NIB pushes PDA for 4 big hydropower projects

The government is set to take crucial decisions on expediting key infrastructure projects, including finalization of project development agreements (PDAs) for four mega-hydropower projects, laying the groundwork for a chemical fertilizer project, and conducting a feasibility study for a Kathmandu metro railway.
The secretariat of the Nepal Investment Board (NIB) is submitting proposals on these projects during a meeting of its board of directors (BoD) scheduled for next week.
Issues that top the meeting agenda include finalizing PDAs for the 650 MW Tamakoshi III, 900 MW Upper Karnali, 600 MW Upper Marsyangdi and 900 MW Arun III.
NIB, which is under pressure from line ministries to facilitate implementation of the projects, has been working on finalizing the PDAs with the major power developers, namely, Sutlej Jal Vidyut Nigam, GMR and SN Power.
Sutlej is developing Arun III, GMR is engaged in the development of Upper Marsyangdi and Upper Karnali and SN Power, a Norwegian power developer, is developing Tamakoshi.
"The meeting will also discuss and probably take a decision to conduct a feasibility study on a chemical fertilizer production factory in the country, and to take the Kathmandu Metro Railway project forward," a source close to the Office of the Prime Minister and Council of Ministers (OPMCM) told Republica on Wednesday.
"The NIB secretariat is planning to secure authority from the Ministry of Finance to ask for a budget from the K2 fund -- a fund provided by the Japan government to develop the agricultural sector -- for conducting a feasibility study for the chemical fertilizer factory," the source said.
According to the source, the meeting will also give a nod to the secretariat to ask Nepal Metro Private Limited (NMPL) to develop a detailed proposal for a feasibility study on the project.
NMPL, a company that claims to have lined up international financing for a Kathmandu Metro Railway, had offered to develop the project in August 2012.
Additionally, the secretariat is also mulling over giving impetus to a waste management project in Kathmandu Valley. "The scheduled meeting of the BoD will also take a decision to allow the secretariat to take the waste management project forward," the source disclosed.
In December 2012, the BoD, which is chaired by Prime Minister Dr Baburam Bhattarai, had taken more than half a dozen decisions related to hydropower, including allowing Indian power developers GMR and Sutlej to increase their capital and set up offices in New Delhi.
Sutlej, a state-owned hydropower developer, has been in constant communication with the NIB secretariat to finalize the PDA for the project. "However, it has some reservations on the PDA template which is on the verge of finalization," the source informed.
NIB, which was established more than a year ago to expedite the implementation of mega-projects including hydropower (above 500 MW) in a fast-track mode, is developing a PDA template with the help of Herbert Smith, a legal advisor based in London.

Tapping into the net to lure FDI

• The Ministry of Industry (MoI), an entity that works with the private sector to develop the industrial sector, launched a new portal ´Invest Nepal´ couple of months ago
• The Department of Industry (DoI) is improving its website to provide monthly updates on entry of foreign ventures and foreign direct investment (FDI)[brak]
• Nepal Investment Board (NIB), a high-level government body that facilitates fast-track implementation of mega projects, has developed a website to provide necessary information to foreign investors interested in investing in Nepal
These changes indicate that different government institutions are now tapping into the Internet to lure investors and showcase the country’s potentials.
The ´Invest Nepal´ portal, investnepal.gov.np, reads: "Nepal has embarked on an ambitious plan to raise the living standard of its people through intensive socio-economic changes. Industrialization through active participation of the private sector has been given a high priority."

