Time for Rethink

First published in Rebublica Daily

It is a shame that Investment Board Nepal (IBN), established to bring foreign direct investment into the country, is wasting time holding meetings with donors seeking aid.
Former Prime Minister Dr Baburam Bhattarai had announced that the IBN’s aim was to bring in investment of US $1 billion in the first half of the fiscal 2011/12.
 Two years down the line, it has turned into just another government agency that hobnobs with donors.
The country needs infrastructural reforms that can accelerate economic growth which has stagnated since 1993/94. People were expecting the IBN to bring FDI, help large scale-projects materialize, and create ripple effects by generating jobs. The long-term goal was to develop an institution that works efficiently to implement projects to fill the infrastructure gap in Nepal.
The IBN was formed based on the Investment Board Nepal Act 2011, aiming to accelerate implementation of the projects that had been in limbo for decades. The Bhattarai-led government then handed over 14 different large-scale projects, including five hydropower projects, to the IBN in May 2012. The board of the IBN, which is chaired by Prime Minister, in turn gave it the mandate to negotiate with foreign investors directly. This decision had generated a lot of hope regarding FDI and infrastructure development in Nepal.
The IBN had received a mandate from the Bhattarai-led government just a day before the first Constitution Assembly (CA) was dissolved. The then PM Bhattarai had expressed his zeal to develop infrastructures even in the midst of political chaos, for which he should be appreciated.
Currently, the IBN is responsible for facilitating the implementation of 14 projects, including West Seti (750 MW), Upper Karnali (900 MW), Kathamdnu-Terai Fast Track, Nijgadh International Airport, upgrade of Tribhuvan International Airport and establishment of star hotels. Unfortunately, none of these projects have any momentum, even after two years of IBN formation.
So far, the IBN has not been able to make any achievement public. It is led by a CEO whose experience in private sector is limited to working in commercial banks. In an article more than a year ago, IBN CEO Radhesh Pant had said, “Our hydro resources belong to all the people of Nepal. It is the responsibility of any government to ensure that our nation’s resources are managed wisely for the benefit of our people.” He was right.
 The question, now, is whether the IBN is really working to bring in FDI to implement these projects! Pant must be aware that there would be no point of IBN if it does not succeed in sealing deals with investors.
No doubt, there are problems. Foreign investors are not waiting in line to invest as and when we want them. But this does not justify IBN’s increasing involvement with donors. Honestly, we already have too many institutions that work with donors.
After two years of its existence, there should be an independent review of the IBN, its progress, achievement and the people involved in it. It is an institution created for efficiency. Mediocrity and inefficiency have no place in this institution.
We already have a number of inefficient public institutions, including 37 public enterprises. The office of the IBN is receiving assistance from Centre for Inclusive Growth (CIG), an initiation of British government’s aid agency Department for International Development (DFID). But what has it achieved so far? There are questions to be asked and issues to be discussed before jumping into consolidating funds for the IBN.
We should appreciate that the bilateral and multilateral donors are interested in helping develop Nepal’s infrastructure. But we should also use our judgment in deciding when to ask donors for money and when to make do with what we have.
Going further, bringing additional FDI in the country is not an easy task. The IBN should let people know what it is doing to take forward the 14 projects that it is responsible for. The IBN should not get involved in just about anything to develop infrastructure. It should focus on what it has been assigned to do—convince investors to come to Nepal. People would like to know what is going on with the five major hydropower projects. How serious are Indian and Chinese investors about coming to Nepal?
We need both foreign aid and FDI for economic growth. Eugene Bramer Mihaly in his book Foreign Aid and Politics in Nepal makes a vital but provocative point when he asks whether Nepal consumes aid or aid consumes Nepal. Foreign aid is the holy cow that no one wants to question for reasons well understood. With this in mind, we need to be cautious when we use aid money.
The IBN has become synonymous with infrastructure development, and it should know that more than half a century of aid in Nepal has not resulted in any large scale infrastructure project. These projects can be developed with FDI. Spend time with investors. Time with donors might be fun, but will prove futile in the long run!

Failed policies and plans of Nepal since 1950s

Author Narayan Khadka, in his paper on ‘Challenges to Developing the Economy of Nepal’, which published in 1998 in Contemporary South Asia, argues that the main reason for the underdevelopment of Nepal was because of poor execution of the policies and plans it formulated. It’s been more than one and half a decade since the paper was published, the situation of the country has not been improved much. Some of the sectors such as media, telecommunication and services sector have been performing relatively better but the overall macro economy of the country is still frustrating. 

The abstract of the paper:

Nepal initiated a development policy and plans to both modernize and develop its predominantly agricultural economy only in the early 1950s. In the last four decades, the country has implemented nine five-year plans and invested billions of rupees to developed its economy. This article examines the poor performance of past development efforts in the light of myriad of challenges, local and global economic and political, structural and institutional. It includes that the economic reforms which have been introduced vigorously since the restoration of democracy in 1990 will not yield the desired results unless they effectively and positively contribute to improving the agricultural sector, lead to higher productivity and growth, generate increase mobilization of domestic resources, alleviate poverty and bring greater social equity.

Further, the author discuss the challenges of the economy of the Nepal as, Nepal has been experiencing with different development strategies every decade of so since 1950s. An inflow of aid helped create a minimum of socio-economic overheads in the country. However, the country is caught in a poverty trap and despite 40 years of planning and development efforts, 45 percent of the population have an income of less than a US$ 1.00 a day. The problems Nepal has been facing with regard to the development of the economy are not only socio-economic but also geographic and structural. 

FDI, foreign trade as factors of inequality: Case from China

Authors Xiaobo Zhang & Kevin H. Zhang demonstrate how two major factors of the globalization, foreign trade and foreign direct investment, have been contributing for regional inequality within a developing country, with the evidence from China. The paper has applied same production function in all 28 different provinces of China. “Gains of economic growth have not been evenly distributed across regions. The inequality might have been caused by many factors but foreign trade and foreign direct investment (FDI) also has a major role to play in it,” reads the paper. “A striking feature is that coastal provinces have generated more trade volume (over 86 percent of total) and attracted far more FDI than inland provinces.”

Abstract of the paper:

Developing countries are increasingly concerned about the effects of globalization on regional inequality. This article develops an empirical method for decomposing the contributions of two major driving forces of globalization, foreign trade  and foreign direct investment (FDI), on regional inequality and applies it to China. Even after controlling for many other factors, globalization is still found to be an important factor contributing to widening regional inequality. The article ends by investigating the role of factor market segmentation in aggravating the distributional effect of changing regional comparative advantages in the process of globalization.

