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."