development is based on the grounds that the manufacturing sector should not have to be affected by crunch of the power," he added.
Realizing the need of government involvement in power generation, the government has provided authority to the Department of Electricity Development (DoED) -- an implementing body for power development -- to develop hydropower projects.
The DoED, which was simply engaged in issuing licenses for the development of hydropower projects, has got a mandate to develop the 25MW Budhi Ganga hydropower project through the fiscal policy for 2013/14.
"We want to utilize our available human resources for the programs to generate power in addition to our other regular functions,” Gokarna Raj Pantha, a senior divisional engineer at the DoED, said.
The government´s move to expedite the development of the hydropower sector should not be squeezed due to bureaucratic red-tape and the ill-performing NEA.
"We have to focus on reforming NEA and push it to sign power purchase agreements (PPAs) with private-sector power developers," said a power developer.
In many cases, NEA itself has been creating hurdles in the development of the hydropower sector.
It has been reluctant to sign PPAs for six hydropower projects – collectively called the super-six -- being developed by the private sector.
The super-six projects, which include 16 MW Singti, 24.1 MW Khare, 23.5 MW Upper Solu, 82 MW Lower Solu, 14.9 MW Maya Khola and 50 MW Mewa Khole, are well prepared for initiating construction. But NEA’s reluctance in signing the PPA deals with developers of these projects has dashed the prospects of their implementation.
NEA should be responsible for the loss of the private sector´s confidence due to its indifference in signing the PPAs.
The government has not mentioned anything about effective implementation of its projects and plans so far. The government should work on creating an environment so that the modus operandi of the implementing agencies is improved to pave the way for achieving the targeted plans for the current fiscal year and the three-year plan.

IBN, Three Gorges to hold talks on transmission lines

After more than a year of silence, China Three Gorges Corporation (CTGC) has showed interest to take forward the talks on 750-megawatt West Seti Hydropower Project.
"Officials of the CTGC have told us they would like to talk about taking forward the project, mainly about developing transmission lines to evacuate power generated by the project," a source privy to the development told Republica.
According to the source, a team of officials from CTGC are planning to come to Nepal for the talks. “The date of their visit has not been confirmed yet,” the source said.
The Investment Board of Nepal (IBN) will be holding talks with the officials of CTGC.
"The officials from IBN and CTGC will hold talks on how to develop transmission infrastructure to evacuate power generated by the project," the source added.
The CTGC officials are visiting Nepal after IBN told them its officials would not be able to visit China for the talks.
The Chinese power developer had invited officials of IBN for talks in China.
Earlier, CTGC officials had said they the project was financially viable. The officials had made the remark after conducting field study.
The government had handed 14 large scale projects, including West Seti, to IBN in May 2012.
"The talks will be mainly focused on transmission line this time as development of project largely depends on power evacuation arrangements from the project site," the source said.
The project´s fate had become uncertain after CTGC stopped communicating with the government following dissolution of Constituent Assembly in May, 2012.
West Seti, one of the mega hydropower projects in the far-western region, is among the priority projects of the government. Through this project, the government aims to supply up to 150 MW of electricity in the western industrial corridor.

HIDCL signs pact to invest in Dordi Khola hydro project

Hydroelectricity Investment and Development Company Limited (HIDCL), a public enterprise formed to address energy crisis in the country by injecting investment in the hydropower sector, has formally moved ahead to invest in Dordi Khola (27 MW) hydropower project.
“We have already signed term sheet of the project. We will be investing through a consortium of banks led by Prime Commercial Bank," Deepak Rauniyar, chief executive officer of the HIDCL, told Republica.
The consortium has agreed to invest Rs 3.17 billion in the project, according to Moti Kaji Tuladhar, deputy general manager of Prime Commercial Bank. "Altogether there are seven banks in the consortium, including Global IME Bank, Nepal Investment Bank and Nabil Bank.”
According to Tuladhar, developer of the project is investing Rs 1 billion in the project. "Non-Resident Nepalis are also interested to invest in the project," Tuladhar said.
The project, which is estimated to cost around Rs 4 billion, is being developed by Himalayan Power Partner Private Limited (HPPPL).
The HIDCL, which has already decided to invest in Mistri Khola (42 MW) hydropower project, took a decision to invest in Dordi Khola project after conducting a risk assessment study.
The project site of the run-of-the-river type project based in Chiti VDC in Lamjung can be reached via a feeder road from Udipur along the Dumre-Besisahar road.
According to HPPPL, power generated from Dordi Khola will be linked to Integrated Nepal Power System at Middle Marsyangdi sub-station by 4.3 km long 132 kV transmission line.
The project has already signed power purchase agreement (PPA) with the Nepal Electricity Authority (NEA). As per the agreement, it will sell energy at Rs 4.8 per unit in the wet season and Rs 8.4 per unit in the dry season.
Meanwhile, the HIDCL is preparing to organize a power summit to bring together financial institutions and hydropower developers from all over the world. The main objective behind organizing the summit is to lure investment in the country´s energy sector.