Note:

While wondering to connect this framework to Nepal (Though Nepal is a under developed country), the role of foreign trade and foreign direct investment in the economic growth has been limited due to our supply-side constraints. The acute shortage of power for smooth operation of manufacturing sector has always been a major bottleneck for the development of Nepal. There is very rare chances of attracting FDI at a time while domestic firms are shutting down their business due to lack of enough power supply in their firms. 

Can tourism encourage better export performance

Giving an example of pashmina, authors Jose Guilherme Reis and Gonzalo Varlea discuss on ‘can tourism encourage better export performance in diversification in Nepal’. The paper has highlighted the importance of brining “fair” in the country without much expenses. The paper, which has given a detailed description of the Nepal’s pashmina and firms’ behavior in the past, has following part: 

Entering and successfully surviving in export markets is a costly process for firms. Key steps for success include learning about the existence of foreign demand, determining the production costs of exportable goods, building a high-quality reputation, succeeding in product branding to reduce competitive pressures, constant upgrading of quality standards to better serve demanding international clients, and remaining competitive with other players in the global marketplace. Drawing on the findings of recent research (Reis and Varela 2013), this note argues that tourism can help alleviate some of these costs by providing a relatively inexpensive platform for cost discovery and acting as a low-cost in-house trade fair, accessible to all domestic producers. Combining product-level data on the world’s and Nepal’s exports (for goods that are both related and unrelated to tourism) with Nepalese data on tourist inflows and expenditures and macro indicators on relative prices results in a positive association between tourist inflows from given destinations and their expenditures with future merchandise exports of tourist-related products to those destinations. For goods previously unrelated to tourism, data reveal no connection between tourism flows and their future exports. The spillovers from tourism into merchandise export performance and diversification imply that there are gains to be had from cooperation between tourism and export promotion activities.

IMF’s global policy agenda

Though Nepal has very limited effect from the global economy it is always interesting to see how international institutions look into economy and what they prescribe for countries. The International Monetary Fund (IMF) has come out with a policy paper on what should be the agendas for the period of time ahead. The agendas varies from country to country. Here, we can see some highlights of those policies and priorities.

From the policy paper:

Advanced economies - Macroeconomic policies should remain supportive, with gradual 

fiscal adjustment anchored by credible medium-term plans. The United States needs to raise 

the debt ceiling and agree on a medium-term fiscal adjustment roadmap, carefully manage 

the normalization of financial conditions, and strengthen appropriate oversight of shadow 

banks. The euro area requires more actions to reduce financial fragmentation and address 

architectural issues of the union, as well as structural reforms to revive growth. In Japan, 

reform success hinges on ambitious fiscal medium-term adjustment and measures to 

invigorate growth.

Emerging market economies - Policy responses to recent financial turbulence should be
anchored by sound and credible monetary policy frameworks. Exchange rates should be
allowed to respond to changes in fundamentals, with buffers used to avoid excessive and
disorderly adjustment. Gradual fiscal consolidation should continue in countries with high
deficits and debt. Removing structural obstacles—including infrastructure deficits and entry
barriers in markets—will be critical to support high growth going forward.

Note: Nepal is taken as one of the low income countries

Low-income countries - While growth has remained resilient in most countries, global
downside risks point to the need for proactive macroeconomic policies. Bolstering foreign
reserves and maintaining domestic fiscal space are priorities. Action on many fronts is
needed to promote inclusive growth.

Globally - Addressing remaining external imbalances requires further progress in closing
policy gaps in major economies. Pending regulatory reforms must be completed to ensure
that the global financial system will transition to a safer state. 

Potential domestic demand boost the growth rate in China, India

The Economic Outlook for Asia, China and India 2014 shows the region’s situation beyond the middle-income trap.

The report has highlighted that the domestic demand will be in rise in the coming years. The report reads:

 Real GDP growth in Emerging Asian economies is projected to be moderating gradually but remains robust over the 2014-18 period, according to the results of the OECD Development Centre’s Medium-Term Projection Framework for this 2014 edition of the Economic Outlook for Southeast Asia, China and India. As a whole, the Emerging Asian Economies are expected o grow by 6.9 per annum in 2014-18.

                                                                                    

Local farmers panic as India endorse food security bill, 2013

Indian Food Security Bill 2013 has panicked the Nepali market as experts saying that it would have an adverse impact. Republica reports, “Given Nepal’s increasing dependence on India for food and other farm supplies, introduction of the food security law is all set to weaken the competitiveness of rival products in Nepal. It further reports that the newly passed law is aimed at reducing farm costs, Indian products will be available at far cheaper prices in Nepal itself, compared to the prices of locally produced products.

The government has already endorsed the draft of the Agriculture Development Strategy (ADS) aiming to improve the livelihood of farmers in the country. The effect that is resulted from the Indian Food Security Bill is less important than increasing food insecurity in the country. According to the World Food Program (WFP), people from more than 42 districts in Nepal under food insecurity.

Mismatched labor market: Case from Japan

Ippei Shibata in a working paper argues that the labor market has been sharply mismatched in terms of occupation and employment type. The unemployment rate in Japan is low but it is steadily increasing in last three decades. The 10-year average unemployment rate rose from 2.5 percent in the 1980s, to 3 percent in the 1990s, and to 4.7 percent in the 2000s. 

Shibata asks is the labor market mismatch a big deal in Japan. yes, it has been a problem. “It is an important issue and policy measures and structural reforms that can successfully reduce labor market mismatch in japan will play an important role in the future,” reads the paper making conclusion. 

Stay the course

Currency peg with India

The International Monetary Fund (IMF) in its 2012 report makes an explicit remark that the exchange rate peg of Nepali rupee (NRs) with Indian rupee (IRs) has served as a pillar of macroeconomic stability in Nepal. India is the largest trading partner of Nepal, a small open economy.

The current freefall of IRs has made us contemplate whether we should terminate or revalue the currency peg with India. In 2003, IMF had issued a study paper stating that Nepal may want to rethink the currency peg, but that would not be a good idea given the impact of Indian economy on Nepal and the open border. Moreover, some pragmatic economic factors should be borne in mind while revisiting Nepal’s currency peg with India.

