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.”