Govt to allow int'l development partners to issue bonds in local currency

The international development partners, which want to issue bonds in local currency to mobilize financial resources in the domestic market, have to remain under the amount limit, should be synced with the government´s calendar and should be project specific, as per the guideline that is likely to be submitted to the cabinet by mid-August.
"The Ministry of Finance is working on submitting the guideline to the cabinet for approval by mid-August," Baikuntha Aryal, joint secretary at the ministry, told Repuiblica.
The MoF started developing the guideline after two development partners expressed their interests to issue bonds in local currency.
The International Finance Corporation (IFC), the private sector lending arm of the World Bank, and Asian Development Bank (ADB) have expressed interest to issue such bonds in the Nepali market.
"All the development partners can go for issuing bonds in local currency once the government endorses the guideline," Aryal said.
Once the guideline is issued, international financial institutions with top credit ratings will be allowed to issue such bonds in Nepal. The amount thus collected will then be extended in the form of loans to the private sector for long-term investment in sectors ranging from infrastructure and agriculture.
The budget for the fiscal year 2013/14 has also made a provision to allow international development partners to issue bonds in local currency.
"For the long-term investment in large scale infrastructure projects, necessary arrangements will be made to issue bond in local currency for the international agencies that have high ranking credit rating," reads the budget.
The government has envisioned allowing development partners to issue project-specific bonds in local currency to ensure that the liquidity mopped up from the market is utilized for the development of significantly important projects in the country.
According to a source privy to the issue, the development partners are seeking to issue bonds in local currency in basket so that they can mobilize financial resources of the domestic market in the projects that have low risk and high returns.
"The MoF has already shared major points of the guideline with the ADB and IFC," a high-ranking official said, requesting anonymity. "Both the development partners have said that they would consider the government´s policy guidance."
Allowing international development partners to issue bond in local currency in basket might have negative impact on the national economy. "On top of that, no country allows international development partners to issue bond in local currency without amount limit," the official added.
The international development partners, mainly ADB and IFC, are closely watching how the government would come up with the policy to allow them to issue bond in local currency, as per a knowledgeable source close to a development partner.
However, the government believes better yields and guarantee that money invested in the bonds will be returned back will lure funds that have so far remained outside of the banking sector, which, according to estimates, stands at around Rs 20 billion.

DoED starts preparation for Budhi Ganga project

The Department of Electricity Development (DoED) is all set to conduct Environmental Impact assessment (EIA) study and prepare detailed project report (DPR) for the Budhi Ganga (20 MW) hydropower project after the government allocated fund for the project in the budget for 2013/14.
“We will start works on EIA, DPR and updating the feasibility study of the project very soon,” Gokarna Raj Pantha, senior divisional engineer at the DoED, told Republica.
In the budget for 2013/14, the government has made budgetary allocations for two projects -- Budhi Ganga and Tamakoshi V (87 MW).
“We will start constructions works on Budhi Ganga project right after completing DPR as we don´t need to get generation license,” added Pantha.
This is the first time that the DoED has been allowed to develop hydropower projects after Nepal Electricity (NEA) came into being in 1985.
The government has allocated total budget for Rs 30 billion for the development of hydropower projects and transmission lines in this fiscal year. It has decided to seek loan assistance from the Saudi Fund for Development (SFD) and Kuwait Fund for Arab Economic Development (KFAED) for the development of the project that is estimated to cost around US$ 55 million.
The SFD has already agreed in principle to extend loan assistance for the project. According to DoED sources, the government has already signed $18 million loan agreement with KFAED.
The Achham-based project is one of many hydropower projects identified under the Medium-scale Hydropower Project Study, 1998. The DoED plans to complete project by 2019.

Budget neglects Investment Board

The Investment Board of Nepal (IBN) has lost its teeth after the government failed to propose any concrete plans in the budget for fiscal year 2013/14 to improve the institutional capacity of the high-level body established to facilitate the implementation of large-scale projects in the country.
The IBN that was established more than one and a half year ago through the Investment Board Act, 2011 had an ambitious target to bring in US$ 1 billion foreign direct investment (FDI) in the country in the first half of the fiscal year 2012/13. The whole fiscal year that was supposed to be celebrated as Investment Year 2012/13 was gone almost without unveiling any programs, let alone bringing in such a huge amount of FDI.
Unveiling a full budget of Rs 517.24 billion for the fiscal year 2013/14, Finance Minister Shankar Prasad Koirala announced several programs claiming that they would boost the confidence of the private sector. But the budget has remained vague when it comes to upgrading the institutional capacity of the IBN that even lacks adequate human resources and technical capacity to facilitate large scale infrastructure projects in the country.
"The Investment Board will be equipped with resources," reads the budget. The budget has no specific plans to upgrade the status of the IBN. The IBN had sought Rs 280 million for the fiscal year 2013/14 to hire different technical experts for different large-scale projects. But the government has allocated just RS 120.9 million to the IBN for the fiscal year.
Radesh Pant, chief executive officer of the IBN said that the board is in a ´wait-and-see´ mood for the time being as there is no parliament to carry out the policy reform process. "We are in the wait and see mood to kick-start the actual roadshow for the celebration of Investment Year," Pant told Republica.
The Babu Ram Bhattarai-led government had handed over a total of 14 mega projects, including five large hydropower projects, to the IBN in May 2012. The IBN that was also supposed to unveil different programs to lure investment from the foreign as well as domestic private sectors has lost its vigor as the government has earmarked a meager budget, and, that too, with no concrete plans, says a high-ranking official at the Office of the Prime Minister and Council of Minister, requesting anonymity.
A few development agencies are also in the wait-and-watch mood to actually provide technical assistance to the IBN as the government fails to show strong ownership to improve the institutional capacity of the board. Millennium Challenge Corporation (MCC), a United States Governmental agency, has been studying whether to support the IBN or not to develop infrastructure in the country.
"MCC is currently working to identify whether the government would move forth toward improving institutional capacity of the IBN or not," a source privy to the issue told Republica. MCC is trying to work in Nepal for poverty reduction by developing hydro infrastructure, improving labor relation and transport connectivity."