The historical background of the peg is one factor we need to take into account. There was a floating exchange rate system between the two countries from 1932 to 1960. This created a lot of uncertainty, which had negative effect on our economy. There were several money exchangers in different parts of the country. Speculation and hoarding of currencies was rampant, while the market was not operating as expected since money changers made people’s lives difficult.

Since early Shah Period, Nepal has relied heavily on India for its foreign trade—more than two-third of its foreign trade is with India now. Prior to 1932, the metallic currency of Nepal was valued at NRs 128 NRs for IRs 100. The rate was fixed in 1877 by the then Rana Prime Minister Ranoddip Singh. The exchange rate had remained constant until 1932. It had been quite stable from 1960 to 2002 when the rate saw seven adjustments, the last one in February 1993. That adjustment of NRs 1.60 equaling IRs 1.00 prevails to this day.

At that time, one US dollar was equivalent to NRs 49. Both the Nepali and Indian economies, including the global economy, have witnessed massive changes in the last two decades, mostly owing to the 2008 global financial crisis. But the exchange rate between the two currencies has stayed the same. The Indian economy started progressing after sweeping liberalization by the minority government of P V Narasimha Rao in 1991. The Nepali economy started falling after a record growth rate of 7.5 percent during the fiscal 1993/94.

The question of whether to revalue or end the pegged exchange rate regime is not new. It had surfaced a couple of years ago as well. The then Finance Minister, Surendra Pandey, and Finance Secretary had to make a statement that the exchange rate would not be changed immediately. Today, voices are rising that the country should gradually prepare to end the pegged exchange rate regime with India by consolidating its domestic economy. That could be an option, if we could strengthen our economy.

But before jumping to end the pegged exchange rate, we need to look at how the two economies have evolved in the last couple of decades. Now, the pessimism over the sluggish growth of the Indian economy has compelled foreign investors to pack up, resulting in the fall of IRs. However, the Nepali economy that was struggling to maintain a mere four percent economic growth must remember that the Indian economy grew at five percent even at its lowest.

Meanwhile, our economy faces two-way pressures, one from the trade that we do in IRs, and another from the trade in convertible currency (US dollar). Here, we have to think about our import basket, which is mostly full of Indian goods, mainly petroleum products and automobiles. Due to the freefalling currency, Nepal Oil Corporation (NOC) has already asked for a loan worth NRs 4 billion for petroleum imports.

A statement from the governor of the Central Bank that the exchange rate should not be tampered with at the moment is understandable. The peg with IRs is good for the economy; it forestalls the possibility of currency speculation of the kind witnessed during 1932-1960. Nonetheless, we do not have the luxury to sit back and do nothing as the currency continues to fall without a foreseeable end.

The governor is floating the option of import substation, but that would be a dangerous step, maybe even suicidal in the long run. Import substitution mechanism, which had been adopted by Jawaharlal Nehru in India after Independence in 1947, had taken Indian economy to a deadend. Nepal government, rather, needs to work on reducing the size of informal economic activities, which constitutes around 40 percent of total economy today.

Some government officials and economists are in favor of increasing the export basket, which is not a viable option either. Our goods and services cannot be competitive in the global market unless we have smooth electricity supply to our industries. And this we cannot do for the next four to five years.

The government has to work with the Central Bank to identify measures needed to take advantage of this situation. There are several steps that the government can take, such as streamlining remittance flow into productive sector, launching different programs to lure foreign tourists, and even asking Non-Resident Nepalis to invest in productive sectors while the US Dollar is appreciating.

There are several steps that the Central Bank can take to make the situation favorable for the country, though it cannot do anything directly to accelerate growth. The double digit inflation hitting people’s lives hard can be tackled by the Central Bank through different measures. Neither readjustment of the exchange rate, nor termination of currency peg will favor domestic economy. People’s sentimental reasons for terminating the currency peg with India should be countered with sound economic reasoning.

PEs & Productivity

The government’s move to improve the condition of Public Enterprises should be clear in terms of broader political framework. Most of the PEs are suffering from constantly changing approach from the government. The Kathmandu Post reports, “Finance Ministry is working to assess the status of each PE and determine whether it should run that particular PE.

Most of the PEs have more or similar kind of problems. Overstaffing, lack of adequate capital, power shortage and among others are the major problems that are limiting PEs for efficient productivity. The government should take some immediate measures on how to utilize the property that the total 37 PEs have in the country

ANTUF-R demands Rs 15,000 as minimum pay

The All Nepal Trade Union Federation-Revolutionary (ANTUF-R) affiliated to the CPN-Maoist has threatened to shut down all industrial establishments across the country for indefinite period if minimum monthly remuneration and daily wage of workers are not raised to Rs 15,000 and Rs 700, respectively, within five days from Friday.
The warning comes four days after the government raised minimum monthly remuneration of workers to Rs 8,000 --including basic salary of Rs 5,100 and dearness allowance of Rs 2,900 -- from Rs 6,200. The daily wage of workers was also raised to Rs 318 from Rs 231.
“We had to issue this ultimatum as the new deal reached between the government, employers and trade unions is not in the interest of workers,” says an ANTUF-R statement issued on Friday.
The ANTUF-R claims a delegation led by the trade union had met with Chairman of the Interim Election Council Khil Raj Regmi in March and handed over a 25-point memorandum seeking radical changes to minimum remuneration and daily wage structures. After the trade union´s calls were not heard, it issued a seven-day ultimatum on May 15 and announced a series of protests.
“But instead of listening to our genuine concerns the government reached a deal with trade unions that had deviated from our movement,” says the ANTUF-R statement, adding, “The newly reached agreement on minimum remuneration and daily wage is not acceptable to us.”
The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the largest umbrella body of the private sector, has called the demands and ultimatum of the ANTUF-R as “unfortunate”.
“Such demands would only discourage private and foreign investment. This would ultimately affect job creation process and force more youths to leave the country,” Manish Agarwal, vice chairman of FNCCI´s Employers´ Council, told Republica.
He also said it would not be appropriate to initiate any discussion on wage revision at the moment as “we had just raised minimum remuneration and daily wage of workers in a significant manner”.
A high-ranking official of the Ministry of Labor and Employment said, “At a time inflationary pressure is creating hole in the pocket of ordinary citizens, the demands of the trade union sound genuine. But we also have to take the condition of industrial establishments into account as many are not operating in full capacity due to various problems ranging from power outage and labor-related problems to lagging economic growth rate.”
Asked why the ANTUF-R was not included in the wage negotiations between the government, employers and trade unions, the official, on condition of anonymity, said the government sends its invitation to the Joint Trade Union Coordination Committee, a group of leading trade unions operating in the country. “It is up to the committee to send representatives to participate in the wage-related negotiations,” the official further said.