"The ultimate goal of launching ´Invest Nepal´ was to facilitate international investors vying to invest in Nepal," said Bishnu Dhakal, an under secretary at the MoI. Dhakal, who is in the Industrial Promotion Division of the ministry, further elaborated that investors could take decisions based on information available on the website.
The portal that was developed in coordination with the Confederation of Nepalese Industries (CNI) and the United States Agency for International Development (USAID) guides investors through various steps that need to be taken to invest in Nepal.
"The site also contains information on investment prospects in the country," Dhakal said. “And for those looking for project-specific details, we provide such information based on demand.”
These changes came about after the government declared fiscal year 2012/13 as the Investment Year and announced its plan to channel foreign investment of around US$1 billion in the country to develop large-scale infrastructure projects.
To inform international investors about investment opportunities in almost every sector from agriculture and tourism to hydropower and services, the NIB has developed a website that provides information on projects it has undertaken and domestic policies that foreigners have to abide by while investing in Nepal.
Ditching the traditional paper-based work process, the NIB has also made it clear that it would not entertain project proposals submitted in hard copy format. “All proposals should be submitted via e-mail,” said NIB, which is currently overseeing 14 mega projects, including five large-scale hydropower projects, and is identifying 50 other projects of national interest.
"We have designed a comprehensive website to facilitate international investors. Investors can refer to it prior to booking air-tickets to travel to Nepal," said Mukunda Prasad Poudel, joint secretary at the NIB, whose area of work in interacting with potential international investors.
One of benefits of developing the websites is that they are empowering investors with information, thereby reducing their costs. "Investors should not be spending money just to get basic information on Nepal," Poudel said.
In this regard, the DoI is also refurbishing its website. According to a DoI official, the upgraded version of the website will provide monthly updates on flow of FDI in the country. "This will also help investors to make decisions prior to making investment in Nepal," the official said.
Added Poudel: “Website is a valuable tool to promote our country and investment prospects."

'SEZ committee can recommend incentives for industries'

The Special Economic Zone (SEZ) Development Committee can recommend slew of incentives to industries in the SEZs even though it lacks teeth to announce the incentives on its own.
The government has already issued formation order to form the committee. The committee will formally come into being once the order is published in the Gazette.
"The committee will recommend the government to provide facilities such as subsidy on tax, making warehouse available to the industries, and VAT waiver on raw materials consumed by industries inside the SEZs,” reads the final copy of formation order that will be published in the Gazette soon.
As per the order, the committee, which is chaired by secretary at the Ministry of Industry, will also suggest the government to refund VAT paid while buying machineries by export-oriented industries in SEZs. “It will also request the government to waive off customs duty for the import of three vehicles for export-oriented industries,” reads the order.
Though the formation order lacks the teeth to settle labor issues in SEZs, it authorizes the committee to foster friendly relationship between the management and the workers.
Once the order is issued, the committee will provide one-stop services to entrepreneurs willing to open industries in SEZs.
The SEZ Bill has three principles: incentives to industries, one-spot services and labor flexibilities in the zones. The formation order gives the committee legal authority to work on only one principle - provide one-spot services to industries.
“The committee can only recommend the government to provide incentives to industries and facilitate in resolving labor issues,” an official at MoI told Republica.
As per the formation order, the committee will work in coordination with local administration and police to provide security to industries in SEZs. “The committee will have the authority to regulate industries in SEZs,” reds the order.
According to the order, SEZs will have facilities like banking, postal, health, educational and recreation, among others.
“The industries will have to go through a competitive selection process to get space in SEZs,” states the formation order.