IBN, SN Power hold PDA talks

The two-day negotiation talks on project development agreement (PDA) between the government and SN Power, a Norwegian power developer, for Tamakoshi III (650 MW) hydropower project concluded here on Monday.
Officials of the Investment Board Nepal (IBN) said the talks became successful in setting the ground for further discussion. Both the sides have agreed to hold next round of meeting soon, according to a source that attended the meeting.
Radesh Pant, CEO of IBN, had led the government side in the meeting while Dr Sandeep Shah, vice president and country director of SN Power, led the Norwegian firm in the meeting.
The IBN, which was formed around one and half years ago with the aim of facilitating the implementation of large scale projects on a fast track mode, held the discussion based on the PDA template developed with the help of London-based legal consulting firm Herbert Smith.
SN Power is the first power development to sit in PDA negotiation for the development of large scale hydropower projects (above 500 MW).
The PDA negotiation indicates that SN Power is serious about developing the project.
“The project will materialize if the government concludes PDA negotiation with the developer successfully," an official at the Office of the Prime Minister and Council of Minister (OPMCM) told Republica.
The IBN and SN Power signed the project negotiation agreement (PNA) a couple of weeks ago. As per existing rules, PDA talks should be finalized within one and half years of signing the PNA.
SN Power had received survey license of the mega hydropower project in 2007. It has already completed the environment impact assessment (EIA) of the project that is estimated to cost Rs 120 billion.
Meanwhile, the IBN is also trying to finalize PDA with two Indian power developers -- Sutlej Jal Vidyut Nigam and GMR. Sutlej is developing the Arun III (900 MW) project, while GMR is involved with Upper Marsyangdi and Upper Karnali projects.

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."

Sutlej expects PDA to be signed within two weeks

Indian power developer Sutlej Jal Vidyut Nigam Ltd, which is engaged in the development of Arun III hydropower project, is looking to sign project development agreement (PDA) before its survey license for the project expires on July 15.
Officials of The Investment Board of Nepal (IBN) and SJVNL have are holding PDA negotiations for the past two weeks. “The negotiation is moving ahead at a satisfactory pace,” Radesh Pant, chief executive officer of the IBN said.
The government had granted survey license to the SJVNL in July 2008.
The export-orientated project based in Sankhuwasabha district is being developed pas per the built-own-operate and transfer (BOOT) modality. The government has given the project to SJVNL for 30 years as per the BOOT Act.
The SJVNL will not have any difficulty in selling power generated by the project in India as one of its objectives is to address power deficit in India. Officials of SJVNL have said that they would export power to India even if two governments fail to sign power trade agreement (PTA).
As there is no problem in market management, the PDA negotiation being held in Kathmandu is gaining momentum.
“There lots of terms and conditions to be finalized. We want deal to be in national interest," Pant said. "We also want to ensure that the developer should not feel any obstacles while implementing the project."
SJVNL has agreed to provide 21.9 percent of the power generated from the plant free of cost to Nepal.

IBN officials to visit Malaysia

A team of officials from the Investment Board of Nepal (IBN) are all set to visit Malaysia this week to hold interaction with the officials from the Malaysian Investment Development Authority (MIDA).
"We will try to learn how the MIDA works and how it manages human resources," Mukunda Paudel, joint secretary at the IBN, said. Paudel will lead the Nepali team to Malaysia. Other members in the team include Krishna Acharya, under secretary at the IBN, Rita Regmi and Dilip Bahadur Kshetri. "The team will also try to learn how the MIDA runs promotional activities to lure fresh investment," Paudel said. The MIDA is the Malaysian government´s principal agency for the promotion of manufacturing and services in the country.

Government, Sutlej confident of inking key deal on Arun-III

The development of one of the largest hydropower projects in the country, the 900-megawatt Arun-III, has picked up momentum after 30 years of fuss and floundering, with the government and Indian power developer Sutlej Jal Vidyut Nigam Ltd (SJVNL) finally beginning negotiations on the project development agreement (PDA).
The government and SJVNL have both expressed a high level of confidence that the key agreement for commencing the project construction would be inked.
The Investment Board of Nepal (IBN) and SJVNL kicked-started the PDA negotiations last week. “We started negotiations with SJVN and things are taking a right direction,” Radesh Pant, chief executive officer of IBN, told Republica on Thursday.
Expressing confidence over developing the project, R. P. Singh, chairman and managing director of SJVNL, said there was no fear of losing the project. “Now the project is moving. The PDA discussions are on. It is right that the PDA was submitted around two years back. What can we do, this is the way with Nepal, our partners on the project,” reports Live mint, an Indian newspaper, quoting Singh. “I am quite sure, the way the negotiations are on with IBN, that it will be sorted out.”
The development of the project, which has always gotten politicized, seems finally to be happening as both the government and the developer express the same level of confidence. “I am sure the deal will be sealed. But I can’t say whether it will take just a few weeks or around a year to finalize all the terms and conditions of the PDA,” Pant said. The project based in Sankhuwasabha district was initially scheduled to be developed by the government itself with the assistance of the World Bank.
James Wolfensohn, then president of the World Bank, cancelled the project development in August 1995 in agreement with the CPN(UML)-led government, after a telephone conversation with then prime minister Manmohan Adhikari, according to a World Bank news release.
SJVNL, which has agreed to provide 21.9 percent of the power generated from the plant to Nepal free of cost, is yet to finalize different issues related to the PDA. The export-oriented project will get a generation license from the government after it demonstrates strong enough financial resources. SJVNL is targeting to utilize the energy generated from the project to meet the growing demand for electricity in the Indian market.
“SJVNL itself seems enthusiastic to take the project forward but it might just be a gesture,” said a legal advisor associated with Herbert Smith, an international legal advisory body based in London. Herbert Smith, which developed the PDA template -- a baseline document for PDA negotiations -- is also supporting IBN to negotiate with the developers.
SJVNL had already submitted a detailed project report for Arun-III in 2011. The report is still under consideration. The government has handed over the project to SJVNL under a built-own-operate-transfer (BOOT) scheme for 30 years. It is still unclear exactly how all the issues related to the project will move forward, Pant said.
Large export-oriented hydropower projects have been politicized in the past, mainly by the ultra-leftist forces. The Mohan Baidha-led CPN-Maoist is still against projects such as Upper Karnali, Upper Marsyangdi and Arun-III, in which Indian developers are involved.
Quoting former Indian ambassador to Nepal Shiv Mukherjee, Live mint has written, “Hydroelectric power and its potential have been highly politicized in Nepal. I won’t comment on specifics…”

SN Power, IBN holding second round of neogitation today

SN Power, the Norwegian firm involved in the development of Tamakoshi III (650 MW) hydropower project, and Investment Board of Nepal (IBN) are holding second round of negotiation for project development agreement (PDA) on Thursday.
The first round of negotiation between the two parties had ended without any conclusion after the Norwegian firm sought sovereign guarantee for the project.“The meeting scheduled for Thursday will be focused more on market arrangement for power generated by the project," a source privy to the issue told Republica on Wednesday.
The IBN, a high-level government agency formed to facilitate the implementation of large scale infrastructure projects on a fast track mode, has suggested to the SN Power to find market for power generated by the project on its own.
The source said officials of SN Power have already held talks with Nepal Electricity Authority (NEA), requesting the latter to purchase power generated by the project. “The NEA, however, has turned down their request,” the source added.
The PDA negotiation, which is supposed to scrutinize all the issues related to project development, is taking place based on the PDA template developed by the Herber Smith -- an international legal advisory body based in London.
“This time also the IBN will suggest the officials of SN Power to find market for power on its own,” the source said.
Radesh Pant, CEO of IBN, will lead the government side in the meeting, while SN Power will be led by Dr Sandeep Shah, vice president and country director of SN Power and Stale Rustad, project director for Asia of SN Power.
The first meeting of PDA negotiation was held on May 27.
Baikuntha Aryal, joint secretary at the finance ministry, who is also a member in the government´s PDA negotiation team, declined to divulge details of the ongoing negotiation with SN Power, saying that he has signed a ´non-disclosure agreement´.
The IBN and SN Power had signed the PNA almost a month ago. The document abides the developer to complete PDA negotiation within 18 months of the signing of PNA.
The government had granted survey license of the project to the SN Power in 2007. It has already approved environment impact assessment (EIA) report of the project, which is estimated to cost Rs 120 billion, prepared by SN Power.

Himal Hydro receives generation license for Middle Modi hydro project

The government has granted generation license to Middle Modi Hydropower Project (15.1 MW) based in Parbat district.
The Department of Electricity Development (DoED) decided to issue generation license to the project after its developer expressed commitment to achieve financial closure within a year of receiving generation license.
According to Gokarna Raj Pantha, senior divisional engineer at the DoED, the Middle Modi Hydropower Limited (MMHL), a subsidiary of Himal Hydro and General Construction Limited, is developing the project.
"The DoED has decided to grant conditional generation license as the developer has assured us that it would demonstrate bank guarantee within a year,” Pantha told Republica.
The run-of-the-river type project that is estimated to cost Rs 2.3 billion has already signed power purchase agreement (PPA) with the Nepal Electricity Authority (NEA).
According to Pantha, the project has agreed to sell power generated by it at Rs 4.80 per unit during wet season and Rs 8.40 per unit during dry season.
The power generated by the project can be linked to the national grid by developing a 4-km 132 kV single circuit transmission line from the plant site to NEA sub-station at Patichaur in Parbat.
Meanwhile, sources privy to the development told Republica that banks are reluctant to invest in the project. “But the developers are trying to get financial sources for the project," a source said.
Himal Hydro, which has already developed more than a dozen small hydropower projects, including Tinau Hydropower (1 MW) and Tatopani Small Hydro Project (2MW), has already completed environment impact assessment (EIA) study of the project.

DoED may develop Budi Ganga hydro project

he government is mulling over handing over the task of implementing Budi Ganga (22 MW) hydropower project to the Department of Electricity Development (DoED).
“We are preparing to hand over the task of implementing the project to the DoED through the fiscal policy for the upcoming fiscal year 2013/14,” an official at the Ministry of Energy (MoE) told Republica on Friday.
This is the first time that the department, which has been assigned the task of issuing hydropower licenses, is getting the task of implementing a hydropower project after Nepal Electricity Authority (NEA) came into being.
“Few months ago, we had submitted a proposal to the ministry requesting it to give us project implementation task as well,” Madhu Prasad Bhetwal, senior divisional engineer at the DoED, said. “The project will be handed over to us once the government adopts the policy of investing on hydropower projects on its own through the fiscal policy for 2013/14.”
The government has decided to seek loan assistance from the Saudi Fund for Development (SFD) and Kuwait Fund for Arab Economic Development (KFAED) to implement the project that is estimated to cost around US$ 55 million.
The SFD has agreed in principle to provide loan assistance to the government for the project. "The government signed $18 million loan assistance agreement for the project with KFAED in March,” added Bhetwal.
The government is yet to allocated funds for the project based in Achham district in the far-western region.
“If everything goes as planned, the government will allocate necessary amount for the project in the upcoming budget,” said Bhetwal.
The project is among the many hydropower projects identified under the medium-scale hydropower project study conducted in 1998. The DoED aims to complete the project by 2019.
“We will conduct environment impact assessment (EIA) study once the project is formally handed over to us," Bhetwal said.
However, sources at the energy ministry say Nepal Electricity Authority (NEA) is against the idea of allowing the DoED to implement the project. “NEA fears that if the DoED is allowed to implement projects, it will not let the former implement the comparatively better projects in terms of cost and rate of return,” an energy ministry source said, quoting NEA officials.