Govt signals awarding tunnel road to NPBCL under BOOT

The government has indicated it is to award construction of the multi-billion rupee Kathmandu-Hetauda Tunnel Highway to the Nepal Purbadhar Bikas Company Limited (NPBCL) under the built-own-operate-transfer (BOOT) model.
The Ministry of Physical Planning, Works and Transport Management (MoPPTM)-- the implementing ministry, after a study of the detailed project report (DPR) prepared by NPBCL, is mulling over signing an agreement with NPBCL and giving it the go-ahead to initiate construction of the project.
"An agreement between the government and NPBCL, awarding the project to the latter, is likely to be signed soon," Tulasi Prasad Sitaula, secretary at MoPPWTM, told Republica.
"We are satisfied with the source of funding and cost of the project proposed by the company," he said.
MoPPWTM, which is overseeing the project, had asked NPBCL to demonstrate strong financial sources and commented on the project DPR.
"NPBCL has presented the financial sources from all different sources," Sitaula said.
Additionally, the company also increased the estimated cost of developing the project from Rs 23 billion to Rs 34 billion.
"NPBCL revised the projected cost after we expressed concern over the previous cost estimate," Sitaula said.
The ministry facilitating the development of the 50-km tunnel highway for connecting Kathmandu and Hetauda had made three comments on the DPR. These concerned sources of financing, cost estimate and project operation period.
NPBCL had asked for a 35-year period to operate the project. But the BOOT Act doesn´t allow the developer more than 30 years for project operation.
The company had submitted its report, claiming that it would generate money from sources such as public investment, a consortium of business groups, investment by non-resident Nepalis (NRNs) and share issue to workers and contractors in return for labor.
According to Lal Krishna KC, vice chairman of NPBCL, the company is also working on generating institutional financing from both the public and private sectors.
The company, which is claiming that it would complete the project within four years, has responded to the government´s concerns. "The ministry will, most likely, take a decision this week," Sitaula said.
Meanwhile, a team of government officials led by Sitaula has visited India to study the effectiveness of projects developed under the public-private-people (PPP) model.
"We visited India to see some of the projects and their viability in India as we don´t have experience of developing such projects in this country," Sitaula said.

SEZ formation order lacks teeth

The government is soon coming up with a legal tool to pave way for establishment of long-awaited special economic zones (SEZs), albeit it lacks the teeth to extend facilities demanded by industrialists.
The government recently approved SEZ formation order to start developing special economic zones in the country and bring industrial units inside them.
"The cabinet has taken a decision to this effect. We will soon form a committee to implement the decision," Krishna Gyawali, secretary at the Ministry of Industry (MoI), told Republica.
The government resorted to issuance of formation order after it failed to promulgate SEZ Bill through ordinance. “The formation order, however, can´t provide any facilities such as income tax waiver and special treatment for export oriented and import substituting industries," Gyawali said.
Business community, which was long waiting for introduction of the SEZ Bill, has expressed disappointment over the government decision.
“We have no reason to be happy about. The government´s fresh move has killed the essence of SEZs,” Pashupati Murarka, vice president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said.
The SEZ Bill mainly upholds three principles: incentives to industries, one-spot service and labor flexibility in the zones. These factors are important to give impetus to the country´s export trade.
"The formation order can do only one thing -- provide one-spot service to the industries," Gyawali said.
The SEZ Bill was endorsed by the government in 2009. However, the government failed to get it endorsed by the parliament as some of the trade unions, particularly the one associated with UCPN (Maoist), criticized the bill for not having provisions to protect the rights of laborers.
According to Gyawali, the formation order for SEZ opens up ways for procedural activities of SEZs in the country. "We can install different facilities such as electricity and water and other prerequisites for industrial operation inside the SEZs," Gyawali said. "But it can´t provide any facilities that need amendment to existing laws.”
The issuance of formation order, however, will authorize the MoI to form a committee to work on SEZs. “We will now hire an executive chief through open competition once the government publishes the order in the Gazette," Gyawali said. “SEZs are supposed to be treated as a place where other domestic laws related to labor and industries aren´t applicable. This order, however, lacks teeth.”
The government has been working to develop SEZs in 10 different places in the country, including Bhairawa, Birgunj, Jhapa and Panchkhal.