Industrial sector pleads for energy, favorable environment

At a time when the election-government is not in a position to make big changes in economic policies, the private sector which has been hit hard by different adversaries has high hope of getting some relief from the upcoming budget.
Finance Minister Shankar Koirala and other ministers have been publicly announcing that the government, whose prime mandate is to hold the proposed elections for the Constituent Assembly (CA), is not coming up with new populist programs like previous governments would.
But, representative organizations have been putting pressure on the government to roll out at least a few programs that will create a conducive environment for doing business by instilling a sense of confidence among business people.
As the government is working on drafting a budget for the upcoming Fiscal Year 2013/14, business people have intensified their lobbying and interaction programs with government officials to get their suggestions incorporated in the government’s upcoming policies.
Two representative organizations of the private sector, the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Nepalese Industries (CNI), have been separately holding pre-budget discussions seeking a host of incentives, including rebate in taxes as well as industrial facilities for bringing the slowing industrial sector back on track.
The business community has requested the government to increase the income tax threshold to Rs 400,000 for individuals and Rs 500,000 for families from the current threshold of Rs 160,000 and Rs 200,000, respectively.
Additionally, CNI has asked the government to scrap the additional 40 percent tax that is imposed on corporate firms having disposable income of more than Rs 2.5 million. “Our request is to make Nepal a country with low income tax so that business can flourish. Though the government is mandated mainly with holding the upcoming election, it must try to address the problems facing the Nepali private sector,” Hari Bhakta Sharma, the vice-president of CNI said in a pre-budget discussion.
The government itself has formed a committee at the Ministry of Industry (MoI) to come up with recommendations that can be instrumental in stimulating economic activities and boosting investment in the country. The committee led by the chief of Industrial Promotion Division (IPD) at the MoI has submitted a proposal to the government with a bundle of recommendations.
Finance Minister Koirala is been publicly making clear that the government will focus on energy, infrastructure, agriculture, tourism and export in coming fiscal year. Private sector organizations have demanded government support for reviving the industrial sector. “We request that the government provide a 50 percent grant to install an alternative energy plant in the firms that have been badly hit by the acute power shortage,” reads the written suggestions that CNI has presented to the government.
The businessmen have also put forth their suggestions on infrastructure development, export promotion, customs duty revision, VAT reform, financial sector management and the capital market.
The first and only Forbes billionaire Binod Chaudhary, who is also President Emeritus of the CNI, has suggested the government to not just focus on revenue collection.
“The government should put more effort on increasing development expenditure in the country so that economic activities would happen,” Chaudhary said. “Our economy is heavily dependent on remittance and revenue, which is not good for prosperity in the long run.”
Meanwhile, businessmen have also asked the government to introduce multiple VAT rates. Among other demands, industrialists have requested for different customs duty rates on import of raw materials and finished products. “It’s unfair to pay the same rate on import of raw material and finished products,” Sharma said.
Finance Minister Shankar Prasad Koirala has clarified that the government would not change the threshold of VAT. “It would not be possible to introduce a multiple-VAT system in the budget for upcoming fiscal year,” Koirala said.
Highlighting the importance of having adequate power available for industrial development in the country, Koirala said the government would allocate a substantial amount of budget in developing transmission lines to evacuate power from the hydropower plants. “The government, through the budget, will also push for signing power purchase agreements (PPAs) for different small, medium and large-scale hydropower projects,” Koirala said, interacting with the businessmen.
MoI, which is assigned to facilitate industrial development in the country, has also suggested that the government take different measures to uplift industrial advancement. “The MoI has recommended that the government announce subsidies and waive-off income tax and rebate VAT in a bid to leverage industrial development and attract fresh investment from the private sector,” Bishnu Dhakal, under secretary at MoI said.
The committee at MoI has also asked the government to provide subsidy on seeds to jute farmers. Other suggestions include: provision of VAT rebate for dairy firms, customs duty waiver on imports of machines by small and cottage industries and subsidized loan to factories aiming to substitute import of meat and meat products.
The moribund economy that desperately needs sufficient power has been announced as a first priority of the govern-
ment and businessmen are looking for it.

MoI makes slew of recommendations for upcoming budget

The Industry and Investment Promotion Sub-Committee (IIPC) at the Ministry of Industry (MoI) has made slew of recommendations to the Ministry of Finance (MoF) to incorporate in the budget for the fiscal year 2013/14.
“The IIPC has, among others, recommended to the government to announce subsidies and waive off income tax and VAT in a bid to give leverage to industrial development and attract fresh investment in infrastructure development,” Bishnu Dhakal, under secretary at MoI, told Republica on Tuesday.
The IIPC has asked the government to provide subsidy on seeds to jute farmers. Other suggestions include provision of VAT rebate for dairy firms, customs duty waiver on imports of machines by small and cottage industries, and subsidized loan to factories aim to substitute import of meat and meat products.
Similarly, the IIPC also requested to the government to allow sick industries to sell property pledged as collateral to get bank loans and slap one percent customs duty on import of machines used for measuring standard and quality of goods and import of coal by cement factories.
Dhakal said the IIPC, however, has suggested that the government increase customs duty on import of clinker by cement factories. “The MoI wants the domestic cement factories to source raw materials locally,” he added.
The IIPC has suggested that the government waive off income tax for firms operating inside IT Park in Banepa and Special Economic Zones different parts of the country. It has also proposed VAT rebate for firms that utilize garbage to produce different goods.
Likewise, the IIPC has asked the finance ministry to provide discount on income tax to firms that process medicinal herbs.

Govt, ADB, WB prioritize investment in energy sector

Realizing that acute power shortage is affecting people´s daily life and inflicting huge loss on industrial sector, the government, Asian Development Bank (ADB) and the World Bank (WB) have put investment in hydropower sector in their first priority.
“Investment in hydropower sector is the top priority of the upcoming budget for fiscal year 2013/14,” Finance Minister Shankar Prasad Koirala told Republica about a week ago while interacting with a team of business journalists from Nepal Republic Media.
Asian development Bank (ADB), a multilateral development partner working in the Asia-Pacific region, has declared that its first priority will be in the energy sector in the coming days. "Our priorities have been changed; we are totally focused on the energy sector in Nepal," Kenichi Yokoyama, country director of ADB Nepal Resident Mission, said at a program organized in the capital last week.
The ADB, which is currently working on identifying viable hydropower projects for investment, has already decided to invest US$ 150 million in Tanahun Hydropower project (140 MW) -- the second reservoir type project in the country after Kulekhani.
Moreover, the Manila-based multilateral lender is also pushing for reforming and restructuring of the Nepal Electricity Authority (NEA) - the state-owned energy monopolist.
“ADB´s country strategy paper (CSP) has put energy sector in the first priority. Development of transmission lines and distribution of power is more important," Yokoyama said in his keynote speech delivered in a seminar on ´Wind Energy Development and Use: Nepalese Perspective´ in Kathmandu last Friday.
Similarly, the World Bank has also hinted that it is interested to invest in the energy sector. The World Bank´s investment in the development of cross-border transmission lines, especially in 400 kV Dhalkewar-Majjafarpur transmission line, speaks volumes about its interest in the energy sector.
The government also has also said that it would allocate substantial amount of budget in development of transmission lines in the country to evacuate power generated by different hydropower projects.
“The government will encourage private sector to invest in the hydropower sector by developing adequate infrastructure to evacuate power generated by their projects,” Finance Minister Koirala said.
Meanwhile, Minister Koirala also said that the government would expedite the process of signing power purchase agreement (PPA) with different hydropower projects.
At present, the government has put around 52 hydropower projects with total installed capacity of more than 4000 MW in its priority basket.
"The government is ready to invest in these projects on its own,” Gokarna Raj Pantha, senior divisional engineer at the Department of Electricity Development (DoED) said. "It can hand over these projects to the private sector, including domestic and foreign investors, if need be."

PDA talks with GMR on two mega projects ongoing

The government is holding project development agreement (PDA) negotiations with GMR, an Indian infrastructure developer, for two large scale hydropower projects, namely 900 MW Upper Karnali and 600 MW Upper Marsyangdi.
Nepal Investment Board (NIB), a high level government entity that facilitates the implementation of large scale infrastructure projects (of 500 MW and above), is engaged in the PDA negotiations with the developer since last week.
"A taskforce comprising members from NIB, British legal consultant firm Herbert Smith, and the developer has been formed to sort out some of the issues that have been raised during the first round of negotiations," a high level source told Republica.
According to the source, the taskforce has been given two weeks to identify a common point that both the government and the developer can agree on. "The taskforce that has been having its meeting in a row has already spent almost a week," the source revealed.
NIB, which was formed almost one and half years ago in a bid to carry out the implementation of large scale projects in fast track mode, has formed a PDA negotiation team with Radhesh Pant, NIB chief executive officer as coordinator. Other members of the team include representatives from the Ministry of Energy (MoE) and Ministry of Finance among others.
"PDA talks are going on," Keshav Dhwaj Adhikari, joint secretary at the MOE, who is also a member of the team, said declining to divulge the details. "We are not allowed to talk to the media."
The government had allowed GMR Upper Karnali Hydropower Company and Himtal Hydropower Company - subsidiaries of GMR - to increase their capital and set up offices in New Delhi in December 2012.
GMR, which has applied for power generation license of Upper Karnali, has not signed the project negotiation agreement (PNA) so far. NIB has been asking GMR to sign the PNA for the last one month. Normally, PDA is signed within 18 months of signing a PNA.
The survey license that the government granted to GMR for Upper Karnali in May 2008 expired in last May. The developer should apply for a power generation license if it wants to secure the project in hand.
Similarly, the two subsidiaries of GMR have increased their authorized and issued capital from Rs 450 million to Rs 1.9 billion for each of the companies.
Additionally, NIB is also working to start PDA talks with Sutlej Jal Vidyut Nigam, another Indian state-owned power developer, for 900 MW Arun III. According to a source close to the developer, Sutlej is arguing that it does not want to sign PDA as it is an Indian government-owned company.

SN Power looking for clients to sell power

SN Power, which is developing Tamakoshi III (650 MW) hydropower project, has started looking for potential clients after the government declined to ensure market for the energy generated by the Dolakha-based project.
“The Norwegian power developer has started negotiation with the Nepal Electricity Authority (NEA) after the Investment Board Nepal (IBN) said that that the government wouldn´t provide sovereign guarantee for the project," a source privy to the development told Republica.
The IBN and SN Power held first round of power development agreement (PDA) negotiation for Tamakoshi III a couple of weeks ago.
Meanwhile, the SN Power is also working on exploring potential clients in India to sell generated by the project as some Norwegian firms are involved in development of transmission lines in India, the source further revealed.
However, the SN Power is pushing to get sovereign guarantee for the project as it would not be able to export energy to India because of the absence of sufficient cross-border transmission lines.
“The issue of power trade agreement (PTA) between Nepal and India becomes crucial here,” a government official involved in the PDA negotiation with the SN Power shared.
The IBN has said that it would also try to find out potential client for the energy that the project will generate.
"But, IBN has made clear that it would not be able to guarantee anything that is related to power purchase agreement (PPA) with the NEA," the official said. "NEA is an autonomous body and IBN can not push for anything."
The NEA has said that it would buy the energy in dry season. "The state-owned power monopoly, however, has denied to purchase power during wet season, arguing that its project would generate sufficient energy during west season,” the source revealed.
According to the source, IBN and SN Power would sit for another round of PDA negotiation after the latter finds buyer for energy generated by the project.
The SN Power has already signed the power negotiation agreement (PNA) with the IBN. The PNA document binds developer to complete PDA negotiation with the authority concerned within 18 months of the signing of PNA.
The SN Power and IBN signed PNA more than a month ago.

FNCCI condemns NEA withdrawal

The Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the apex body for the private sector, has condemned the Nepal Electricity Authority’s (NEA’s) move to bow to critics’ pressure and withdraw from its earlier decision to upgrade the capacity of the Upper Trishuli 3A hydropower project from 60 to 90.
Issuing a statement on Thursday, FNCCI said the government had to assess all aspects of the project before taking any decision.
“It is not appropriate that the government keeps changing its decision under the influence of some people,” reads the FNCCI statement.
FNCCI, which had earlier brought all major political parties together to agree on the common agenda of developing hydropower projects in the country, said government decisions should be made based on the larger interest of the nation.
FNCCI said the government should have acted in a more mature manner regarding the upgrading of the project capacity in the beginning.
“These kinds of activities send a negative message to the global market,” FNCCI said. “We urge the government, and specially the Ministry of Energy (MoE) and Nepal Electricity Authority (NEA), to be confident about its decisions and activities.”
The NEA board had decided to upgrade the capacity of the project on May 31 but then withdrew the decision on Wednesday after protest from the employees’ unions at the NEA.