NIB seeks more authority to finalize PDAs

The Nepal Investment Board, a government agency set up for implementing mega projects including hydropower projects in fast track mode, has sought more authority for dealing with foreign investors, including the concluding of project development agreements (PDA) with major hydropower developers.
"The secretariat of the Nepal Investment Board (NIB) is submitting a proposal at its board of directors seeking mandate to hold negotiations with power developers," a knowledgeable source told Republica.
The NIB that is overseeing five mega hydropower projects such as Tamakoshi III (650 Megawatts), Upper Karnali (900 MW), Upper Marsyangdi (600 MW), Arun III (900 MW) and West Seti (750 MW) has been developing a template of PDA, a basis for negotiations with the international power developers. "The NIB secretariat is looking for more authority so that the negotiations team can make prompt decisions during talks with the developers," the source revealed.
Radesh Pant, chief executive officer of the NIB secretariat, said that the government would have to form a negotiations team that sits with the developers in order to tailor the PDA to the projects in question. "The negotiations team will be adequately representative," Pant said.
Furthermore, Pant informed that the PDA template will be finalized in the nearest future and the secretariat would facilitate in forming a team to negotiate with the power developers. "The team needs to be well-equipped to have a negotiation with the power developers," Pant added.
According to the source, upcoming meeting of the board of directors of the NIB is roughly scheduled after two weeks. "The secretariat has been working to finalize the template and some of the power developers are pushing to finalize the PDA at the earliest," the source said.
The NIB is currently engaged in negotiations with three foreign power developers including Sutlej Jal Vidyut Nigam, GMR Energy and SN Power. The first two are Indian firms while the third is Norwegian. Sutlej is engaged in Arun III, GMR is developing Upper Marsyangdi and Upper Karnali, and SN Power is working on Upper Tamakoshi. "Sutlej is consistently in contact with NIB to finalize the PDA," the source disclosed.
The NIB is developing the PDA template with technical support from Herbert Smith, an international legal advisor based in London. The NIB board of directors chaired by Prime Minister Baburam Bhattarai In May 2012 had decided to hand over hydropower projects of over 500 MW and nine other infrastructure projects including the Kathmandu-Tarai Fast Track and Upgrading and Management of the Tribhuvan International Airport.

Govt secures $300m loan for Tanahun Hydro

The government has secured loan amounting to 67 percent of the total cost of US$ 450 million for the 140-MW Tanahun Hydropower Project from two development partners -- Asian Development Bank (ADB) and Japan International Cooperation Agency (JICA).
After negotiations with both agencies during the last two weeks, the government has secured soft loan totalling US$ 300 million -- US$ 150 million from each development partner -- to develop the second reservoir type of hydropower project in the country after Kulekhani.
"Negotiations with ADB and JICA have completed almost finalizing the loan," Mahesh Prasad Acharya, project chief of the Tanahun Hydropower Project told Republica on Tuesday. "However, we have yet to sign loan agreement with both the partners."
He further added that pacts with loan agreements the partners might be signed within next one and a half months after the process for endorsement is completed from them for the proposed loan.
"We are quite excited with the positive development in securing loan from both ADB and JICA and we are also hopeful that we might be able to generate the remaining amount to cover the project cost from other agencies as well," Acharya added.
The government had held negotiation meeting with JICA on January 24 and with ADB on Monday and Tuesday. ADB has agreed to provide soft loan at an interest of 1.5 percent per annum and the loan repayment period has been fixed a 30 years.
Similarly, JICA has agreed to provide a soft loan at 0.01 percent interest with 40 years of payback period ."The recent developments indicate that we would be able to commence the project without facing any funds crunch," he said.
ADB has already supported to the government in preparing the detailed project report (DPR) of the project that will be implemented by Nepal Electricity Authority (NEA).
Meanwhile, European Investment Bank (EIB) also has expressed interest to provide loan to the government for the development of the project, who is located at Byas Municipality in Tanahun district. "However, negotiation for loan with the EIB has yet to take place," Acharya said.
Officials said the project will start generating power by 2020 if construction is started in 2014. Officials privy to the fresh negotiations process said the ADB and JICA both also have taken Tanahun Hydropower Project as a ´prestige project´. Thierry de Longuemar, vice president for finance and administration of ADB, during his visit to Nepal in November, had laid emphasis on development of hydro electricity in Nepal.