Trishuli 3 'A' upgrade decision withdrawn

Following widespread criticism, the Nepal Electricity Authority (NEA) board on Wednesday withdrew its earlier decision to upgrade the capacity of Upper Trishuli 3 ´A´ from 60 to 90 megawatts.
However, the NEA board of directors has not acknowledged that the capacity upgrade decision was not in the interest of the country. “The struggle by the employees unions at the NEA disturbed normal life of the people and day-to-day operation of NEA,” reads a press statement issued after the NEA board meeting.
The NEA board had taken a decision to upgrade the capacity of the project on May 31. Following the decision of the NEA board, senior leaders of the major political parties, except UCPN (Maoist), had urged the government to revoke the decision. They had also handed over a memorandum to Chairman of the Interim Election Council Khil Raj Regmi demanding withdrawal of the decision.
Similarly, trade unions at NEA had launched series of protest programs against the capacity upgrade decision.
Earlier, NEA had published a press statement in the favor of the upgrade decision in most of the major dailies. “The decision to upgrade the capacity of the project is in the interest of the country,” reads the statement released on Wednesday. “But we have been forced to withdraw the decision due to protests by trade unions that badly hampered normal life and NEA operations.”
The run-of -the-river type project is being developed by Chinese contractor China Gezhouba Company Group at a cost of US$ 89.18 million through soft loan from Exim Bank of China.
Trade unions and leaders of various political parties had claimed that the decision involved huge corruption. “It is illegal to upgrade the project that is contracted under the EPC (engineering, procurement and construction) model,” said politburo member of the CPN-UML Gokarna Bista. “Now, the Chinese contractor should focus on developing the project on time.”

Govt enforces minimum pay for workers

The government has enforced the newly announced minimum remuneration for workers in the formal sector from Monday.
The Minimum Wage Fixation Committee, which comprises of representatives from trade unions, concerned government offices and employers, had recently fixed minimum monthly remuneration of Rs 8,000, including Rs 2,900 allowance, and daily wage at Rs 318. Before this, workers were drawing minimum salary of Rs 6,200 per month and Rs 231 per day.

Trade unions of employees at NEA cut power supply to ministers' quarters

rade unions of employees at Nepal Electricity Authority (NEA) cut power supply to ministers´ quarters in Pulchowk for two hours on Sunday as part of their protest against the NEA board´s decision to upgrade the capacity of the Upper Trishuli 3 ´A´ hydropower project from 60 to 90 MW.
“We will continue to cut power supply to the ministers´ quarters on Monday and Tuesday as well,” Ram Prasad Rimal, chairman of NEA Employees´ Union, told Republica.
All four trade unions of employees at NEA -- NEA Employees Association, NEA Employees Union, NEA Employees Council and Nepal National Employees Association - are protesting the decision.
The unions on Saturday turned away the NEA management´s proposal for talks. They reached the talk venue on Sunday only to find the coordinator of the board´s talk team absent.
“Our demand is clear. We won´t withdraw protest until the NEA board scraps its decision to upgrade capacity of the project,” added Rimal.
The run-of-the-river project, which is being developed by Chinese contractor China Gezhouba Group Company Limited, is courting controversy after the NEA board decided to upgrade the capacity by violating the existing rules.
Meanwhile, NEA employees staged pen down protest in NEA head office on Sunday.

NECT-HYM loses Kali Gandaki Gorge hydro project

The 164 MW Kali Gandaki Gorge hydroproject has slipped from the hands of NECT-HYM after it failed to get power generation license from the Department of Electricity Development (DoED).
The Department of Electricity Development (DoED) on Sunday wrote a letter to NECT-HYM, notifying it about the cancellation of its application for generation license.
“The company failed to demonstrate strong financial sources to develop the project. It also couldn´t prepare a satisfactory environment impact assessment (EIA) report for the project," Gokarna Raj Pantha, senior divisional engineer and spokesperson at the DoED, told Republica.
The company had also approached the department for project development agreement (PDA).
"But it hadn´t paid application fee for PDA negotiation,” Pantha said. “We can´t issue generation license before the EIA study is completed.”
The government decision to cancel application license for power generation has pushed the Rs 25 billion-project into uncertainty.
"We are hopeful that other genuine developers will come up with strong financial sources to develop the project," Pantha said.
The project based in Mustang and Myagdi districts needs to develop 155-km 220 kV transmission line to connect the power generated by it to the national grid.
"There developer has no proper plan for the transmission line as well," added Pantha.
Hydro Solution, a domestic firm, was supported to provide assistance to develop the project. Gyanendra Lal Pradhan, chairman of the Hydro Solution, said investors from India, USA and Canada are interested to put their money in the project.
As a part of discouraging the trend of holding license of hydropower projects but without intention of developing them, the government raised the survey and generation license fee in November.
“The upward revision in survey and generation lice
nse fee has helped us identify the genuine developers,” said Pantha

ADB shows interest to invest in Sunkoshi II, III hydro projects

After providing soft loan worth US$150 for the development of reservoir-type 140-megawatt Tanahun hydropower project, the Asian Development Bank (ADB) has expressed interest to invest in development of two large hydropower projects, namely, Sunkoshi-II (1,110 MW) and Sunkoshi-III (536 MW).
´A team of the ADB completed field studies of the two projects this week,´ a source at the Department of Electricity Development (DoED) told Republica on Saturday. ´The ADB and the DoED are also holding preliminary-level discussions on development of the projects.´
According to the source, the DoED had shared proposals of the two projects with the ADB few weeks ago. ´Since then, the ADB has conducted field studies,´ the source said.
The source also informed that the investment modality and loan amount for the two projects based in Ramechhap district would be finalized in the near future.
Confirming the development, Gokarna Raj Pantha, senior divisional engineer and spokesperson at the DoED, said the ADB has principally agreed to develop the projects.
´The DoED and the ADB will sit for negotiations in the near future,´ Pantha said. ´The ADB is also interested in investing in the renewable energy sector in the region.´
The government has included Sunkoshi-II and Sunkoshi-III projects in its Hydropower Master Plan. Both the projects are classified as run of the river.
The ADB, which has already expressed commitment to extend a soft loan to develop Tanahun hydropower project, has said it would be interested in increasing its investment in the country"s hydropower sector, according to Pantha.
Meanwhile, the government has started conducting studies of eight other projects. These projects include: Bheri Babai (48 MW) in Surkhet, Budhi Ganga (22 MW) in Accham, Chepe Khola (8.27 MW) in Lamjung, Dotighad (5.78 MW) in Dadheldhura, Ikhuwa Khola (8.1 MW) in Shankhusawa, Kabeli-III (12 MW) in Taplejung, Madi Khola (12.25 MW) in Rolpa and Nalsyaugad (400 MW) in Jajarkot.